S&P affirms Southwest Airlines’ investment grade credit rating, removes it from CreditWatch

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S&P Global Ratings is now a little more upbeat on Southwest Airlines Co.’s credit, even though the rating agency still has a negative view, saying its assessment of the air carrier’s risk profile amid the COVID-19 pandemic was revised to “modest” from “intermediate.” S&P affirmed Southwest’s BBB credit rating, which is two notches above speculative grade, or “junk” status, and removed the rating from CreditWatch, where it was placed with negative implications on in mid-March as the outbreak worsened. The outlook is still negative, given the risk that Southwest’s results could recover more slowly than expected, especially if there is a second wave of COVID-19 cases later this year. “We expected Southwest to generate a substantial cash flow deficit in 2020, due to the pandemic, before returning to positive cash flow and reporting strong credit ratios in 2021,” S&P said. “We expect airline passenger travel to recover first on shorter-haul domestic routes, primarily from leisure travelers, which are areas that Southwest focuses on,” S&P added. Southwest’s stock, which rose 0.4% in afternoon trading, has lost 35.4% year to date, while the U.S. Global Jets ETF has dropped 45.0% and the S&P 500 has gained 4.3%.
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