Alaska Air gets credit rating downgraded to junk status

The credit rating cut the airline’s issuer rating to Ba1, the highest level of junk, from Baa3, the lowest investment grade, and changed its outlook to negative from stable, signaling more could come mid-term downgrades.

At the same time, Moody’s assigned Alaska Air’s planned secured debt obligations a rating of Baa2, the second-lowest investment grade. The airline said Monday it plans to borrow $1.5 billion, guaranteed by the company’s loyalty program, to help refinance Hawaiian Airlines’ debt.

Late last year, Alaska Air agreed to buy rival Hawaiian Holdings for $1.9 billion, snapping up, among other factors, a company that has been hurt by growing competition from Southwest Airlines Co. Alaska Air closed its acquisition on September 18. Based on financial data since then, and factoring in the repayment of Hawaiian’s loyalty notes, about 90 percent of Alaska Air’s debt will be guaranteed, Moody’s estimated.

“Alaska Air is establishing a capital structure that will consist primarily of secured debt, which is credit negative because it reduces the company’s financial flexibility,” Moody’s analyst Peter Trombetta wrote in the bond rater’s statement. “Secured debt will have a higher seniority than any unsecured debt, which will lead to a downgrade of the company’s issuer rating.”

The ratings firm expects planned capital spending for the combined company to burn through more than $500 million in cash in 2025, according to the statement. Alaska Air’s standalone cash was about $2.5 billion at the end of June, according to Moody’s. The company also has access to an $850 million revolving credit facility that expires in September 2029, the rating firm said.

(Updates with the debt percentage that is guaranteed in the fourth paragraph)