JetBlue Airways is joining this week's crowded capital markets as the struggling airline seeks to garner just over US$3bn to bolster its balance sheet and return the company to profitability following a series of ratings downgrades.
The borrower is selling debt in yet another busy week for junk-rated issuers and taking advantage of what may be a limited issuance window before a string of potentially market-moving data releases this week.
Goldman Sachs is left lead on the upsized US$2bn sale of seven-year non-call three bonds, rated B1/BB by Moody’s and Fitch. Price talk on the offering, which was originally a US$1.5bn deal, is 10% area.
Barclays, meanwhile, is administration agent on a five-year term loan B that was downsized by US$500m to US$750m. The spread on the loan is now 550bp over SOFR, the wide end of earlier talk of 525bp-550bp over.
The bond, which like the loan is backed by JetBlue's customer loyalty program, is the airline's first foray in the US high-yield market, according to IFR data.
Loving loyalty
JetBlue is taking a page from the playbooks of competitors such as Delta Air Lines and American Airlines, which both raised substantial sums through loyalty-backed bonds when travel collapsed during the Covid pandemic.
Proceeds from both deals are for general corporate purposes and are expected to go toward capital expenditure and help bolster liquidity on JetBlue’s balance sheet.
CFO Ursula Hurley said on a July 30 earnings call that the airline is seeking ways to fund capex needs over the next 12 to 18 months and that it had unencumbered assets worth about US$11bn that could potentially back capital market transactions.
“Our most significant unencumbered asset is our customer loyalty program, which is valued at about half of our current unencumbered asset base,” she said.
Overnight, JetBlue also raised US$400m from the sale of a five-year convertible bond, which priced with a 2.5% coupon and 27.5% conversion premium or the investor-friendly ends of the price talk.
Proceeds will help the company repurchase a portion of the US$750m in principal owed on its 0.5% convertible maturing in April 2026. Morgan Stanley, Bank of America, Barclays and Goldman Sachs led the CB sale.
JetBlue’s stock price has sunk about 22% since closing on Friday at US$6.05 as markets reacted to the news of the debt offerings and a series of downgrades yesterday. The stock was trading at US$4.71 late morning on Tuesday.
On Monday S&P downgraded the credit to B- from B, while Moody’s cut its corporate family rating to B3 from B2, putting JetBlue on the cusp of distressed triple C territory. This comes after Fitch in May lowered its rating to B from B+.
Moody’s said that it will take a number of years before JetBlue can restore operating profits and cash flows to levels that will materially strengthen its credit metrics.
In the meantime, pressure on earnings due in part to increased competition, plus this week’s debt offerings, will mean that its debt-to-Ebitda ratio will surpass 15 times this year before dropping to above nine times in 2025, the rating agency said.
Moody’s projects negative free cash flow of US$2.2bn in 2024 and US$1.4bn in 2025 as the company spends to bolster growth over the next two years.
To staunch negative cash flows, the company will extend the lives of its existing planes rather than buy new ones, helping it reduce billions of dollars in capital expenditures, Hurley said in July.