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Spirit Airlines Receives Court Approval for $795 Million Debt Restructuring, Clearing Path to Private Status

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Posted: 21st February 2025
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Spirit Airlines Receives Court Approval for $795 Million Debt Restructuring, Clearing Path to Private Status.

In a significant legal and financial development, Spirit Airlines (SAVEQ.PK) has secured U.S. bankruptcy court approval for its restructuring plan, allowing the airline to convert $795 million in outstanding debt into equity, paving the way for its emergence as a privately held company.

The decision was granted on Thursday by U.S. Bankruptcy Judge Sean Lane during a court hearing in White Plains, New York. The approval marks a crucial milestone in the low-cost carrier's strategy to navigate out of bankruptcy while securing long-term financial stability.

Details of the Spirit Airlines Bankruptcy Plan

Under the approved plan, Spirit’s existing equity shares will be cancelled, with ownership shifting to the airline’s creditors. Among the creditors are several prominent investment funds, including those managed by Pacific Investment Management Company, UBS Asset Management, and Citadel Advisors.

The restructuring agreement also includes provisions for Spirit Airlines to raise $350 million in additional funding through the issuance of new equity shares, further bolstering its financial foundation. The airline anticipates emerging from bankruptcy proceedings by the first quarter of 2025, positioning itself for a new phase of growth and recovery.

CEO Statement on Spirit’s Future

In a statement following the court's decision, Spirit Airlines CEO Ted Christie emphasized the airline's commitment to financial revitalization: "We will emerge as a stronger airline with the financial flexibility to continue providing guests with enhanced travel experiences and greater value." Christie’s statement underscores the company’s optimism about its post-bankruptcy outlook and the enhanced value it plans to offer its passengers.

Rejection of Frontier Group’s Acquisition Proposal

Spirit’s restructuring comes after a recent rejection of an acquisition offer from rival budget airline Frontier Group. Spirit Airlines determined that the buyout offer, which would have allowed the airline to retain 19% of its equity, failed to offer sufficient value for its creditors compared to the bankruptcy restructuring plan.

The deal with Frontier also posed additional financial risks, including the potential for a prolonged stay in bankruptcy, along with the possibility that U.S. regulators might block the merger between the two budget carriers.

Objections Overruled in Court Decision

In an important aspect of the court hearing, Judge Lane addressed objections raised by the U.S. Securities and Exchange Commission (SEC) and the Office of the U.S. Trustee, the U.S. Justice Department’s bankruptcy watchdog. These agencies had expressed concerns about the way Spirit’s bankruptcy plan released legal claims held by shareholders and creditors against non-debtors, such as the airline’s lenders and executives.

The SEC and U.S. Trustee contended that Spirit had improperly assumed creditor consent to the deal unless they opted out by submitting a separate "opt-out" form. Despite these objections, Judge Lane sided with Spirit, indicating that he would issue a written ruling to overrule the agencies’ concerns, thereby cementing the approval of the airline’s restructuring plan.

A New Era for Spirit Airlines

With the court’s approval of its bankruptcy restructuring, Spirit Airlines is set to begin a transformative journey, ensuring financial flexibility and stability as it repositions itself for future growth. The airline's plan to cancel existing equity, convert debt to ownership, and secure fresh financing represents a strategic response to the challenges of navigating through bankruptcy while aiming to maintain its competitive edge in the highly competitive airline industry.

As Spirit prepares to emerge from bankruptcy, the airline’s stakeholders, including creditors and new investors, will closely monitor the company’s progress toward fulfilling its post-reorganization goals. For now, the approval sets the stage for Spirit to return to profitability, delivering on its promise to provide both value and quality to its growing base of passengers.

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