JetBlue Airways is an American low-cost airline known for its affordable fares and high-quality customer service. ( JBLU 1.52% ) This week, a plan was made for the debt market, resulting in over $3 billion being raised from three separate transactions.
The funds collected will be valuable for paying off upcoming debts and serving as a safety net in case of an economic decline. However, it will also impact the airline’s financial position. This has caused worry among investors, leading to a 22% decrease in JetBlue’s stock value by Thursday afternoon, as reported by data. S&P Global Market Intelligence is a provider of financial and industry data, research, news, and analytics. .
Accumulating money in a situation with unpredictable circumstances
JetBlue is facing challenges due to some tough obstacles. aviation sector Consumer demand is decreasing, leading to price reductions, and smaller airlines such as JetBlue are being affected more than bigger competitors.
Earlier this week, JetBlue announced that its subsidiary, JetBlue Loyalty LP, successfully sold senior secured notes worth $2 billion that will mature in 2031 with an interest rate of 9.875%. In addition, they also secured a senior secured term loan of $765 million due in 2029. Furthermore, JetBlue priced $400 million in convertible notes with a maturity of five years and an interest rate of 2.5%.
JetBlue plans to use the funds obtained to repurchase some of its current senior convertible notes maturing in 2026 and for general business needs. The money raised is expected to cover all of JetBlue’s projected capital spending until 2025 and serve as a precaution in case conditions deteriorate further.
Although the extra money is beneficial, investors were concerned about the increase in interest costs associated with it. According to analysts at TD Cowen, the rise in debt levels and repayments is projected to result in a decrease of $0.10 per share in earnings for 2024, and over $0.30 per share for 2025 and 2026. This could diminish the prospects of JetBlue being profitable for a significant portion of that period.
Additionally, two credit rating agencies took action. After the announcement of the deals, Standard & Poor’s and Moody’s lowered JetBlue’s debt ratings to B- and B3, respectively.
Should I invest in JetBlue?
The worries regarding leverage are valid, and JetBlue seems to have acquired a significant amount of debt to meet its short-term financial requirements. However, it should be noted that the airline sector is well-known for being… cyclical JetBlue was not ready for a prolonged decrease in demand if it were to occur in the upcoming quarters.
Given that certain prepayment choices are included in the terms, if JetBlue surpasses expectations and generates more cash in the future, the decision to offer these options seems sensible.
Despite facing challenges in a tough industry, JetBlue continues to struggle. Even if it manages to navigate these difficulties, there is currently no strong incentive to invest in the company.
