Moody’s cuts rating Alaska Air Group Inc.’s credit rating downgraded to junk after the company said it plans to issue secured debt to refinance loans from acquisitions Hawaii Corporation Inc., according to a statement Tuesday.
The credit rating agency downgraded the airline’s credit rating to Ba1, the highest junk rating, from Baa3, the lowest investment grade, and changed the outlook from stable to negative, signaling that more downgrades are possible in the medium term.
Meanwhile, Moody’s has rated Alaska Air’s planned secured debt obligations at Baa2, its second-lowest investment grade. The airline said Monday it plans to borrow $1.5 billion, secured by its loyalty program, to help refinance Hawaiian Airlines’ debt.
Late last year, Alaska Air agree to buy rival Hawaiian Holdings for $1.9 billion, acquiring a company that has been hit by growing competition from Southwest Airlines Co., among other factors. Alaska Air completed the acquisition on September 18. Based on its financial position at the time and taking into account the repayment of Hawaiian’s loyalty loans, Moody’s estimates that about 90% of Alaska Air’s debt will be secured.
“Alaska Air is establishing a capital structure that is primarily comprised of secured debt, which is credit negative because it reduces the company’s financial flexibility,” Moody’s analyst Peter Trombetta wrote in a statement from the bond rating firm. “Secured debt will have a higher claim priority than any unsecured debt, resulting in a downgrade of the company’s issuer rating.”
The ratings firm expects planned capital spending for the combined company to burn more than $500 million in cash by 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 ratings firm said.
(Updated secured debt ratio in fourth paragraph)
