Less than 2 months ago, Boeing asked the government of Washington for $60 Billion bailout for itself and its suppliers. They had spent heavily on stock buybacks and were still suffering from 737 Max disaster (2 plane crashes), so the government refused their request.
After this refusal, the company urged Federal Reserve to help them. Also at that time, the market was quite illiquid. So, Federal Reserve accepted their urge and purchased limitless corporate bonds to infuse liquidity in the market. So much liquidity in the market allowed Boeing to raise $25 Billion from private investors and withdraw its request of $60 Billion from government.
Let’s understand this from the start.
Boeing was hunting for its rescue finance. At that time, Nikki Haley, President Donald Trump’s former ambassador resigned from the company’s board in protest. The company faced lots of criticism, but they were undeterred. Boeing considered two main avenues to raise funds. One was to raise funds from Federal Reserve and second was to take loan from Treasury department through CARES Act (The CARES Act provides fast and direct economic assistance for American workers, families, and small businesses, and preserve jobs for American industries).
At this time of struggle, there came a turning point. Congress and Trump’s administration set more than $2 trillion of stimulus in place. This amount of funding calmed the market and helped Fed introduce liquidity in the system through several lending facilities supported by Treasury. Also, government all across the globe were committed about $100 Billion keeping airlines afloat, providing assurance that there will be buyers for Boeing airplanes when the outbreak abates. A further rally in credit markets since then convinced the company and its bankers that they could move quickly after the release of quarterly earnings on April 29.
At that time Boeing was hoping to raise $10 Billion to $15 Billion with maturities of 40 years. Demand for the offering was so high, that it peaked at over $70 billion. After looking at such high demand, the company realized that they did not need to look further for funds from government and set the final size of the deal at $25 billion, turning it into the largest U.S. corporate bond sale of the year and the sixth largest on record.
For the first time, the company included provisions that it will increase the interest rate paid if the credit ratings lowered to the level of junk bonds. Boeing is currently rated BBB- by S&P Global Ratings which is the lowest investment-grade ranking.
This is how Federal Reserve saved Boeing and the company no longer needed government rescue. But the executives and Treasury Secretary Steven Mnuchin were deeply worried about the long-term damage to the company and airlines when the markets started to seize up in mid-March. Mnuchin and his staff have been in almost constant contact over the past month with one of the Boeing officials Mr.Smith, as they collectively sought to find a way through the crisis.
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