News 2024-09-19 90 Comments

Boeing Launches $19B Stock Issuance to Boost Liquidity, Prevent Rating Downgrade

In order to address the liquidity crisis and avoid a downgrade to junk status in credit ratings, Boeing has initiated one of the largest stock sale plans in the history of global listed companies.

Boeing announced on Monday that it would issue 90 million shares of common stock and depositary shares worth approximately $5 billion.

Based on the closing price of $155.01 last Friday, these common shares are valued at nearly $14 billion, and with the depositary shares, the total sale amount will reach $19 billion. According to data compiled by Bloomberg, this will be the largest stock sale since SoftBank's reduction of T-Mobile US shares in 2020, which raised $20.12 billion.

According to Bloomberg's calculations, if there is an over-allotment, Boeing's total fundraising amount for this round could increase to about $21.8 billion. Underwriters have the option to sell an additional 13.5 million common shares and depositary shares worth $750 million.

After the news was announced, Boeing's stock price rose before the market opened in the US, but by the time of writing, it had given up all its gains and fell nearly 2%. Due to frequent safety issues and the inability to end the large-scale strike of workers, the losses so far this year are alarming, and Boeing's stock price has plummeted nearly 40% this year.

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The top priority - solving the liquidity crisis

It is widely believed that solving the liquidity crisis is Boeing's top priority.

The strike has now entered its seventh week, causing the production of Boeing's flagship product, the 737 Max jet, to come to a standstill. Boeing needs to provide funding for the acceleration of its production after the strike ends. The aircraft manufacturing giant estimates that its cash burn will continue in the first half of next year as its aircraft factories, including the assembly line of the 737 Max jet, resume operations.

Boeing also needs to inject funds to maintain its investment-grade rating. The three major international rating agencies - Standard & Poor's, Moody's, and Fitch - have all warned that if Boeing continues to finance new debt while unable to repay the approximately $11 billion debt due on February 1, 2026, its credit rating will be downgraded to junk status.In addition, last week, Boeing factory workers voted to reject the company's latest proposal, which included a 35% wage increase over four years. Chief Executive Officer Kelly Ortberg stated in a memo to employees on October 11th that Boeing plans to lay off about 10% of its workforce.

Boeing anticipates using approximately $4 billion in cash during the fourth quarter, which will bring its full-year free cash outflow to $14 billion.

On October 23rd, Boeing received approval from the U.S. Securities and Exchange Commission (SEC) to sell up to $25 billion in stocks and debt. Boeing also signed a new credit agreement worth $10 billion to "gain more short-term liquidity in a challenging environment."

Ortberg is also considering plans to streamline Boeing's extensive portfolio. He has initiated an assessment of Boeing's operations, which is expected to be completed by the end of the year. Boeing is contemplating the sale of its renowned NASA business, including the Starliner spacecraft and operations supporting the International Space Station.

Regarding the details of this round of issuance, Boeing stated in a declaration that PJT Partners will serve as the financial advisor. Goldman Sachs, Bank of America, Citigroup, and JPMorgan Chase will act as the main joint bookrunners, while Wells Fargo, BNP Paribas, Deutsche Bank, Mizuho, Morgan Stanley, Royal Bank of Canada Capital Markets, and Sumitomo Mitsui Banking Corporation will serve as joint bookrunners.

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