Boeing seeks up to US$12bn in loans to ease liquidity needs

NEW YORK (LPC) - Airplane manufacturer Boeing Co is in talks with banks to obtain up to US$12bn in loans, a move that comes as financial pressures mount on a company reeling from a production halt on its 737 MAX aircraft, sources said.

The facility, which is expected to be at least US$10bn in size, is set up as a delayed-draw term loan that matures in two years, banking sources confirmed.

Citigroup is leading the new transaction, which opens at 100bp over Libor, in line with Boeing's current borrowing costs. The loan pays a 9bp fee before the company draws down on the funds. JP Morgan, Wells Fargo and Bank of America have also signed on as leads, with each of the four committing US$1.5bn, according to one of the sources.

The banks are looking for another 20 lenders to join the banking group with commitments of US$325m to US$500m, the source said. Commitments are due next week.

Boeing declined to comment.

The financing was first reported by CNBC.

GROUNDED

Since two fatal crashes in October 2018 and March of last year involving Boeing’s 737 MAX aircraft, analysts estimated the company has been burning cash at around US$1bn a month, Reuters reported last month. The fleet was grounded globally in March 2019.

The fallout that followed, along with weak sales of Boeing’s 787 Dreamliner aircraft, has sent the company’s shares to a 12-month low of US$309 this week from a high of US$440.62 in March 2019.

“The company has told the banks they are planning to draw down before the planes are back in the air,” the first source said. “They just want to be able to tell the markets ‘we put in place a…loan to bridge into some resolution.’”

Boeing said in a press release Tuesday it is estimating that the ungrounding of the 737 MAX will begin in mid-2020.

"The 737 MAX is putting pressure on the financials," a second source said.

In October, Southwest Airlines Co reported the grounding of the 737 Max had cost the airline US$435m through the end of September.

Boeing in October signed US$9.6bn in revolving credit facilities, including a US$3.2bn 364-day revolving credit agreement, a US$3.2bn five-year revolving credit and a US$3.2bn three-year revolving loan, according to Refinitiv LPC.

Citigroup and JP Morgan were joint lead arrangers and book runners.

At the time the loans were signed, pricing on the 364-day revolver opened at 83.5bp over Libor with a 4bp facility fee for an all-in drawn price of 87.5bp over Libor, based on A2/A ratings.

Pricing for the three- and five-year loans opened at 80.5bp over Libor with a 7bp facility fee for an all-in drawn fee of 87.5bp over Libor, based on the same ratings.

Pricing on the loans increased following a one-notch ratings downgrade in December, with the three-year and five-year revolving loans paying an all-in drawn rate of 100bp over Libor.

The company’s debt-to-equity ratio was 9.6 times at the end of 2019 compared with 2.0 times at the end of 2018, due to the additional debt, according to CreditSights, a debt specialist firm.

Boeing is currently rated A3 by Moody's Investors Service and A- by S&P Global.

Spokespersons for Bank of America, Citigroup, JP Morgan and Wells Fargo declined to comment.

(Reporting by Daniela Guzman and Michelle Sierra. Editing by Kristen Haunss and Aaron Weinman.)

By Daniela Guzman, Michelle Sierra and Aaron Weinman