JetBlue Airways, founded in 1998 by David Neeleman, has recently faced significant credit rating downgrades from major agencies S&P and Moody's.

The downgrades were prompted by JetBlue's announcement to raise over $3 billion in debt, primarily backed by its loyalty program, TrueBlue.

This debt issuance includes a $1.5 billion private offering of senior secured notes and a $1.25 billion term loan, both secured by the TrueBlue program, along with $400 million through convertible notes.

Despite these efforts, JetBlue is taking on $2.75 billion in new debt while grappling with poor credit ratings.

S&P downgraded JetBlue's rating from 'B' to 'B-', citing concerns over the airline's financial health and projecting a low funds from operations to debt ratio through 2025.

Moody's also downgraded JetBlue's corporate family rating to 'B3' from 'B2', indicating a prolonged period needed for the airline to restore its operating profit and cash flow.

Following the announcement of its debt-raising plans and the subsequent downgrades, JetBlue's stock price fell by over 20%, closing at $4.80.

On the day of the announcement, JetBlue shares dropped more than 21%, reflecting investor concerns about the airline's financial strategy.

S&P highlighted significant challenges for JetBlue, including excess industry capacity, high labor costs, and infrastructure constraints.

Moody's predicts that JetBlue will burn through $2.2 billion in cash in 2024 and $1.4 billion in 2025, further complicating its financial outlook.

Using loyalty programs as collateral has become a common strategy for airlines to improve liquidity, a tactic previously employed by Delta Air and United Airlines during the pandemic.

JetBlue's CEO Ursula Hurley noted that part of the funding will be supported by income from the airline's frequent flyer program, emphasizing its importance in the current financial strategy.