March 24, 2020 / 7:19 PM / 5 days ago

UPDATE 1-Ratings agency S&P cuts Delta's credit rating to 'junk'

(Adds Moody's analyst, background on Delta, bylines)

By Kate Duguid and Rachit Vats

March 24 (Reuters) - S&P Global Ratings on Tuesday cut Delta Air Lines Inc's rating to junk status, citing a steep decline in demand as the aviation sector reels under the coronavirus crisis and seeks government help.

Reduced demand for travel has cut into earnings of U.S. airlines, which has led to ratings downgrades of Boeing Co and carriers including American Airlines Group and Lufthansa.

S&P said it revised Delta's liquidity to "adequate" from "strong" to reflect expectations of a sharp reduction in cash-flow generation. It warned that the airline's steps to offset the decline in demand will be insufficient to make up for lost revenue.

S&P cut Delta's debt rating to "BB" from "BBB-".

"This is something (U.S. airlines) have never seen before," Jonathan Root, an analyst at Moody's covering airlines, said by phone. "It is leaps and bounds a greater pressure point than the financial crisis or Sept. 11."

The downgrade came after Delta said on Friday it expected second-quarter revenue to fall by $10 billion, or 80% from the year-ago period. To stop its cash burn during the coronavirus pandemic, Delta has suspended buybacks and dividends, entered a $2.6 billion secured credit facility and was drawing down $3 billion under its existing credit facilities.

Delta and other U.S. airlines have petitioned lawmakers for financial relief. U.S. lawmakers are nearing agreement on a package of grants for passenger and cargo airlines and contractors worth $32 billion as part of a massive U.S. stimulus and rescue package, Reuters reported on Wednesday, citing people briefed on the matter.

"The actions by the S&P underscores the need for swift relief for airline employees that is currently being considered by the government," a Delta spokesperson said, adding that the downgrade does not trigger any covenants or specific steps from Delta.

Reporting by Rachit Vats in Bengaluru, Editing by Sherry Jacob-Phillips and Richard Chang

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