Holders of $2 billion of bonds due 2031 and a $742 million first-lien loan are working with PJT Partners and Akin, Bloomberg News and The Wall Street Journal reported. JetBlue says it remains confident in its turnaround plan. Its shares are at their lowest closing levels since at least 2006.
JetBlue Airways says its recovery plan is working. Some of its largest lenders are preparing for a different conversation.
A group of senior creditors to the airline is working with financial adviser PJT Partners and law firm Akin, Bloomberg News and The Wall Street Journal reported, citing people familiar with the matter. The group includes holders of $2 billion of bonds due 2031 and a $742 million first-lien loan. The news emerged after Friday's close.
JetBlue responded with a statement: "JetBlue remains confident in its JetForward strategy and the progress being made toward returning to sustained profitability."
What the creditors are seeking has not been reported. The company has not announced any financing transaction, and nothing indicates a missed payment or a filing.
What a creditor group does
Lenders that organize and hire advisers can negotiate as a bloc. That gives them more leverage in any future discussion about refinancing, extending maturities or exchanging debt. It is a preparatory step taken by lenders, not an action by the company.
For shareholders, the significance is structural. Equity sits beneath all of the debt. When senior lenders organize, they are positioning themselves for a negotiation in which the shareholders' claim comes last.
The balance sheet
At the end of June, JetBlue reported total debt of $8.48 billion, cash and cash equivalents of $1.66 billion and $512 million of investment securities. Stockholders' equity was $1.59 billion. At Friday's close the company's market value was about $990 million, less than an eighth of its debt.
The airline lost $566 million in the first half and posted an operating loss of $141 million in the second quarter, even as revenue rose 14.5%. It said it had recaptured nearly half of its higher fuel costs in that quarter.
Fuel is the pressure point
JetBlue's full-year forecast, issued in July, assumed jet fuel at $3.49 a gallon and an adjusted operating margin of negative 2% to negative 5%. Its target of at least $1.00 of earnings per share in 2028 assumes fuel at $3.00.
Fuel costs have moved well above those assumptions. American Airlines' outlook for the fourth quarter, issued with its third-quarter report this week, assumes jet fuel near $4.70 a gallon. Brent crude settled at $116.72 on Friday.
The market moved first
The creditor news followed the price signals rather than creating them. JetBlue's shares fell 9.6% on Thursday to $2.65, then slipped to $2.625 on Friday. Those are the lowest closes in trading records going back to 2006. The stock is down 42% this year and 56% since its second-quarter report in late July. The 2031 bonds traded at about 40 cents on the dollar on Thursday, according to Bloomberg pricing data.
On Friday, before the creditor news, JetBlue's shares actually outperformed its peers. United fell 4.0%, American 3.9% and Delta 3.1%, while JetBlue lost 0.9%.
Two readings
The first is that this is a defensive move by lenders holding paper that trades at deep discounts, while the company still has about $2.2 billion of cash and investments, growing revenue and a plan that has produced $470 million of cumulative earnings improvement through June.
The second is that control of the outcome is shifting toward lenders, at a time when fuel costs are running far above the levels that underpin the company's own plan, and the equity and bond markets have both priced severe stress.
What to watch
Monday's session, the first in which the stock trades on the report. JetBlue's third-quarter results and conference call at 10 a.m. Eastern on Tuesday, Oct. 27, where liquidity, fuel guidance and any financing plans will be the focus. Any regulatory filing on financing or debt.