BA Boeing Co

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)

Copyright (c) 2020 Dow Jones & Company, Inc.