(Bloomberg) — Boeing Co. raised $10 billion from a bond sale on Monday that attracted about $77 billion of orders and allowed the planemaker to ease some of its financial strains by refinancing part of its massive debt load.
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The outsized demand for the bonds — which Boeing attracted by initially dangling a relatively juicy yield premium to prospective investors — allowed the company to ultimately shrink that premium before it priced.
The deal came just days after the company posted a first-quarter loss and said it burned through $3.9 billion, prompting Moody’s Ratings to cut the aviation giant’s credit grade to the edge of junk. Boeing shares rose as much as 3.6% on Monday.
The company sold bonds in six portions, with maturities ranging from three to 40 years, according to a person with knowledge of the matter who was not authorized to speak publicly. The issuance will likely take care of the company’s refinancing needs until the first quarter of 2026, according to CreditSights Inc., a research firm.
The strong investor demand helped the risk premiums on all tranches to shrink when the deal launched, the latest sign that US credit markets remain wide open despite growing fears that persistent inflation will prevent the Federal Reserve from lowering interest rates soon.
Investors have yanked cash from high-grade bond funds for the first time this year and the market is on pace for its worst performance since September on a total return basis.
Boeing Chief Financial Officer Brian West said last week during a conference call that he intends to protect the company’s investment-grade rating and that the company still has access to $10 billion of untapped credit lines.
The risk, and the company’s commitment to keeping high-grade ratings, may be reflected in pricing on the securities. CreditSights estimated the risk premiums on the deal are about 32 basis points below the average spread level of safest junk bonds — or bonds rates BB — on a weighted average basis, according to Matt Woodruff, head of aerospace and defense at the research firm.
The 40-year portion yields 2.25 percentage points more than Treasuries, said the person familiar with the offering. Initial discussions called for around 2.65 percentage points.
“This pricing reflects solid execution for a borrower that just recently got downgraded to one step above junk by Moody’s and with negative outlooks at all three agencies,” Woodruff said in an email.
That said, the warm reception “may say more about strong demand for new issuance than the prospects for Boeing credit,” said Bill Zox, a portfolio manager at Brandywine Global Investment Management.
Boeing included a provision in the bonds known as step-up coupons, in which investors get paid higher yields if the company is downgraded to junk. Money managers see the company’s getting cut to high-yield as a much bigger risk than going bust, which may be why customer orders for bonds were skewed toward securities maturing in 10 years or more, said Andrew Hofer, head of taxable fixed income at Brown Brothers Harriman & Co.
“A lot of people think Boeing can’t go bust due to its industry and defense position,” Hofer said. “Mostly they worry about downgrade risk. So they are buying long yield they believe they won’t have to worry about.”
The money manager didn’t participate in Monday offering because it believes investors aren’t getting paid enough for the risk they are taking, Hofer said.
Read more: IG ANALYSIS: Boeing’s Deal ~8x Sold; $125bn Expected in May
Boeing plans to use the proceeds from the offering for general corporate purposes. West said last week that the company is monitoring its access to cash and believes it still has “significant market access” if it needs to supplement liquidity.
Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. managed the bond deal. Citi, BofA and Wells Fargo declined to comment while JPMorgan didn’t respond to a request for comment.
A spokesperson for Boeing declined to comment, instead referring to comments from West in the recent earnings call.
Boeing has the tools to defend its investment-grade status and the negative outlooks from the ratings providers give the company at least 12 months of runway to show progress in normalizing operations and moving toward the FAA production limit, Bloomberg Intelligence analyst Matthew Geudtner wrote in a note Monday.
–With assistance from Brian Smith, Josyana Joshua, Kate Seaman and Janet Freund.
(Updates with coupon step-up details in 12th paragraph, BBH details in 13th and 14th paragraphs)
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