JetBlue Airways saw its shares plummet by as much as 19% on Monday following significant downgrades from major credit rating agencies. Moody’s Ratings lowered the airline’s rating deeper into junk territory to B3, citing a lengthy recovery period needed to restore operating profit and cash flow to healthier levels. Shortly after, S&P Global Ratings downgraded JetBlue to B-, highlighting concerns that the company’s debt restructuring plan and weakened forecast significantly impair its credit metrics.
Spirit Airlines nosedived 20% again after a judge torpedoed their JetBlue merger. The blocked deal triggered a 60% plunge in Spirit shares, sparking industry concerns about fares, routes, and potential job cuts. Both airlines face an uncertain future with increased competition.… pic.twitter.com/WKByBFFgtC
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In response to these downgrades, JetBlue announced plans to sell at least $400 million in five-year convertible notes, aiming to repurchase some of its debt due in 2026. The notes are being offered with a coupon rate of 2% to 2.5%, according to sources familiar with the details.
Additionally, JetBlue is preparing to sell $1.5 billion in seven-year bonds, which will be callable in three years, and a $1.25 billion five-year term loan. Investor calls for these deals were scheduled for Monday morning, with pricing expected on Tuesday. Bloomberg reported that Barclays Plc and Goldman Sachs Group Inc. are leading the respective loan and bond transactions.
JetBlue, headquartered in Long Island City, New York, has approximately $11 billion in unencumbered assets available for new financing, as noted by Chief Financial Officer Ursula Hurley during a July earnings call. The airline’s loyalty program alone represents about half of this asset base. Using loyalty programs as collateral has become a common practice among airlines, with Delta Air Lines and United Airlines having employed similar strategies during the COVID-19 pandemic.
JetBlue to raise over $3 billion through debt offerings, shares fall – Reuters https://t.co/5BlKuaN0jl
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The airline recently announced plans to withdraw from 15 cities and delay the delivery of $3 billion worth of new aircraft until 2030 and beyond. These measures are part of new CEO Joanna Geraghty’s strategy to overhaul the company in response to high costs and reduced growth prospects following the dissolution of two key partnerships. JetBlue is shifting its focus to leisure travelers in New York, New England, Florida, and Puerto Rico, regions where it has historically performed well. The airline has also cut over 50 routes to eliminate unprofitable flights.
Key Points:
i. JetBlue’s shares dropped up to 19% on Monday after Moody’s and S&P Global Ratings downgraded the airline’s credit ratings.
ii. Moody’s downgraded JetBlue to B3, citing a lengthy recovery period needed for financial improvement, while S&P cut its rating to B- due to weakened credit metrics.
iii. JetBlue plans to raise at least $400 million through five-year convertible notes and is also seeking $1.5 billion in seven-year bonds and $1.25 billion in a five-year term loan.
iv. The airline has about $11 billion in unencumbered assets, including a valuable loyalty program, which may be used for new financing.
v. JetBlue is pulling out of 15 cities, delaying aircraft deliveries, and focusing more on leisure travelers in historically strong markets.
Conner T – Reprinted with permission of Whatfinger News
