Boeing and Bond Traders Brace for Junk
The struggling aerospace company is preparing a huge debt sale that includes a provision to pay higher yields in the event of downgrades.
Boeing is doing what it can to avoid a credit cut, but “it's going to be what it’s going to be," CFO says.
Photographer: Qilai Shen/BloombergBoth Boeing Co. and bond traders appear to be bracing for a downgrade of the aerospace giant to a junk credit rating.
The planemaker is launching a jumbo bond deal that could ultimately raise as much as $20 billion for the company, depending on demand, a person with knowledge of the matter told Bloomberg News. Just a day earlier, Boeing had pledged to explore “all of the available options” to secure sufficient liquidity to weather an unprecedented slump in travel demand that CEO Dave Calhoun has warned could last for three years. S&P Global Ratings lowered its rating on the company’s debt on Wednesday to BBB-, the lowest tier of investment grade, citing expectations for weaker cash flow and earnings over the next few years as Boeing grapples with not only the coronavirus but also the ongoing grounding of its 737 Max jet and production issues with its KC-46 military tanker.
The bond deal is being marketed in seven parts, with portions due in three, five, seven, 10, 20, 30 and 40 years. Initial price talk suggests Boeing will have to offer yields more than 500 basis points above Treasuries across maturities. Those are much wider spreads than current secondary-market trading would indicate and are more in line with levels last seen during the depths of the market swoon a month ago.