April 30, 2020 12:45 PM, EDT

Boeing Gets $50 Billion of Orders for Bonds Amid Strong Demand

Cars sit parked in an employee parking lot at Boeing's facility in Everett, Wash., on April 20.Cars sit parked in an employee parking lot at Boeing's facility in Everett, Wash., on April 20. (Chona Kasinger/Bloomberg News)

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Boeing Co. has already received $50 billion of orders for its bond offering April 30, as the company comes off of one of its worst quarter on record with the pandemic upending the global aviation industry.

The airplane manufacturer is burning through the most cash it ever has with travel at a standstill. Boeing was already hurting from the grounding of the 737 Max before the COVID-19 outbreak, but now it’s looking to shore up liquidity even further by cutting jobs and production.

Boeing has already fully drawn on a nearly $14 billion term loan, and Thursday’s bond sale could add at least another $10 billion of cash, Reuters reported earlier this week. However, it could be as much as double that amount depending on demand, a person with knowledge of the deal said. CreditSights estimates the company needs $7 billion.

Boeing's bonds have plunged with most cash burn ever.

The extra liquidity provides “solid upside” to Boeing’s stock, Bernstein analysts led by Douglas Harned said in a report April 30. Its bonds, however, have traded lower, with debt maturing in 2050 and 2059 quoted at less than 80 cents on the dollar, according to Trace. Notes due next year are trading close to par.

The debt is being marketed in seven parts, according to people familiar with the matter. The pricing on the longest portion, a 40-year security, was initially discussed at a level of around 5.5 percentage points above Treasuries, the people said, asking not to be identified as the details are private.

Those risk premiums are more in line with junk-rated companies, and will get “the greed juices flowing,” said David Knutson, head of credit research for the Americas at Schroder Investment Management.

“It is almost paradoxical that companies with little to no income or a very hazy outlook would have substantial access to capital markets,” he said. “Despite the worst economic contraction in history, the debt markets are wide open.”

Companies have been taking money wherever they can as rampant demand for U.S. corporate debt has often allowed borrowers to boost the size of their offerings and cut the interest rate. Oracle Corp. was said to initially target $10 billion in its bond sale last month that ended up doubling in size, and T-Mobile U.S. Inc. followed a similar path a few days later.

Boeing is betting its balance sheet strength and access to capital will see it through the current crisis. Chief Financial Officer Greg Smith told investors in reporting earnings Wednesday the company is committed to maintaining investment-grade ratings, but ultimately that’s up to the market to decide.

S&P Global Ratings cut the company to one level above junk with a stable outlook, while Moody’s Investors Service and Fitch Ratings are one step higher with negative outlooks. Boeing included a provision in its bond sale that pledges to increase the interest rate for each downgrade into speculative grade.

Fitch rates the new bonds BBB, though the rater doesn’t expect global aviation markets to return to 2019 levels until 2022, and in some cases 2023, analysts Craig Fraser and Nicholas Varone said in a report Thursday. Boeing should be able to rebuild its credit metrics to levels consistent with the BBB rating within the next two years, they said.

Boeing burned through $4.7 billion of cash in the first quarter, which could quadruple by year-end and continue into 2021 as the pandemic and global recession sap demand for plane sales, Barclays analyst David Strauss said in a note to clients April 30. Strauss estimates the company will need to raise $15 billion from the capital markets and U.S. government to navigate the severe market correction.

While Boeing hasn’t received any federal aid yet, executives indicated on the earnings call April 29 that the company is tapping some of the tax relief available through the CARES Act. It’s also exploring several financial vehicles offered by the Federal Reserve as well as Treasury Department loans, executives said, but declined to discuss specific details.

Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. are managing the sale, the person said.

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