What happened
Shares in aerostructure manufacturer Spirit AeroSystems (SPR 2.14%) soared by 22% in the week to Thursday afternoon. Shareholders in the company received two pieces of positive news in the week.
The second is easily understood because it impacted most of the market on Thursday. Softer-than-expected inflation raised hopes that interest rates wouldn't have to rise as much as the market previously feared -- something likely to encourage investors to be more optimistic about the growth outlook. That's a good thing for an aerospace supplier because it implies increased demand for travel and, ultimately, airplanes, and it also implies it will be easier to raise debt.
The last point leads to the week's first piece of positive news -- namely, the announcement of a debt-refinancing plan involving a private offering of $800 million in senior secured notes due in 2029. The proceeds of the private offering are intended to redeem outstanding notes due in 2023 and to fund a tender offer for its $500 million in 5.5% notes due in 2025.
So what
Debt refinancing matters because it reduces the likelihood of refinancing via an equity sale, which would dilute existing shareholders' claims on earnings and cash flow. It's also good because it helps secure Spirit's debt situation at a time when it's under pressure to invest to ramp production of aerostructures, notably for Boeing on its flagship 737 MAX narrowbody aircraft.
There's no issue with backlog at Boeing and, in turn, Spirit AeroSystems. However, it's been a very challenging year in terms of ongoing supply chain issues and labor shortages.
Now what
It will take time for the aerospace industry to work through the supply chain challenges, but it's a more favorable position than not having any end demand. Moreover, the debt refinancing is a sign that the capital markets have faith in the industry's future, which will help Boeing and Spirit AeroSystems increase production and execute on their backlogs.
