Moody’s Ratings downgraded Alaska Air Group’s credit rating to junk-bond level after the company said it plans to issue secured bonds to refinance borrowings from its acquisition of Hawaiian Holdings Inc. in a statement on Tuesday.
The ratings agency downgraded the airline’s issuer rating to Ba1, the highest junk rating, from Baa3, the lowest investment grade, and changed its outlook to negative from stable, indicating further downgrades are possible in the medium term.
At the same time, Moody’s gave Alaska Airlines’ planned secured debt a Baa2 rating, the second-lowest investment-grade rating. The airline said Monday it plans to borrow $1.5 billion against its loyalty program to help refinance Hawaiian Airlines debt.
Late last year, Alaska Airlines Agreed to purchase Alaska Airlines bought rival Hawaiian Holdings Inc. for $1.9 billion, taking over the airline that had been hit hard by growing competition from Southwest Airlines and other factors. Alaska Airlines completed the acquisition on September 18. Based on its financial condition at the time, Moody’s estimates that about 90% of Alaska Airlines’ debt will be secured, taking into account repayments of Hawaiian Airlines’ loyalty notes.
“Alaska Airlines has structured its capital structure primarily with secured debt, which is credit negative as it reduces the company’s financial flexibility,” Moody’s analyst Peter Trombetta said in a statement from the bond rating agency. “Secured debt has a higher claim priority than unsecured debt, which would result in a downgrade of the company’s issuer rating.”
The ratings agency said in a statement that it expects the combined company’s planned capital expenditures will result in a cash burn of more than $500 million in 2025. Alaska Airlines had about $2.5 billion in standalone cash at the end of June, Moody’s said. The airline also has access to an $850 million revolving credit facility that matures in September 2029, the ratings agency said.
(Updates percentage of secured debt in fourth paragraph)
