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Less than 2 months ago, Boeing Company asked the government for a $60 billion bailout for itself and its suppliers. However it was less likely to get government support owing to the heavy expenditures on stock buyback and the 737 max disaster. The Trump Administration urge the Federal Reserve t take steps to boost the credit market thus helping the company in a huge manner.
The Fed used its resources to purchase corporate bonds to improve liquidity. Ultimately it allowed the company to raise $25 billion from private investors and withdraw its request for a government rescue.
Boeings decision highlights the extend the Feds policies rebuilt confidence in credit market even before spending a single dollar on its corporate debt program. Because of this, the companies have been able to finance themselves privately.
Two Options
Boeing considered two main avenues to raise the billions of dollars of cash they would need to weather the crushing loss due to the corona virus pandemic. The company would turn to the capital markets to start building a cash stockpile, and then either tap financing from the Fed or obtain a loan from the treasury department.
The turning point came when $2 trillion of stimulus was put into place. This calm down the market by enabling the Fed to inject more liquidity into the economy. Governments around the globe have committed about $100 billion to keep airlines afloat thus ensuring that they would be buying for Boeing airplanes after the outbreak abates.
Boeing entered the credit market hoping to raise between $10 – $15 billion by selling bonds with maturities stretching as far out as 40 years. The demand for the offering reach till $70 billion and the size of the deal was final size at $25 billion. The company included a provision that the interest rate paid will increase if the credit ratings are lower to junk.
Constant Contact
Treasury Secretary Steven Mhuchin and his staff has been in constant contact with Boeing officials to find a way through the crisis. Boeing is concerned about shoring up critical suppliers who are under severe financial distress. The bond market signaled its confidence in the long term prospectus of the industry. Although Boeing has a $50 billion war chest, it has to take measures by cutting jobs. Boeing hasn’t closed its door to seek federal aid in the future.
The Fundamental Mindset 