Stalwarts like Boeing and Deere bring big IOUs to the downturn.

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Crain’s winnowed the list of 50 companies to eight with total debt, including capital leases, exceeding six times 2019 earnings before interest, taxes, depreciation and amortization. Ratios above that level often raise red flags with creditors, say restructuring professionals.

Boeing, a commercial aircraft manufacturer and major defense contractor, easily topped the list of companies with high leverage profiles. Its $28.5 billion in debt as of Dec. 31 far outstripped anemic 2019 EBITDA of $169 million for a year in which it shut down production of the 737 Max airliner after two fatal crashes revealed flaws in that plane’s flight control system.

CASH STOCKPILE

The planemaker’s hefty $9.5 billion cash stockpile and a move to draw down $13.8 billion from a credit line bolster its finances, but management this month asked for as much as $60 billion in aid for the aerospace industry.

A $2 trillion stimulus package approved by Congress and signed by President Donald Trump on March 27 earmarked $17 billion for companies like Boeing deemed “critical to maintaining national security.” Boeing may also be able to tap a $500 million pool set aside for big companies generally.

Even before the coronavirus pandemic grounded more than half of U.S. airline capacity, Boeing’s management revealed in January that it would burn through cash at a faster rate this year. As a result, Moody’s Investors Service downgraded Boeing’s debt rating to Baa1, three notches above non-investment grade, and forecast Boeing would have negative free cash flow this year of $11 billion.

Airlines’ reduced need for new aircraft in the wake of the coronavirus outbreak will exacerbate the earlier stress.

“Of course, we had the challenge of the Max last year,” Boeing spokesman Chaz Bickers says, noting an increase in borrowing to maintain its workforce and supply chain and to address customer concerns. Boeing would like to see the credit markets remain accessible to bridge to “a very strong long-term growth market,” he says.

United Airlines was also among the 50 Illinois companies with the most debt, carrying $20.5 billion as of the end of last year, but its 2019 EBITDA of $6.7 billion resulted in a ratio just three times earnings. In addition to a $2.8 billion cash cushion, it borrowed $2 billion in March to shore up operations after widespread flight cancellations caused by the virus, but that principal has to be repaid within a year. United also has access to more than $50 billion in federal stimulus money for airlines. Spokesman Frank Benenati declines to comment.

Debt-laden Illinois manufacturers may struggle, too. Lisle-based Navistar’s $4.8 billion in debt is six times its $800 million in earnings last year. Even before the coronavirus outbreak, the truckmaker cut its 2020 revenue forecast and chopped employment 10 percent. It backed away from that forecast altogether on March 23, when it suspended production at its Springfield, Ohio, assembly plant because of supply chain disruptions caused by the pandemic.

Navistar spokeswoman Lyndi McMillan says $1.8 billion of Navistar’s $4.7 billion debt is short-term IOUs for financing equipment sales, backed by receivables or assets. On the other $2.9 billion, no major payments are due before 2025, she says.

Aside from the operational challenges, its ownership is also up in the air. Navistar received a $2.9 billion takeover bid in February from German manufacturer Volkswagen but hasn’t responded. McMillan declines to comment on the bid.

At tractor and heavy machinery maker Deere, where $45 billion in debt was seven times its $6.2 billion in earnings last year, global trade tensions were hurting sales and earnings prospects before the outbreak. This month, Moline-based Deere announced that “certain of the Company’s facilities are reducing operations and, in some cases, are temporarily shutting down operations due to the effects of the coronavirus.”

In a statement, Deere also noted: “The overall leverage (at Deere) is primarily driven by our financial services division and is consistent with leverage ratios of other captive financial companies.”

A retailer that entered the crisis with a weak balance sheet is recreational vehicle company Camping World, saddled with nearly $3 billion in debt as of the end of last year and just $148 million in cash.

STRATEGY REVAMP

Even before the current economic tumult, Camping World was seeking to remake its strategy. Last year, it reversed course on acquiring outdoor gear chains after the 2017 acquisitions of Gander Mountain and Uncle Dan’s didn’t live up to expectations.

“The weaknesses in Camping World’s credit profile, including its exposure to RV sales, has left it vulnerable to shifts in market sentiment in these unprecedented operating conditions,” Moody’s said in a report downgrading Camping World’s debt on March 23. While Moody’s said the company had “adequate” liquidity, its report also called out retailing as one of the sectors “most significantly” affected by the coronavirus “shock.” The company didn’t respond to a request for comment.

Some Chicago-area real estate companies carrying significant debt could also be in for a bruising. Senior housing owner Ventas, with $12.4 billion in debt that was seven times its earnings last year, is in a particularly tough spot, with the deadly virus likely to take a heavy toll on seniors. The company borrowed an additional $2.75 billion this month. “Ventas is in a strong and stable position with a robust balance sheet and financial flexibility. We are BBB+ rated and have significant liquidity approximating $2.8B,” Chief Financial Officer Robert Probst says in a statement. “We also have negligible debt maturities through 2021 and no commercial paper outstanding.”

Chicago rail car leasing company GATX has a high debt-to-earnings ratio after profits flattened last year. A glut of rail cars industrywide and reduced carload volumes amid the U.S. trade war with China cut into lease rates throughout the year. Now the coronavirus interruption of shipments is putting more pressure on global shipping. Still, a GATX spokeswoman says the company has 118,000 rail cars on lease with an average remaining term of three years. “These billions of dollars of multiyear, committed cash flow from a blue chip customer base support a higher level of debt than other companies,” she says.

Restructuring lawyer Rick Chesley of DLA Piper says it’s too early to predict which companies will suffer most from the coronavirus. “Right now we’re in a massive period of uncertainty,” Chesley says. “You’ve got enormous stress in every sector.”

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