JetBlue’s $2.75 Billion Debt Offering
JetBlue Airways Corporation (NASDAQ:JBLU) has initiated a $2.75 billion bond-and-loan sale, leveraging its loyalty program to secure the funds. This move aims to bolster reserves and support general corporate purposes. However, the airline’s credit rating has been downgraded by both Moody’s and S&P Global Ratings to levels near triple C, affecting its ability to attract investment from collateralized loan obligations that have limits on high-risk junk debt.
Shares of JetBlue fell as much as 19% on Monday following the announcement of the debt sale. The company plans to offer at least $400 million in five-year convertible notes with a coupon rate of 2% to 2.5% to repurchase some of its convertibles maturing in 2026. JetBlue also intends to issue $1.5 billion in seven-year bonds, callable in three years, and a $1.25 billion five-year term loan. Pricing for these securities is expected to be finalized on Tuesday.
Debt Structure and Market Reactions
The term loan is anticipated to be priced at a margin of up to 550 basis points above the Secured Overnight Financing Rate (SOFR), with an initial discount of 98 cents on the dollar. Bloomberg reported that Barclays Plc and Goldman Sachs Group Inc. are leading the respective loan and bond deals.
JetBlue’s loyalty program, valued at approximately $5.5 billion, is a significant asset being used as collateral in this transaction. This strategy is similar to those employed by other major airlines like Delta Air Lines Inc. (NYSE:DAL) and United Airlines Holdings Inc. (NASDAQ:UAL), which also used their loyalty programs as security during the COVID-19 pandemic.
Moody’s downgraded JetBlue to B3, citing a lengthy recovery period needed to improve operating profit and cash flow to stronger credit metrics. S&P Global Ratings also downgraded JetBlue to B-, noting that the debt plan and weakened financial forecasts significantly impair credit metrics.
In response to high costs and reduced growth prospects, JetBlue recently announced a strategic overhaul under new CEO Joanna Geraghty. The airline will exit 15 cities, defer $3 billion in aircraft deliveries until 2030 or later, and refocus on leisure markets in New York, New England, Florida, and Puerto Rico. The carrier has also reduced its route network by more than 50 routes to cut unprofitable operations.
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Author Faith Yakubu 
