By Shankar Ramakrishnan, Allison Lampert, Echo Wang and Mike Stone
NEW YORK (Reuters) – Boeing is examining options to raise billions of dollars by selling shares and similar securities, two sources familiar with the matter said, as the planemaker tries to avoid falling into junk territory on its credit ratings.
In recent weeks, Boeing has received offers from investment banks, including Goldman Sachs, JPMorgan, Bank of America and Citigroup, suggesting several fundraising options, according to four sources familiar with the matter.
These options include the sale of common stock, as well as securities such as mandatory convertible bonds and preferred stock, according to the sources. One of the sources said they suggested Boeing should raise about $10 billion.
Rating agencies may treat these hybrid bonds as equity, meaning that issuing them would not increase debt to the same extent as selling bonds, while potentially being more favorable to existing shareholders.
Banks have also been creating so-called shadow books, testing investor interest in such securities in case Boeing decided to move forward, the sources said. Some investors have approached banks to say they were interested in buying Boeing’s preferred securities if they were issued, two of the sources said.
Boeing and the investment banks declined to comment. The sources, who requested anonymity because these conversations are private, said Boeing had not decided whether to move forward with any of these options. It was unclear when he might make a decision.
Last month, Boeing Chief Financial Officer Brian West said at a Morgan Stanley conference that the company was “constantly evaluating our capital structure and liquidity levels to ensure that we could meet our debt maturities over the next 18 months as We remained confident in our investment grade credit rating. “
Maintaining an investment grade rating is crucial for the aircraft maker, which has never fallen below that threshold. Ratings can not only determine a company’s cost of capital, but also give it access to stable money from institutional investors.
Boeing’s finances have been under pressure since a Jan. 5 incident in which a door panel exploded in midair on a 737 MAX model plane caused a drop in production of the plane. Then last month, its workers went on strike, further affecting production and leaving it burning through cash.
The company has about $60 billion in debt and posted operating cash flow losses of more than $7 billion for the first half of 2024.
Analysts estimate that Boeing would need to raise between $10 billion and $15 billion to maintain its ratings, which are now just one notch above junk.
Late last month, Moody’s said the company had future commitments of $16 billion and that a downgrade was possible if it deemed any capital increase inadequate in relation to that. The company has $11.5 billion of debt due Feb. 1, 2026, and has committed to issuing $4.7 billion of its shares to acquire Spirit AeroSystems and assume its debt.
Moody’s, which has Boeing’s Baa3 rating under review for downgrade to junk, declined to provide additional details.
Creditsights analyst Matt Woodruff estimated the company needs to raise between $12 billion and $15 billion to prevent Moody’s from cutting its ratings to junk, especially if the strike extends through this month.
However, it is unclear whether any of the fundraising options that involve raising cash through instruments other than common stock would satisfy credit agencies.
S&P Global Ratings head of aerospace Ben Tsocanos told Reuters that issuing common stock would be better from a credit standpoint.
“We would view preferred stock that had a required payment as more debt-like and less rating supportive,” he said.
S&P said Tuesday it placed Boeing’s CreditWatch rating negative, saying the planemaker will likely need incremental financing.
(Reporting by Allison Lampert in Montreal, Shankar Ramakrishnan and Echo Wang in New York and Mike Stone in Washington; Editing by Paritosh Bansal and Matthew Lewis)