Spirit AeroSystems’ $1.4 billion debt plan may avert stock sale

Spirit AeroSystems Holdings on Monday Nov. 21 jumped more than 16% — the biggest one-day gain in two years — as investors cheered the company’s debt refinancing package. The debt plan is seen as a way to avoid a stock sale that could dilute the ownership of existing shareholders.

The supplier of parts to aircraft makers such as Boeing (BA) and Airbus (OTCPK:EADSF) initiated a $1.4 billion package consisting of high-yield bonds and loans to refinance its existing debt.

A Spirit subsidiary is selling $800 million of senior secured notes maturing in 2029 that are backed by the business unit and Spirit AeroSystems North Carolina, along with other collateral. Net proceeds from the sale will be used to fund a tender offer for its $500 million 5.500% senior secured notes due 2025, the company announced.

Spirit (SPR) also initiated a $594 million term loan for refinancing.

The planned debt package can help to give Spirit (SPR) more time to increase cash flow “while avoiding a equity raise that was feared by some investors,” according to a research note from analysts at Cowen, cited by Bloomberg News.

Spirit (SPR) has an opportunity to boost cash flow as customers such as Boeing (BA) increase their output of commercial aircraft. Boeing (BA) had slashed production after two fatal crashes of the 737 MAX jet and engineering flaws with the 787. The pandemic also disrupted demand for new planes and led to supply-chain bottlenecks.

Rating Raised at Wolfe Research
Spirit (SPR) on Monday also was upgraded to a Peer Perform investment rating from Underperform by analysts at Wolfe Research. They said most of the “bad news” is priced into the shares, while the “good news” includes hints of higher airplane output at Boeing (BA). The debt offering also is positive.

“The pronouncement of a straight debt refi for upcoming maturities simplifies the equity story,” Myles Walton, analyst at Wolfe, said in a Nov. 7 report. The researcher also raised its EPS estimates for Spirit for the next few years.

Wolfe Research estimates for Spirit AeroSystems (SPR), Nov. 7 Adjusted diluted earnings/loss per share New Old 2022E -$1.65 -$2.21 2023E $0.69 $0.42 2024E $1.97 $2.09

Spirit (SPR) this year has declined 39%, compared with a 14% slide for the Standard & Poor’s 400 midcap index (SP400).

Seeking Alpha contributor Stephen Simpson has a Buy rating on Spirit AeroSystems (SPR) on its valuation.