Boeing To Drawdown Full $13.8 Billion Revolver, Hinting At Bank Lending Freeze

For that generation of traders out there who were following the market back in 2007/2008, instead of their high school or college GPA, they will recall that one of the key inflection points in the global financial crisis 12 years ago was when banks started pulling revolvers to preserve liquidity.

Moments ago Boeing suggested that a similar moment is coming again: according to Bloomberg, the struggling aerospace giant which just a few weeks ago obtained an upsized revolver from various Wall Street sources to shore up its liquidity in the aftermath of the 737 MAX crisis, was planning to draw down the full amount of a $13.825 billion loan as early as Friday.

Why is Boeing taking this unprecedented step: after all, the cash is already committed and is far safer if held on bank balance sheets instead of Boeing's? According to Bloomberg, the full drawdown takes place as Boeing grapples with worldwide travel disruptions from the coronavirus, and "plans to draw the rest of the loan as a precaution due to market turmoil." That however doesn't explain why Boeing needs the cash on its balance sheet instead of its lender banks'. The answer - especially for those who recall what happened in 2008 all too well - is simple: Boeing is worried that banks will pull their committed funding, which in turn means that Boeing is either now worried that a 2008-style financial crisis is imminent, or that the company's own prospects are about to implode, forcing banks to breach their delayed draw credit facility document terms

As Bloomberg reminds us "Boeing obtained the loan from a group of banks last month to help it deal with cash burn while it prepares to return its 737 Max plane to the skies. It initially tapped about $7.5 billion of the debt, and is now expected to draw the rest." Ironically, while banks scrambled to lend to Boeing, they will now be ruing the day they expanded the revolver facility, because while Boeing may be worried about banks pulling funding, the banks will be just as worried about Boeing's soaring default probability as the company's CDS have exploded in recent days.

Another reason why the banks may soon kiss the $14BN goodbye: the loan was made the Covid-19 coronavirus became a global crisis. As such, in addition to its 737 Max woes, the company now faces lost revenue amid falling demand for planes as passengers cancel flights and airlines pull back orders on new jets.

Unfortuantely for the banks, they can't just turn around and withdraw their commitment. Or rather they can, it would be a scandal, but they can certainly do it. And that's precisely what Boeing is seeking to anticipate by transfering the cash from bank balance sheets to its own, even as it will be charged the full revolver usage fee (which thanks to the Fed is negligible).

In other words, now that Boeing - one of America's most valuable companies - has shown which way the wind blows, expect thousands of less creditworthy companies to follow suit as they scramble to cash in on every dollar in available revolver funding before the banks pull it.