Boeing Company (BA)

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Boeing's stock reverses lower after announcing a $19 billion capital raise
By: MarketWatch | October 28, 2024

The capital raise, which was more than expected, included a $14 billion public offering of common shares. Bondholders cheered the news.

Shares of Boeing Co. briefly bounced, then reversed back lower in early Monday trading, after the troubled aerospace giant announced a larger-than-expected $19 billion capital raise, through public offerings of common stock and depositary shares.

Included in the offerings are 90 million shares of common stock, which based on Friday's closing price of $155.01 would be valued at $13.95 billion.

The company is also offering $5 billion of depositary shares, each representing one-twentieth of a share in newly issued convertible preferred stock.

The stock (BA) initially bounced to be up as much as 1% after the capital raise was announced, then reversed back into the red, to slump 1.7% in recent premarket trading.

Before the announcement, Bloomberg reported Boeing was set to launch a capital raise of more than $15 billion as soon as Monday.

The company filed a shelf registration to issue up to $25 billion of securities earlier this month and was widely expected to tap capital markets sooner, rather than later.

The capital raise comes as Boeing has warned of larger-than-expected quarterly losses and layoffs as a labor strike has entered its second month, and concerns that a high debt load could lead to a downgrade of the company's credit rating to "junk" status.

All three ratings agencies currently have the credit at the lowest rung of investment grade, although executives have said they are committed to retaining investment-grade status. The company has more than $57 billion of outstanding debt. A cut to junk would raise interest costs and also cut the company off from a larger pool of investors, who are only permitted to own investment-grade paper.

On Friday, the Wall Street Journal reported that Boeing was considering selling its space business as another way to deal with its operational issues and to raise money.

Read: Boeing's CEO wants to make it 'great again.' Here's what's standing in the way.

The strike by its machinists has come at an inopportune time for Boeing, which is struggling to turn itself around after a series of production missteps. The company became the focus of multiple federal investigations after a door panel blew off a 737 MAX plane during an Alaska Airlines flight in January.

Last week, the company posted a $6 billion loss for the third quarter and said it had burned through another $2 billion of cash.

"It will take time to return Boeing to its former legacy, but with the right focus and culture, we can be an iconic company and aerospace leader once again," newly installed Chief Executive Kelly Ortberg said in prepared remarks.

Read more: Boeing reveals $6 billion quarterly loss ahead of key vote by striking machinists

It was Ortberg's first quarterly earnings report since taking the helm in August. The executive is the former head of Boeing's supplier Rockwell Collins, and oversaw that company's integration with the former United Technologies and RTX (RTX) until he retired in 2021.

Striking workers rejected the company's latest offer the day it reported earnings, extending the strike into a sixth week, as the Associated Press reported.

The offer rejected included pay raises of 35% over four years. The version that union members rejected when they voted to strike last month featured a 25% increase over four years.

The union, which initially demanded 40% pay boosts over three years, said the annual raises in the revised offer would total 39.8%, when compounded. Boeing has said that average annual pay for machinists is currently $75,608.

Boeing workers told Associated Press reporters that a sticking point was the company's refusal to restore a traditional pension plan that was frozen a decade ago.

Boeing said Monday it will also offer the underwriters of the offerings options to buy an additional 13.5 million common shares and $750 million of depositary shares to cover over-allotments. That could bring in an additional $2.84 billion for Boeing.

Boeing said it plans to use the proceeds from the offerings for general corporate purposes, which could include repayment of debt, working capital, capital expenditures and funding of its subsidiaries.

Bondholders appeared to welcome the news, and the inclusion in the use of proceeds of plans to repay debt. Spreads on the company's outstanding bonds were tighter by a few basis points, as the following charts from data solutions provider BondCliQ Inc. show. The green line highlights the spread movement on Monday.

There was net buying of the bonds early in the session.

The stock has tumbled 40.5% year to date through Friday while the S&P 500 index has gained 21.8%.

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