(Bloomberg) — Boeing Co. raised $10 billion Monday in a bond sale that attracted about $77 billion in orders and allowed the aircraft maker to ease some of its financial stress by refinancing part of its enormous debt.
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Outsized demand for the bonds — which Boeing attracted by initially dangling a relatively juicy yield premium to potential investors — ultimately allowed the company to reduce that premium before pricing it.
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 lower the aviation giant’s credit rating to the brink garbage. Shares of Boeing rose 3.6% on Monday.
The company sold bonds in six tranches, with maturities ranging from three to 40 years, according to a person familiar with the matter who was not authorized to speak publicly. The issuance will likely meet the company’s refinancing needs through the first quarter of 2026, according to CreditSights Inc., a research firm.
Strong investor demand helped lower risk premiums across all tranches as the deal launched, the latest sign that U.S. credit markets remain wide open despite growing fears that persistent inflation will hamper the Federal Reserve’s to lower interest rates soon.
Investors have withdrawn cash from investment-grade bond funds for the first time this year and the market is on pace for its worst performance since September on a total return basis.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 on a conference call last week that he intended to protect the company’s rating as an investment and that the company still had access to $10 billion in lines untapped credit.
The company’s risk and commitment to maintaining high quality ratings may be reflected in the price of securities. CreditSights estimated that the deal’s risk premiums are about 32 basis points lower than the average spread level of the safest junk bonds – or BB rate bonds – on a weighted average basis, according to Matt Woodruff, head of aerospace and defense within the research firm.
The 40-year portion yields 2.25 percentage points more than Treasurys, the person familiar with the matter said. Initial discussions anticipated around 2.65 percentage points.
“This pricing reflects strong execution for a borrower that was recently downgraded to one notch above junk rating by Moody’s and with negative outlooks across all three agencies,” Woodruff said in an email.
That said, the warm reception « could say more about strong demand for new issues than about Boeing’s credit prospects, » said Bill Zox, portfolio manager at Brandywine Global Investment Management.
Boeing included in the bonds a provision known as tiered coupons, in which investors receive higher returns if the company is downgraded to junk status. Fund managers consider the company’s reduction to high yield to be a much greater risk than its bankruptcy, which could explain why clients’ bond orders were biased toward securities maturing in 10 years or more, said Andrew Hofer, head of taxable fixed income at Brown. Harriman Brothers & Co.
“A lot of people think Boeing can’t go bankrupt because of its industrial and defense position,” Hofer said. “They are especially worried about the risk of degradation. So they buy long yields that they think they won’t have to worry about.
The fund manager did not participate in Monday’s offering because it believes investors are not being paid enough for the risk they are taking, Hofer said.
Read more: IG ANALYSIS: Boeing deal ~8x sold; $125 billion expected in May
Boeing plans to use the proceeds from the offering for general corporate purposes. West said last week that the company was monitoring its access to liquidity and believed it still had « significant market access » if it needed to supplement its 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 did not respond to a request for comment.
A Boeing spokesperson declined to comment, instead referring to West’s comments during the recent earnings conference call.
Boeing has the tools to defend its investment grade status and the negative outlook from rating agencies gives the company at least 12 months of headroom to show progress in normalizing its operations and moving closer to the production limit of the FAA, wrote Bloomberg Intelligence analyst Matthew Geudtner. note Monday.
–With assistance from Brian Smith, Josyana Joshua, Kate Seaman and Janet Freund.
(Updated with coupon increase details in 12th paragraph, BBH details in 13th and 14th paragraphs)
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