Business Context and Reporting Period
This Form 8-K Current Report was filed by JetBlue Airways Corporation on June 17, 2020. The filing discloses the entry into a material definitive agreement to secure liquidity during the ongoing economic disruption affecting the airline industry.
Key Financial Metrics and Debt Structure
- New Term Loan Facility: JetBlue entered into a $750,000,000 Term Loan Credit Agreement with Barclays Bank PLC as administrative agent. The full amount has been drawn.
- Use of Proceeds: Funds are designated for general corporate purposes, payment of fees, and supporting liquidity.
- Existing Revolving Facility: The company maintains a $550,000,000 Revolving Credit Facility with Citibank N.A., which remains fully drawn.
- Collateral: The new Term Loan is secured by senior security interests in FAA takeoff/landing slots at LaGuardia, JFK, and Reagan National airports, as well as JetBlue brand intellectual property.
- Interest Rate: Variable rate based on LIBOR (subject to a 1.00% floor) plus a specified margin.
- Amortization: 5.00% per year, payable quarterly starting September 30, 2020.
- Maturity Date: June 17, 2024.
Material Changes and Covenants
The filing details significant changes to the company's debt structure and collateral arrangements:
- Collateral Swap: On May 29, 2020, FAA Slots were removed from the existing Revolving Credit Facility and pledged to the new Term Loan Facility. In exchange, unencumbered aircraft, simulators, and other assets were added to the Revolving Credit Facility.
- Liquidity Covenant: The company must maintain unrestricted cash, cash equivalents, and unused revolving credit commitments aggregating at least $550,000,000.
- Collateral Coverage Ratio: A minimum ratio of 1.6 to 1.0 is required between the borrowing base of the collateral and outstanding Term Loan obligations. Failure to meet this requires additional collateral or repayment.
- Restrictions: Covenants restrict the disposal of collateral, mergers, consolidations, or asset sales without compliance.
Outlook, Risks, and Contingencies
Management intends to use the proceeds to support liquidity, indicating a focus on cash preservation. Key risks and contingencies include:
- Prepayment Penalties: Voluntary prepayments are subject to a make-whole premium in the first year and a prepayment premium in the second year.
- Mandatory Prepayments: Required upon disposition of collateral, change of control, or failure to meet the minimum collateral coverage ratio.
- Events of Default: Includes cross-default to other material indebtedness. Bankruptcy or insolvency events trigger immediate acceleration of the debt.
- Future Collateral Requirements: The company may be required to pledge additional collateral in the future.
Investor Verification Checklist
- Verify the specific LIBOR margin applicable to the new Term Loan.
- Confirm the current appraised value of the FAA Slots and Brand assets to assess the 1.6 to 1.0 collateral coverage ratio.
- Review the company's current unrestricted cash balance to ensure compliance with the $550,000,000 liquidity covenant.
- Monitor for any future requirements to pledge additional collateral or mandatory prepayments.
- Check for any cross-default triggers related to the company's other material indebtedness.