Spirit Airlines just received approval from the judge overseeing its bankruptcy proceedings to exit Chapter 11 after the backing of private bondholders was secured, three months after the initial filing.
Spirit is also going to restructure its debt obligations, which means the creditors will take a massive haircut on the outstanding debt just to see the airline taking to the skies again.
Spirit first floated the idea of a bankruptcy filing with bondholders in October, mulling over the terms of a potential filing in the wake of its failed merger with JetBlue that went bust back in March after the Justice Department sued to stop it.
Spirit Airlines eventually filed for Chapter 11 bankruptcy on November 18, 2024 after the budget airline has been struggling financially since 2019 and lost over $2.5 billion since 2020 when the pandemic hit.
Most recently, Spirit also rejected an offer to merge with Frontier, so what do the stars tell us about the future of “the yellow Rocket,” if there even is one!?
As Bloomberg reports, the airline has secured private backing and is allowed to exit Chapter 11 after just three months.
Spirit Airlines Inc. won court approval to leave bankruptcy via a lender-backed take-private deal after rejecting a takeover offer from rival Frontier Group Holdings Inc.
Judge Sean Lane said Thursday he would authorize Spirit’s restructuring plan, which hands control of the Florida-based discount airline to top bondholders. That group includes Ken Griffin’s Citadel Advisors, Pacific Investment Management Co. and Western Asset Management Co., according to court documents.
Spirit in November sought court protection to restructure about $1.6 billion in debt after losing ground post-pandemic as larger airlines lured travelers away by offering more basic-economy fares. The company has said the revamp will give it time to boost its business through new premium options, including wider seats and free alcoholic beverages for passengers with certain tickets. …
Lane approved the bankruptcy-exit plan after considering a challenge raised by federal regulators to an aspect of the deal that would provide legal releases to parties with ties to the restructuring. The challenge, raised by the US Justice Department’s bankruptcy watchdog, was over whether creditors consented to the releases.
The legal topic has been contested in many corporate bankruptcies following a US Supreme Court ruling last year banning non-consensual releases to members of the Sackler family who own bankrupt drugmaker Purdue Pharma. Generally, such releases protect individuals with ties to a bankrupt company from potential legal liability.
Lane said he would permit Spirit creditors to opt-out of the release and will issue a written ruling explaining his reasoning next month.
The restructuring deal that Lane approved Thursday was widely supported by Spirit lenders, who will own the company out of Chapter 11. It cuts about $795 million in debt and obliges bondholders to inject $350 million into the company via an equity-rights offering. …
It remains to be seen whether this is good or bad for Spirit as a whole as far as longevity is concerned.
Previously, JetBlue Airways and Spirit Airlines ended their proposed $3.8 billion merger weeks after a federal judge blocked the deal, leading to the two carriers scrapping plans and not planning any modifications.
Under the previous administration, the Department of Transportation sued to block the merger, which was ultimately successful. Now, with a new secretary of transportation, a merger with JetBlue might be successful if they want to rekindle the project.
Conclusion
Spirit Airlines is about to exit its Chapter 11 bankruptcy process after the presiding judge authorized the restructuring plan, which will be published in a detailed opinion later in the coming weeks.
The control of the airline now rests with top bondholders, which includes Citadel Advisors. The bondholders are required to inject $350M in fresh capital, and a total of $795M in debt will be erased.
How do you see the future of Spirit?
