Why JetBlue’s stock lost altitude this week

JetBlue Airways (JBLU 1.52%) charted a course for the debt market this week, raising more than $3 billion through a series of three deals.

The money raised will be useful for refinancing some debts due in the coming years and as a cushion against a potential recession. But it also changes the airline’s leverage profile. Investors are worried, sending JetBlue shares down 22% for the week Thursday afternoon, according to data from S&P Global Market Intelligence.

Cash storage in an uncertain environment

JetBlue is navigating some difficult headwinds. The airline industry is facing a slump in consumer demand, which is eating into prices, and smaller carriers like JetBlue are feeling it more than their larger rivals.

This week, JetBlue said a subsidiary, JetBlue Loyalty LP, sold $2 billion in senior secured notes due 2031 (paying interest at 9.875%) and a $765 million senior secured term loan due 2029. notes annual convertible paying 2.5%.

JetBlue will use the proceeds in part to repurchase a portion of its existing senior convertible notes due 2026 and for general corporate purposes. The capital raised should be enough to pay for all of JetBlue’s planned capital expenditures through 2025 and provide a buffer in case conditions worsen from here.

The added cash is a plus, but investors have been concerned about the added interest expense that comes with it. TD Cowen analysts estimated that higher debt balances and payments would cause earnings to fall by $0.10 per share in 2024 and by more than $0.30 per share in 2025 and 2026, making it less likely that JetBlue be profitable for most of that time.

Two credit agencies also reacted. Following the deal announcement, Standard & Poor’s and Moody’s downgraded JetBlue’s debt to B- and B3, respectively.

Is JetBlue a buy?

Concerns about leverage are appropriate, and JetBlue appears to have taken on more than enough debt to cover short-term capital needs. That said, the airline industry is notoriously cyclical, and JetBlue wasn’t prepared for an extended drop in demand should it happen in the coming quarters.

With that in mind, with some early payment options included on the condition that JetBlue outperforms and generates more cash than the company currently expects in the coming years, the offer seems prudent.

However, JetBlue remains a troubled company in a difficult operating environment. Even if it can fly through this turbulence, there is no compelling reason to buy at this time.