Spirit Airlines warns its equity would be wiped out if it reaches bankruptcy deal with its creditors

MW Spirit Airlines warns its equity would be wiped out if it reaches bankruptcy deal with its creditors

By Ciara Linnane and Claudia Assis

Low-cost carrier is expected to file for bankruptcy in the coming weeks

Spirit Airlines Inc. warned Wednesday that its equity would be wiped out as part of a restructuring deal that it's currently negotiating with its creditors.

In a regulatory filing, the low-cost carrier said it has been in active talks with holders of its senior secured notes that mature in 2025 and convertible bonds that mature in 2026 with a view to restructuring the debt and exploring other ways to boost liquidity.

The talks, with a supermajority of the bondholders, "have remained productive, have advanced materially and are continuing in the near term," according to the filing.

If talks lead to a deal on a statutory restructuring - i.e., bankruptcy - the company's unsecured creditors, employees, customers and vendors, suppliers, aircraft lessors or holders of secured aircraft indebtedness will not be impaired, but the scenario is expected to lead to the cancellation of the company's existing equity.

"If a definitive agreement with the noteholders is not reached, the company will consider all alternatives," said the filing.

Spirit $(SAVE.AU)$ is unable to file its September-quarter earnings report with the Securities and Exchange Commission by the required date, as the talks have diverted management time and internal resources, it said.

That has prevented the company from conducting the processes needed to review and complete financial statements and disclosures "without unreasonable effort or expense."

The company said its third-quarter operating margin and adjusted operating margin are expected to be about 12 percentage points lower than the third quarter of 2023, mostly due to lower operating revenues and higher costs.

Operating revenues are expected to fall about $61 million from a year ago, due to lower average yields, including the negative impact created by the company no longer charging for booking changes and cancellations.

Operating costs are expected to be up about $46 million, while adjusted operating costs are expected to rise about $52 million.

The news comes a day after the Wall Street Journal reported that talks with Frontier Group Holdings Inc. $(ULCC)$ on a potential merger of the two discount airlines had fallen through.

The pair had been discussing plans to revive an earlier proposal to merge, but Frontier has decided not to move forward, the Journal reported, citing people familiar with the matter.

That has left Spirit to work out a bankruptcy plan with bondholders, and it's prepping to file "within weeks," the paper reported.

The embattled Spirit unveiled plans last month to lay off employees, scale back flights and sell jets.

The airline has been seeking a lifeline after its failed merger with JetBlue Airways Corp. $(JBLU)$ earlier this year.

Besides JetBlue's decision in March to abandon plans for the deal after regulators sought to block the merger, Spirit has faced competition from larger airlines offering their own discounted fares and issues with its Pratt & Whitney $(RTX)$ aircraft engines.

Spirit's stock was down about 60% premarket, tracking its after-hours losses from Monday. The stock has fallen 80% in the year to date, while the U.S. Global JETS exchange-traded fund JETS has gained 29.9% and the S&P 500 SPX has gained 25%.

-Ciara Linnane -Claudia Assis

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November 13, 2024 09:15 ET (14:15 GMT)

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