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Sep 11, 2020

Boeing said to pay up to refinance US$3.2B credit line

A Boeing 737 Next Generation (737NG) aircraft, operated by Southwest Airlines Co., flies into San Diego International Airport (SAN) in San Diego, California, U.S., on Monday, April 27, 2020. U.S. airlines reached preliminary deals to access billions of dollars in federal aid, securing a temporary lifeline as the industry waits for customers to start flying again. Photographer: Bing Guan/Bloomberg

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Boeing Co. will have to pay more to refinance a US$3.2 billion loan that matures in October as the 737 Max grounding and COVID-19 pandemic increase the risk of lending to the plane maker, according to people with knowledge of the matter.

The company is refinancing a 364-day revolving credit facility, said the people, who asked not to be identified because the discussions are private. Extending a so-called revolver, a type of loan firms arrange with banks for backup liquidity, is part of the normal course of business. But for Boeing, a series of crises followed by credit-rating downgrades mean it will have to pay higher fees.

Representatives for Boeing and Citigroup Inc., the agent bank on the transaction, declined to comment.

The undrawn fee on the loan is expected to be 25 basis points, the people said. That’s up from 4 basis points on the existing loan, according to a filing. The drawn margin is expected to be 175 basis points over the London interbank offered rate, the people said, up from an 83.5 basis point spread previously.

The upfront fee is expected at 20 basis points. Commitments are due on Sept. 29. The existing loan has remained undrawn, according to Bloomberg data.

Since signing the original loan in October of 2019, Boeing has faced many hurdles. The 737 Max grounding has dragged on longer than anticipated, squeezing the company on both costs and revenue as it couldn’t deliver planes, and the COVID-19 pandemic caused customers to back out of orders as global airplane traffic plummeted.

The increased risks triggered several credit downgrades. Boeing is now rated Baa2 by Moody’s Investors Service, three notches below where it was last October, and BBB- by S&P Global Ratings, four notches lower.

The increased pricing accounts for those downgrades, and also the overall riskier nature of the business. Boeing is also working with U.S. regulators to address yet another production flaw with its marquee 787 Dreamliner, the fourth that has come to light in recent weeks involving the jet’s carbon-composite airframe.

A revolving credit facility with banks is a relatively easy and cheap way of getting liquidity if needed. And Boeing has plenty of cash to ride out the storm so far after raising US$25 billion in the bond markets in April and US$13.8 billion from banks in February. Boeing had about US$20 billion in cash and cash-equivalents as of June 30, according to company filings.

--With assistance from Lara Wieczezynski.