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HG Bonds: Boeing Shops $1.4B, Four-Part Deal Ahead of Two Maturities

Boeing Co. (NYSE: BA) is in market with a $1.4 billion, four-part public offering across five-year notes due 2023, a 10-year issue due 2028, a 20-year tranche due 2038, and 30-year notes due 2048, all with a March 1 maturity date, sources said. The “no-grow” issue is guided to an A/A2/A profile.

Goldman Sachs is a bookrunner across all the tranches. Additionally, Citigroup and J.P. Morgan are marketing the 2023 issue, Barclays and BAML are bookrunners for the 2028 notes, SMBC and Wells Fargo are bookrunners for the 2038 tranche, and Deutsche Bank and Mizuho are marketing the long bonds.

The deal will carry make-whole call provisions and par calls from one and three months prior to maturity for the five- and 10-year notes, and from six months prior to maturity for the 20- and 30-year notes.

According to regulatory filings, the proceeds from the offering will be used for general corporate purposes. Of note, Boeing has two long-term maturities due this year, starting with $350 million of 0.95% notes due on May 15, followed by $250 million of 2.9% notes due Aug. 15, which was issued by subsidiary Boeing Capital Corp., according to S&P Global Market Intelligence.

Initial whispers for today’s proposed offering surfaced at T+55–60 for the 2023 notes, at T+75–80 for the 2028 issue, in the T+85 area for the 2038 notes, and at T+100–105 for the long bonds, indicating reoffer yields near 3.20%, 3.64%, 4%, and 4.15%, based on the tight end of talk.

The Chicago-based company last tapped the market a year ago, when it placed a $900 million, three-part offering, evenly split across 2.125% five-year notes due March 2022 at T+42, or 2.38%; 2.8% 10-year notes due March 2027 at T+60, or 3.07%; and 3.65% 30-year notes due March 2047 at T+85, or 3.91%. For reference, the 2022 issue traded yesterday at T+18 (or at a G-spread equivalent of 30 bps), the 2027 notes changed hands last month at T+49 (at a G-spread of 51 bps), and the 2047 notes traded late last month at T+75 (or at a G-spread of 77 bps), according to MarketAxess.

Since December, Boeing and Brazilian aircraft manufacturer Embraer S.A. have been in discussions about a possible transaction involving a possible merger. According to S&P Global Ratings neither company has specified what form such a deal may take, though it could be a joint venture, a full acquisition of Embraer, or some other deal structure. The government of Brazil maintains a “golden share” in Embraer, which it could use to put pressure on or block the deal.

S&P Global Ratings said Boeing’s ratings will likely not be affected by a possible transaction between the two companies. “We believe that Boeing has flexibility at the current rating to undertake a large multi-billion dollar transaction because the company’s funds from operations (FFO)-to-debt ratio is currently well above our downgrade trigger of 40% (Boeing’s FFO-to-debt ratio was 62% for the 12 months ended Sept. 30, 2017),” the agency, which maintains an A rating and stable outlook, said on Dec. 22, 2017.

“The company currently has about $10 billion in cash and short-term investments and we expect it to generate at least $10 billion of free cash flow over the next 12 months. However, our current forecast assumes that management will use all of the company’s free cash flow and some of its cash on hand for dividends and share repurchases,” analysts added.

Last April, Fitch affirmed its A rating and stable outlook on Boeing. “Large acquisitions, although not anticipated, also could affect the ratings, as could debt-funded share repurchases. Sustained consolidated FFO-adjusted leverage approaching 2.0x could lead to a negative action,” Fitch said at the time. — Gayatri Iyer

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US High Yield Bond Funds See $2.7B Retail Cash Withdrawal


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U.S. high-yield funds recorded an outflow of roughly $2.7 billion for the week ended Feb. 7, according to weekly reporters to Lipper only. This follows last week’s exit of about $1.7 billion and marks the fourth consecutive week of outflows, for a total of $8.7 billion over that span.

This week’s exit was fairly evenly split with a $1.4 billion outflow from mutual funds, while $1.3 billion exited ETFs.

The year-to-date total outflow from high-yield funds is now at about $5.9 billion.

The four-week trailing average declined to negative $2.2 billion for the period, from negative $825 million last week, and the change due to market conditions this past week was a decrease of $1.7 billion.

Total assets at the end of the observation period were $202.2 billion, indicating the lowest point since November 2016. ETFs account for about 23.5% of the total, at $47.6 billion. — James Passeri

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Amid Yesterday’s Market Rout, JW Aluminum Scraps $300M High Yield Deal

JW Aluminum has postponed its $300 million offering of eight-year secured notes, citing “adverse market conditions.” The decision comes amid the brutal equity sell-off, with the DJIA losing 7.9% yesterday and opening another 2% in the red this morning, before rebounding sharply.

As reported, the company roadshowed the deal all of last week via bookrunners Goldman Sachs (B&D), and Deutsche Bank. Whispers for the debt were in the 8% area, sources said.

According to sources, proceeds were earmarked to refurbish and expand the company’s capabilities at its manufacturing operations. Funds raised would also have been used to repay a $151.4 million secured term loan, as part of a refinancing effort that was expected to include an amendment to the company’s existing asset-based revolving credit facility to extend the maturity of that facility to 2023.

The borrower was also expected to fund the transaction with $35 million of shareholder equity.

S&P Global Ratings assigned a B– rating to the borrower’s proposed bond offering, with a 3 recovery rating. S&P Global analysts “expect adjusted debt to EBITDA of about 6x and adjusted EBITDA margins of about 10% over the next 12 months,” the Jan. 25 report notes.

The borrower is a wholly owned subsidiary of Goose Creek, S.C.–based JW Aluminum Holding Corp., which manufactures specialty flat-rolled aluminum products. — Luke Millar/Jakema Lewis

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S&P: As Oil & Gas Rebounds, US Distress Ratio Sinks to Lowest Level Since 2014

The U.S. distress ratio has dropped to its lowest level since September 2014, tightening to 6.5% in January, from 7.4%, amid strengthening commodity prices, according to S&P Global Fixed Income Research.

distress ratio“The oil and gas sector continued to improve throughout 2017 as hydrocarbon prices recovered and stabilized,” noted Diane Vazza, head of the S&P Global Fixed Income Research group, in a Feb. 1 report titled “Distressed Debt Monitor: Strengthening Commodities Sectors Compress The Distress Ratio To Its Lowest Level Since 2014.”

“Accordingly, since their highs in February 2016, the distress ratios for the oil and gas and metals, mining and steel sectors have steadily decreased,” Vazza said.

Moreover, the oil and gas sector accounted for the highest month-over-month decrease in the number of distressed credits, moving to 15, from 23. As such, the oil and gas sector’s distress ratio decreased to 7.9% as of Jan. 15, from 88.5% as of Feb. 16, 2016.

The outlook for the oil and gas sector in 2018 is generally stable, reflecting a continued flattening of oil and natural gas pricing, but performance will depend heavily on potential OPEC production cuts and price volatility, S&P Global says.

The distress ratio for the metals, mining and steel sector decreased to 5.6%, from 82.3% over the same roughly two-year period referenced above.

Distressed credits are speculative-grade (rated BB+ and lower) issues with option-adjusted composite spreads of more than 1,000 basis points relative to U.S. Treasuries. The distress ratio (defined as the number of distressed credits divided by the total number of speculative-grade issues) indicates the level of risk the market has priced into bonds.

As of Jan. 15, the retail and restaurants sector had the highest distress ratio at 17%, followed by the telecommunications sector at 15.9%. — Rachelle Kakouris

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