JetBlue Airways Corp. has kicked off a $2.75 billion bond-and-loan sale backed by its loyalty program as the carrier seeks to raise reserves and fund general corporate purposes. Ratings agencies S&P and Moody’s downgraded JetBlue Airways to one notch about triple C levels. This ratings downgrade was after the carrier unveiled plans to raise more than $3B in debt, majority backed by its loyalty program, TrueBlue.
JetBlue intends to raise $1.5 billion through a private offering of senior secured notes and an additional $1.25 billion via a term loan, secured by TrueBlue. It plans to raise $400 million through a convertible notes offering, primarily to refinance existing debt.
JetBlue financial outlook 2024
The agency expects JetBlue’s funds from operations to debt ratio a leverage ratio used to assess financial risk to remain in the low single digits through 2025, with negative net cash flow from business operations.
Moody’s downgraded JetBlue’s corporate family rating to “B3” from “B2”, stating that restoring the company’s operating profit and cash flow to levels that would lead to materially stronger credit metrics would require several years.
It expects the airline to burn $2.2 billion in cash in 2024 and $1.4 billion in 2025.
Airlines strategic move
Leveraging loyalty programs as collateral has become a popular strategy for airlines to boost liquidity, a practice that gained traction during the COVID-19 pandemic.
Delta Air and United Airlines also previously leveraged their loyalty programs to enhance cash reserves during challenging times.
Fitch Ratings affirmed JetBlue’s rating at “B” with a stable outlook, citing “healthy” liquidity and manageable near-term debt maturities.
JetBlue cost control
Fitch Ratings warned that a failure to improve profitability and cash flow in near term could result in negative rating actions.
JetBlue has been trying to control costs, including deferring deliveries of 44 new jets from Airbus (AIR.PA), opens new tab, reducing its planned capital expenditure by about $3 billion between 2025 and 2029.
Its operations have also been impacted by a powder metal issue with Pratt & Whitney’s Geared Turbofan engines, forcing the airline to ground several aircraft.
JetBlue’s stock update
JetBlue’s share price fell by 21% to $4.80 on Monday. This JetBlue share price is its lowest close since Jan 17 when it fell to $4.68 and its largest percentage decrease on record.
