Boeing (BA) is advancing plans to raise approximately $15 billion through a combination of common stock and mandatory convertible bonds. The move comes as the aerospace giant grapples with financial strain worsened by a recent labor strike and ongoing operational challenges. Sources familiar with the matter informed Reuters that while $15 billion is the target, it may not be enough to resolve Boeing’s multiple crises.
Potential Securitization and Additional Financing Plans
In addition to its capital-raising efforts, Boeing is exploring a structured finance transaction that could generate up to $5 billion. This transaction would resemble a securitization of a subsidiary’s revenue, according to sources, though the company has yet to comment publicly on this plan.
A Troubled Year for Boeing
Boeing’s financial difficulties are compounded by increased regulatory scrutiny and production issues. Earlier this year, a door panel malfunction on a 737 MAX led to a loss of customer confidence. Boeing’s stock has declined more than 40% this year, though it saw a slight 1% increase on Wednesday.
The company has also been burning through cash, prompting it to secure a $10 billion credit agreement from major lenders including Bank of America (BAC), Citibank (C), Goldman Sachs (GS), and JPMorgan (JPM).
Timing and Market Concerns
While the company is preparing to raise new capital, the exact timing remains unclear. Boeing is reportedly trying to avoid raising funds while the strike, which analysts say is costing millions per day, is ongoing. Some sources suggest the company may act after its Oct. 23 earnings report, once the financial impact of the strike is clearer.
Convertible Bonds: A Shareholder-Friendly Approach
One proposed method of raising funds involves the issuance of mandatory convertible bonds. These hybrid bonds convert into equity on or before a predetermined date and are considered equity by rating agencies, making them less damaging to Boeing’s debt profile. This structure is seen as more favorable for shareholders, as the conversion would happen at a premium, limiting dilution in the short term.
Rating Agencies and the Pressure to Raise Capital
Boeing is under pressure to protect its investment-grade credit rating. S&P, Moody’s, and Fitch have all warned that Boeing’s rating could be downgraded to junk if it raises new debt without addressing its $11 billion in debt maturing by February 2026.
Investor Sentiment
Despite the company’s financial struggles, investors are reacting positively to Boeing’s fundraising plans, with shares rallying slightly. Some analysts believe Boeing may have reached its lowest point, and the capital raise could offer a path to recovery. A three-year convertible bond offering, with an attractive coupon rate of 7%-8%, is expected to draw strong demand from investors.
Boeing’s efforts to raise $15 billion in equity and convertible bonds highlight the immense pressure the company faces to stabilize its finances. While challenges remain, including an ongoing strike and customer concerns, the planned fundraising could help the aerospace giant avoid a credit rating downgrade and strengthen its balance sheet in the long term.