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Ratings agencies S&P and Moody’s downgraded JetBlue Airways after the airline announced plans to raise more than $3 billion in debt, much of it through its loyalty program, TrueBlue.
The New York-based company’s shares plummeted 19%.
JetBlue plans to raise $1.5 billion through a private offering of senior secured notes and an additional $1.25 billion through a term loan secured by TrueBlue.
The company also plans to raise $400 million through a convertible note offering, primarily to refinance existing debt.
S&P downgraded JetBlue’s rating to “B-” from “B” due to concerns about its financial condition.
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JetBlue received downgrades from S&P and Moody’s over its plans to take on an additional $3 billion in debt. (Stan Grossfeld/Boston Globe via Getty Images/Getty Images)
The agency expects JetBlue’s operating cash flow-to-debt ratio — a leverage ratio used to assess financial risk — to remain in the low single digits through 2025, and its net cash flow from operations to be negative.
| Ticker | safety | last | change | change % |
|---|---|---|---|---|
| JBL | JetBlue Airways Inc. | 4.80 | -1.25 |
-20.66% |
Moody’s downgraded JetBlue’s group rating to ‘B3’ from ‘B2’ and said it would take several years for the company to restore its operating profits and cash flow to levels that would significantly strengthen its credit metrics.
The company expects to burn through $2.2 billion in cash in 2024 and $1.4 billion in cash in 2025.
JetBlue joins other airlines in raising baggage fees
In contrast to S&P and Moody’s, Fitch maintained JetBlue’s ratings stable. (iStock/iStock)
Leveraging loyalty programs as collateral has become a common strategy for airlines to boost liquidity, and the technique has become popular during the COVID-19 pandemic.
Delta Air Lines and United Airlines have also used their loyalty programs to boost cash reserves during tough times.
Fitch Ratings affirmed JetBlue’s rating at ‘B’ with a stable outlook, citing its “sound” liquidity and manageable short-term debt maturities.
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A federal judge blocked the proposed merger between JetBlue and Spirit in January. (Joe Cavaretta/Sun Sentinel/Tribune News Service via Getty Images/Getty Images)
But the company warned that its ratings could be downgraded if it fails to improve profitability and cash flows in the near term.
JetBlue has been trying to contain costs, including postponing the delivery of 44 new Airbus jets, and has cut planned capital spending by about $3 billion between 2025 and 2029.
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The airline’s operations have also been affected by a powdered metal problem in its Pratt & Whitney geared turbofan engines, forcing the airline to ground several aircraft.
