S&P and Moody's downgrade JetBlue amid $3 billion debt raise

(Reuters) -Ratings agencies S&P and Moody's downgraded JetBlue Airways after the New York-based carrier unveiled plans to raise more than $3 billion in debt, majority backed by its loyalty program, TrueBlue.

Shares of the company plummeted 16% in morning trade.

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.

Additionally, JetBlue plans to raise $400 million through a convertible notes offering, primarily to refinance existing debt.

S&P downgraded JetBlue's ratings from 'B' to 'B-', citing concerns about the airline's financial health.

The agency expects JetBlue's funds from operations to debt ratio - a leverage ratio that is 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 (CFR) to 'B3' from 'B2', stating that restoring JetBlue's operating profit and cash flow to levels that would lead to materially stronger credit metrics will require several years.

It expects the airline to burn $2.2 billion in cash in 2024 and $1.4 billion in 2025.

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.

Major carriers like Delta Air and United Airlines previously leveraged their loyalty programs to enhance cash reserves during challenging times.

JetBlue has been trying to control costs, including deferring deliveries of 44 new jets from Airbus, reducing its planned capital expenditure by about $3 billion between 2025 and 2029.

The airline's operations have also been impacted by a powder metal issue with Pratt & Whitney's Geared Turbofan (GTF) engines, forcing JetBlue to ground several aircraft.