A Boeing sign outside of company offices near Los Angeles International Airport, in El Segundo, Calif., on Jan. 18.PATRICK T. FALLON/Getty Images
Boeing BA-N on Monday launched a stock offering that could raise up to US$22-billion as the plane maker looks to strengthen its finances squeezed by an over month-long strike by its workers and preserve its investment-grade credit rating.
The move will boost Boeing’s battered finances, which have worsened since roughly 33,000 of its workers represented by the machinists union walked off their jobs in September, halting production of models including its cash-cow 737 Max aircraft.
The company is offering 90 million in common stock and US$5-billion in mandatory convertible securities.
“The offering is certainly favourable for credit quality. We’ll factor it into our assessment of the rating in the context of continued negative free cash flow,” said Ben Tsocanos, aerospace director at S&P Global Ratings.
Boeing has never fallen below the investment-grade rating.
One investor said both the offerings were heavily oversubscribed and could end up pricing at a very small discount to the last closing price of $155. Shares were down 0.6 per cent in afternoon trading.
If the primary offering is oversubscribed, the company has an option to issue 13.5 million shares more and can increase the mandatory convertible offering by another US$750-million, according to a termsheet seen by Reuters.
Based on Friday’s closing price, Boeing can raise US$13.95-billion from the common stock offering and an additional US$2.1-billion if the issue is oversubscribed, though such issues are typically priced at a discount to ensure enough demand. It can also raise up to US$5.75-billion from the mandatory convertible offering, the term sheet said.
The offerings are expected to be priced after markets close on Monday.
The mandatory convertible securities are being marketed to investors with a dividend range of 6.0 per cent to 6.5 per cent, and a premium of 17.5 per cent to 22.5 per cent to the stock’s latest closing price of US$155.01, for when they convert into shares at or before the maturity date of Oct. 15, 2027. A capital raise is essential for Boeing to preserve its investment-grade credit rating. Rating agencies have warned that a prolonged strike may lead to a downgrade in the plane maker’s credit rating, likely pushing up the cost of capital.
The plane maker was already reeling under a regulator-imposed cap on production of its Max jets after a January mid-air panel blowout.
The combination of labour woes and its production problems have caused it to burn cash in the last three quarters. Last week, the company reported a US$6-billion third-quarter loss and said it would burn cash next year. The same day, striking workers rebuffed an improved contract as it fell short of their demands of a 40-per-cent wage hike and restoration of a defined-benefit pension plan, which Boeing is unlikely to reinstate.
The strike is costing the company more than US$1-billion per month, according to one estimate that was released before Boeing announced it would cut 10 per cent of its work force. Earlier this month, Boeing entered into a US$10-billion credit agreement with banks and announced plans to raise up to US$25-billion through stock and debt offerings.
S&P warned earlier this month of a ratings downgrade if Boeing’s cash balance fell below a US$10-billion target or if the company had to increase leverage to meet debt maturities.
Boeing had cash and marketable securities of US$10.50-billion as of Sept. 30.
It has US$11.5-billion of debt maturing through Feb. 1, 2026, and is committed to issuing US$4.7-billion of its shares to acquire Spirit AeroSystems and assume its debt. Reuters had reported earlier this month Boeing was examining options to raise billions of dollars through a sale of stock and equity-like securities.
Boeing said on Monday it intends to use proceeds for general corporate purposes, which may include paying off debt.