Boeing launches funding round to stave off credit downgrade

updated Beleaguered Boeing is hoping millions of new shares and billions of dollars in convertible securities can stave off a credit downgrade as it leaks cash during an ongoing strike.

The aerospace biz today announced plans to sell 90 million new shares and $5 billion in depositary shares that will mature into common stock in 2027. Based on stock prices at last week's close, 90 million new shares could net Boeing around $14 billion, meaning the company could stand to make around $19 billion if everything goes well - and it desperately needs that cash right now. 

According to Boeing's financial results for Q3 ended 30 September, the corporation lost $6.1 billion as its troubles continue to mount following a door plug blowout earlier this year that appears to have been the last straw for many investors and employees.

Those troubles have been exacerbated most recently by a 30,000-employee strike among members of the International Association of Machinists and Aerospace Workers that began last month - on earnings day of all days - and is ongoing after workers rejected the latest contract offer. 

Fitch Ratings, one of the top three bond credit agencies, alongside Moody's and Standard & Poor's, said on the first day of the strike that Boeing's "investment-grade credit rating has limited headroom for a strike" which would put the company at risk of a downgrade if it carried on for more than a couple of weeks.

"If the current strike lasts a week or two, it is unlikely to pressure the rating," Fitch said. "However, an extended strike could have a meaningful operational and financial impact, increasing the risk of a downgrade."

Here we are, smack dab in the middle of extended strike territory. 

"Our ratings case forecasts do not assume an operationally disruptive labor action but do account for union-linked labor cost increases under new contracts," Fitch added.

Boeing has blamed the strike for its dismal quarter – so yeah, it's definitely disrupting operations at this point. 

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Moody's has placed Boeing on review for a possible downgrade to junk status, and S&P has placed Boeing on a watch list as well, both firms said earlier this month. S&P reportedly said it would downgrade Boeing if the company's cash balance slipped below $10 billion, and that red line is close: Boeing said in its Q3 statement that it had $10.5 billion cash on  hand, down $2.1 billion from the previous quarter. 

Boeing is also carrying debt of around $58 billion which may grow once it completes the reacquisition of supplier Spirit. Fitch has said Boeing needs to get its gross debt below $50B by the end of 2026 for it to reconsider downgrading the company. 

To stave off that downgrade, all three firms reckon Boeing needs to raise cash, and that's just what the company is doing with this latest move. Boeing said it intends to use funds raised, in part, to repay its debts.

Whether the matter will appease shareholders and credit agencies in unclear, however, Boeing shares have tipped downward slightly in pre-market trading since the funding round was announced. ®

Updated to add at 1515 UTC on October 28 2024

In a press release today, Fitch said Boeing's new equity offer alleviates its risk of being downgraded - for now, at least.

"Fitch continues to evaluate the company's ability to resolve its labor negotiations, regain operational momentum, and adhere to our negative rating sensitivity," the credit agency said.