Credit Markets: Boeing's MAX Woes Hit Supplier -- WSJ
January 03 2020 - 3:02AM
Dow Jones News
By Matt Wirz
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 3, 2020).
Boeing Co.'s decision in December to halt production of its 737
MAX aircraft is starting to trickle down its supply chain.
The stock and bonds of Triumph Group Inc., which supplies
landing gear and gearboxes for the planes, are falling as Moody's
Investors Service warns it may cut its credit rating on the debt to
one of its lowest categories.
Moody's put its triple-C rating of Triumph's unsecured bonds on
review for possible downgrade last week. The company's stock has
since dropped 3.2% to $25.13, and the price of its $500 million
unsecured bond due 2025 has fallen as much as 1%, according to data
from MarketAxess.
Sales to the MAX program account for about 6% to 8% of Triumph's
roughly $2.8 billion of annual revenue. The bulk of the company's
parts manufacturing for the planes is spread out across three to
four plants, a person familiar with the company said. That means
Triumph, based in Berwyn, Pa., likely won't have to close any
single facility even if the MAX production halt drags on, the
person said.
Moody's based its action on Triumph's heavy debt load and
uncertainty around the 737 MAX program, among other operational
factors. A downgrade could come if Boeing fails to resume
production of the MAX before the second half of 2020, Moody's
said.
The danger for owners of unsecured bonds if Triumph were to
default: They would rank below other creditors, including investors
to whom Triumph sold in September a $525 million bond secured by
the company's assets. The company's debt load includes a large
pension liability and was around 8.3 times its earnings before
interest, tax, depreciation and amortization, or Ebitda, in
September, according to Moody's.
Although Triumph's bonds are slipping on the ratings risk, they
still trade at a premium to most comparably rated corporate debt.
The company's bond due 2025 is yielding between roughly 6.1% and
6.7%, according to MarketAxess, which is far lower than the
December average of approximately 10% for triple-C-rated U.S.
corporate bonds, according to data from Bloomberg Barclays indices.
Bond yields fall when prices rise as investors become willing to
accept a lower risk premium for holding the debt.
Moody's cut Boeing to its lowest single-A credit rating on Dec.
18 citing risk posed by the MAX program for the company and its
broader supply chain.
U.S. Treasury bonds rebounded Thursday after early weakness. The
yield of the 10-year bond initially increased to 1.944% as global
stock markets rose, then fell to 1.880%, below the Tuesday close of
1.909%, according to data from Tradeweb.
The WSJ Dollar Index, which measures the U.S. currency against a
basket of 16 others, rose Thursday to 89.81 after falling on the
first day of the year to 89.47. The upward move in the dollar
follows a loosening of Chinese monetary policy that is boosting
global stocks.
Write to Matt Wirz at matthieu.wirz@wsj.com
(END) Dow Jones Newswires
January 03, 2020 02:47 ET (07:47 GMT)
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