Lenders were reportedly eager to put money into Boeing’s big bond offering — Bloomberg reported that $50 billion had been offered up before Boeing late Thursday signed on for half that.
So how did the investment world greet the crisis-ridden company’s $25 billion in new debt?
Vertical Research Partners analyst Rob Stallard captioned sections of his report “the good,” “the bad” and “the ugly.” He noted that the offering — “the sixth largest investment-grade bond offering in history” — means Boeing doesn’t have to worry about access to cash for the foreseeable future.
That’s the good. The company declared that it would not need to take any loans from the federal government, which could have come with complications like an equity stake for the Treasury.
But the “monster” debt raise is a double-edged sword, Stallard wrote: “Boeing’s mountain of debt could prove to be a structural impediment to progress.”
The bad, he said, is that “this debt raise has not come cheap.” Assuming an interest rate of around 5%, it could add about $1.2 billion to Boeing’s interest expense annually.
The ugly? “Boeing is now arguably owned by the banks, with ~$54bn of gross debt,” Stallard wrote. “Paying down this debt to a reasonable level will take years, and so it will be some time before Boeing is in a position to again return any cash to shareholders.” He later added: “We certainly won’t see a repeat of the $50bn of buybacks and dividends that Boeing lavished on investors over the last five years.”
What’s more, he wrote, “Companies that are in de-leverage mode generally do a poor job of investing for the future, and so this does not bode well for Boeing’s long-term product positioning. And for a major aerospace OEM/defense prime contractor to have this level of indebtedness goes against years of history — Boeing’s balance sheet weakness could impact customer and supplier confidence.”
At least some stock investors were also unswayed by the huge financing. On Friday, as the S&P 500 index fell 2.8%, Boeing shares dropped almost twice as far — 5.4%.
Stallard stuck with his earlier outlook, grading the stock a ‘hold.’