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JetBlue Airways JBLU-2.17% isn’t letting bad credit stop it from loading up on debt. Bloomberg reports that the company is preparing to take on $2.75 billion in new obligations as it continues to chart its course following its abandoned merger with Spirit Airlines.
Neither credit ratings agencies nor equity investors seem to be especially happy with the maneuver. The company’s stock fell more than 20% in Monday trading, and the Wall Street Journal reported that both S&P and Moody’s downgraded JetBlue’s default risk rating deeper into speculative-grade “junk bond” territory.
The collateral for some of the money is income the carrier gets from its frequent flyer program. Speaking at a March investment conference where she referred to the erstwhile Spirit tie-up as “three years of distraction,” CEO Ursula Hurley said her company has been eyeing the pot of money as a potential funding multiplier.
“We have $10 billion of unencumbered assets and about half of the $10 billion is our loyalty program,” she said at the time. “We’re one of the only airlines out there that hasn’t yet levered up the loyalty program.”
Airlines make money on their frequent flyers by selling their points to other companies, like hotels and credit card companies. JetBlue brought in more than $400 million through points sales last year, according to its annual report.