By Shankar Ramakrishnan, Allison Lampert, Echo Wang and Mike Stone
NEW YORK (Reuters) – Boeing is exploring options to raise billions of dollars through the sale of shares and stock-like 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 pitches from investment banks including Goldman Sachs, JPMorgan, Bank of America and Citigroup proposing various fundraising options, according to four sources familiar with the matter.
According to the sources, these options include the sale of common shares as well as securities such as mandatory convertible bonds and preference shares. One of the sources said they had proposed to Boeing to raise about $10 billion.
Such hybrid bonds could be treated as equity by rating agencies, meaning their issuance would not increase debt to the same extent as bond sales, while also potentially being more beneficial to existing shareholders.
Banks have also set up so-called shadow books, gauging investor interest in such securities in case Boeing decides to proceed, the sources said. Some investors have contacted banks to tell them they were interested in purchasing Boeing’s preferred securities if they were issued, two sources said.
Boeing and the investment banks declined to comment. The sources, who requested anonymity because these discussions are private, said Boeing had not yet decided whether to move forward with any of these options. It was not clear when a decision would be made.
Last month, Boeing CFO Brian West told a Morgan Stanley conference that the company was “continually evaluating our capital structure and liquidity levels to ensure we can service our debt maturities over the next 18 months while maintaining confidence in our could maintain investment grade creditworthiness. “
Maintaining an investment grade rating is crucial for the aircraft maker, which has never fallen below that threshold. Ratings can not only determine the cost of capital for a company, but also give the company access to stable money from institutional investors.
Boeing’s finances have been under pressure since a Jan. 5 incident in which a mid-air door panel blew off a 737 MAX jet model, leading to a decline in production of the plane. Last month, workers went on strike, putting further pressure on production and causing cash flow problems.
The company has a debt load of about $60 billion and posted operating cash flow losses of more than $7 billion in the first half of 2024.
Analysts estimate that Boeing would need to raise somewhere 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 believed a share increase was commensurately insufficient. The company has $11.5 billion in debt maturing on February 1, 2026, and is committed to issuing $4.7 billion in stock to acquire Spirit AeroSystems and assume its debt.
Moody’s, which is reviewing Boeing’s Baa3 rating for a downgrade to junk, declined to provide additional details.
Creditsights analyst Matt Woodruff estimated that the company will need to raise between $12 billion and $15 billion to prevent Moody’s from turning its ratings into junk, especially if the strike lasts all month.
However, it is not clear whether any of the fundraising options, which involve raising money through instruments other than common stock, would satisfy credit agencies.
S&P Global Ratings space chief Ben Tsocanos told Reuters that issuing common stock would be better from a credit perspective.
“We view preferred stock with a payment requirement as more debt-like and less supportive of the rating,” he said.
S&P said Tuesday it has downgraded Boeing’s rating on CreditWatch because the plane maker is likely to need additional 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)
