Boeing Enters Into $5.28B Loan Agreement With Banks

Boeing Co BA has entered a new two-year revolving credit facility agreement for $5.28 billion with a group of banks, according to a regulatory filing on Monday.

What Happened: The U.S. planemaker said its latest credit agreement is with Citibank C, JPMorgan Chase & Co JPM,  Bank of America Corp's BAC BofA Securities Inc and Wells Fargo & Co.'s WFC Wells Fargo Securities LLC as joint lead arrangers and book managers and is set to end in March 2023. 

The planemaker will pay a fee between 0.2% and 0.5% per annum on the commitments, depending on its credit rating, according to the agreement.

Revolving credit is a type of loan issued by a financial institution that provides the borrower with the flexibility to draw down or withdraw, repay, and withdraw again. Essentially it's a line of credit, with a variable (fluctuating) interest rate.

Boeing has in the past two years turned to banks for financing after the global grounding of its best-selling jet MAX 737 following two back-to-back crashes where 346 people died. The COVID-19 pandemic has further added to the planemaker’s pain as global travel demand took a direct hit leading to a significant drop in aircraft demand and airlines delayed jet deliveries.

See also: How to Buy Boeing (BA) Stock

Why It Matters: The planemaker relies heavily on jet deliveries for cash generation as it books revenue only after it has delivered the planes to its clients. In 2020, the Chicago-headquartered Boeing delivered about 60% fewer aircraft, its lowest in 43 years to airlines and freight companies, compared with the year ago. It has already burned through $20 billion cash due to the groundings.

Boeing's total debt stands at $63.58 billion, as of February 2021 of which the long-term debt is $61.89 billion and the rest is current. Adjusting for $7.75 billion in cash-equivalents, the company has a net debt of $55.83 billion. 

Current debt is the portion of a company's debt that is due within one year, while long-term debt is the portion due in more than one year. Investors scrutinize the debt-ratio to understand how much financial leverage a company has. Boeing has $152.14 billion in total assets, therefore making the debt-ratio 0.42. As a rule of thumb, a debt-ratio of more than one indicates that a considerable portion of the debt is funded by assets.

Price Action: Boeing shares closed 1.8% lower at $251.23, and were up 0.4% in after-hours trading on Monday.

Update: After the publication of this story, Boeing noted in a statement to Benzinga that it had no immediate plans to tap the credit revolvers.

“We have no current plans to draw on our credit revolvers, as we continue to be confident that we have sufficient liquidity and are not planning to increase our debt levels,” said Chief Financial Officer Greg Smith.