The credit grader lowered the airline’s issuer rating to Ba1, the highest junk level, from Baa3, the lowest investment-grade score, and changed its outlook to negative from stable, signaling more downgrades could be coming in the medium term.

At the same time, Moody’s gave Alaska Air’s planned secured debt obligations a rating of Baa2, the second lowest investment-grade score. The airline said on Monday that it plans to borrow $1.5 billion, secured by the company’s loyalty program, to help refinance Hawaiian Airlines debt.    

Late last year, Alaska Air agreed to buy rival Hawaiian Holdings for $1.9 billion, snatching up a company that had been hit by rising competition from Southwest Airlines Co., among other factors. Alaska Air closed its acquisition on Sept. 18. Based on financials at that time, and accounting for Hawaiian’s loyalty notes getting repaid, about 90% of Alaska Air’s debt will be secured, Moody’s estimated.

“Alaska Air is establishing a capital structure which will be made up primarily of secured debt, which is credit negative as it reduces the company’s financial flexibility,” Moody’s analyst Peter Trombetta wrote in the bond grader’s statement. “The secured debt will have a higher priority of claim than any unsecured debt, resulting in the downgrade of the company’s issuer rating.” 

The ratings firm expects planned capital expenditure for the combined company to burn more than $500 million of cash in 2025, according to the statement. Alaska Air’s standalone cash was about $2.5 billion as of 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.

(Updates with percentage of debt that is secured in fourth paragraph)