Boeing to Set Loan At $13 Billion After Lenders Step Up

(Bloomberg) -- Boeing Co. set the size for its new loan at $13 billion after saying last week that it had received enough commitments for a $12 billion facility, according to people familiar with the matter.

The cash provides the U.S. planemaker with financial flexibility as the fallout of the 737 Max crisis takes a toll on the company’s finances and once-solid credit rating.

Boeing originally sought a $10 billion loan led by Citigroup Inc. that grew in size as more banks asked to join the deal. The company received $14 billion of commitments as of last week. The cash will help Boeing work through the grounding of the Max and production freeze. Boeing now faces a cash burn in the billions as it deals with lost revenue and supporting both suppliers and airline customers during the disruption.

Citi declined to comment. Boeing did not immediately respond to a request for comment.

The Max crisis has hit Boeing’s credit ratings, which are now split between the lowest and second-lowest tiers of investment grade. Boeing’s debt costs will increase if one more ratings company downgrades it fully into the triple-B space.

Read more: Boeing’s woes mount with credit rating axe to riskier BBB debt

Moody’s Investors Service downgraded the company last week to Baa1, its second cut in the span of a month. It said it may lower its grade again given Boeing’s higher-than-expected cash burn and decision to maintain its dividend. S&P Global Ratings is considering downgrading the company’s A- rating, but said in a note last week that the new financing is a “net positive.” Fitch Ratings also grades Boeing at A-, and has a negative outlook on the debt.

The two-year loan is structured as a delayed-draw term loan, allowing Boeing the flexibility to wait to use the money until needed. Boeing could later pay down the loan with cash flow once the Max returns to the air. Or the company could potentially take out the debt with longer-term notes, though that would add more pressure to its credit ratings. Investment-grade loans can typically be repaid early without penalty, unlike bonds.

Big Exposure

Eighteen banks provided the $13 billion loan, according to a document seen by Bloomberg. The deal is expected to close Thursday, as previously reported. All of the lenders in the new loan were already part of the group of 35 banks that provided $9.6 billion of revolving credit facilities to Boeing last year.

Citi and JPMorgan Chase & Co. now have the largest total exposure to Boeing at $1.905 billion each. Both had already provided $655 million of commitments in the revolver, which typically remain undrawn for investment-grade companies, and added another $1.25 billion each in the new loan, which could be drawn fully depending on Boeing’s needs.

The next largest are Bank of America Corp. and Wells Fargo & Co. which have each committed $1.75 billion in total.

BankNew Loan (Millions)Revolver (Millions)Total (Millions)
JP Morgan Chase Bank1,2506551,905
Bank of America1,2505001,750
Wells Fargo Bank1,2505001,750
BNP Paribas8753501,225
Deutsche Bank Securities8755001,375
Mizuho Bank8755001,375
Royal Bank of Canada8753501,225
Sumitomo Mitsui Banking Corp8755001,375
Commerzbank AG500350850
Credit Agricole Corp500250750
Morgan Stanley500250750
MUFG Bank500350850
Banco Bilbao Vizcaya Argentaria325350675
Banco Santander325300625
DBS Bank325200525
Goldman Sachs Bank325250575
Societe Generale325350675

If Boeing never uses the loan, it must still pay a 9 basis point ticking fee. That would add up to about $12 million each year. And Boeing must pay an upfront fee of 5 basis points upon the close of the deal, which will cost about $6.5 million.

If Boeing draws the full $13 billion of the new loan immediately, that would cost roughly $349 million per year based on a margin of 100 basis points over the London interbank offered rate, according to Bloomberg calculations.

If S&P or Fitch also downgrade Boeing, that would knock the company into the lower Baa1/BBB- pricing tier. The margin would increase to 112.5 basis points over Libor, and the ticking fee would increase to 12.5 basis points.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.