Just days after revealing its $12 billion annual loss, US planemaker Boeing is preparing to issue bonds worth almost $10 billion. However, the bonds are not simply capital to keep it afloat; rather, they will be used to pay down a debt it took out last February.
Boeing’s $10 billion bond offering
To say the last 12 months have been difficult economically would be something of an understatement. While just about every business and industry have been hard hit by the consequences of the pandemic, aerospace has been one of the worst affected. As such, airlines and other related companies have been borrowing money hand over fist in order to simply stay afloat.
Even the world’s biggest planemakers are not immune to the downturn. On the back of a $12 billion annual loss, Boeing is looking to raise more capital through the issuance of bonds worth almost $10 billion. However, the manufacturer says that this is not capital to tide it over; rather, it will be used to pay down existing debt that is maturing soon.
Disclosing the new financing yesterday, Chief Financial Officer Greg Smith told MarketWatch,
“Today’s successful bond offering is another prudent step for us as we carefully manage liquidity through the global pandemic, prepare for a market recovery and transform our business for the future.
“The solid demand for this bond offering reflects the continued confidence the market has in our long-term future.”
Although yet to be finalized, the SEC filing indicates that Boeing is selling bonds with a maturity date of between two and five years. The cash will be used to pay down a $13.8 billion loan taken out in February last year.
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Is Boeing in financial trouble?
In normal times, a big bond sale like this is a red flag to investors that all is not well with the company. However, these are not normal times, and in reality, Boeing is making quite a shrewd move with its bond issuance.
The current economic environment means that borrowing rates are at historically low levels. This week, even tech giant Apple made a large bond offering, locking in borrowing costs at the low level. With benchmark Treasury yields expected to rise this year, there is no doubt that now is a great time to sell.
However, Boeing is not seen by investment companies as a particularly attractive prospect. According to Barrons, S&P Global rates Boeing’s credit at just one level above junk, while Moody’s puts it two tiers above. As such, Boeing’s bond offering will likely see investors driving a hard bargain.
Boeing is not giving itself all that long to refinance the debt with a two to five year maturity period. The planemaker could have looked at as long as 10 years or more, but it would have made the offering less attractive to investors at the present time. Crucially, this issuance is simply to pay down existing debt, as the planemaker stated:
“Boeing plans to use all proceeds from the transaction to pay down existing debt, ensuring the company’s overall debt balance remains stable.”
With the MAX back in the skies and hope of the vaccine starting to reopen the world, the cheap, shortish term borrowing is a positive move and signals Boeing’s optimism for the future.