Market Extra: Boeing lands $25 billion debt deal

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Boeing Co. has a lot of fans in the debt markets.

The embattled plane marker was able to pull off a large $25 billion corporate bond financing on Thursday at significantly lower costs than bankers initially anticipated, indicating strong demand from bond buyers for the company’s debt.

Boeing’s BA, +1.45% seven-tranche bond deal cleared some 75 basis points inside of initial price talk, or the level bankers use to gauge early investor interest in bonds, according to a person with direct knowledge of the transaction.

The biggest $5.5 billion slug of 30-year bonds due May 2050, priced at a spread of 450 basis points over Treasurys. Initially the bonds were pitched in the area of 525 basis points over the risk-free benchmark.

U.S. investment-grade corporate bond spreads have tumbled nearly 175 basis points since the worst of last month’s pandemic-induced selloff that slammed stocks, bonds and other key parts of financial markets, according to data from BofA Global Research.

The Federal Reserve’s push into buying corporate credit for the first time in history has been a key catalyst for the rally, particularly since their raft of emergency credit facilities could provide a combined $750 billion of support to the corporate debt markets, per BofA.

Read: How the Fed’s historic leap into buying corporate debt is working even before the purchases formally start

Boeing’s bulky financing comes a day after it reported an “ugly quarter” for corporate earnings, but which also revealed the company knows how to hoard cash in a crisis.

See: Boeing stock rallies as Wall Street focuses on plane maker’s cash flow

It posted a net loss of $641 million, or $1.11 a share, in the quarter, contrasting with net profit of $2.15 billion, or $3.75 a share, in the year-ago period. The aircraft maker reported an adjusted loss of $1.70 a share. Revenue fell 26% to $16.91 billion.

It also reported a nearly 48% plunge in its commercial airplane business in the first quarter, which would only partly reflect the damage being inflicted on air travel, as the coronavirus deepened its reach in the U.S. and spurred nationwide lockdowns.

Boeing also said it plans to resume production of its grounded 737 Max program at a low rate this year and gradually increase it to 31 planes a month in 2021, which compares to the Jefferies estimate of ramp to production of 27 of the aircraft a month.

“COVID-19 is clearly taking a substantial toll on Boeing’s operations and financial profile, as its first-quarter cash burn of $4.7 billion was the largest quarterly cash burn since the 737 Max was grounded and came in between our based (-4.0 bn) and bear case (-5.3 bn) estimates for 1Q20,” wrote Credit Sights analyst Ashwin Tiruvasu, in a client note Thursday.

Boeing ended the quarter with $15.5 billion of cash and cash equivalents on its balance sheet, but with $5.2 billion of short-term debt coming due and “continued steep cash burn ahead,” Ashwin expects Boeing to keep all its funding options on the table, including potentially tapping the CARES Act for funding.

“We note that its planned 10% workforce layoffs will keep Boeing eligible for availing the CARES stimulus package.”

Boeing did not immediately respond to a request for comment.

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