Spirit Airlines files for bankruptcy, to delist from NYSE

Key points

• Spirit Airlines announced that it filed for bankruptcy.

• The company will be delisted from NYSE in the near-term.

• The airline will continue to operate under normal conditions during chapter 11 proceedings.

Spirit reached an agreement with bondholders to restructure its balance sheet and reduce debt. It expects to emerge from chapter 11 in Q1 2025.

Spirit Airlines (NYSE: SAVE) filed for bankruptcy, the company announced Monday, as it restructures after reaching a deal with bondholders.  

As part of the chapter 11 bankruptcy proceeding, the low-cost air carrier agreed to be delisted from the New York Stock Exchange in the near term.

The struggling airline has seen its stock price plummet from around $16 per share at the start of the year to penny stock territory, trading at $1.08 per share as of last Friday.

The company expects that it will continue to trade in the over-the-counter marketplace through the chapter 11 process. The company said in a release that the “shares are expected to be cancelled and have no value as part of Spirit’s restructuring.”

On Monday, Spirit stock was not trading on NYSE or OTC markets, as trading had been halted.

Continue operating on its “normal course

Spirit officials said the airline will continue operating on its “normal course” throughout the chapter 11 process.

“Guests can continue to book and fly without interruption and can use all tickets, credits and loyalty points as normal,” the release said.

Also, employees, vendors, aircraft lessors, and holders of secured aircraft indebtedness will continue to be paid as usual.

The restructuring agreement Spirit reached with its bondholders is expected to reduce Spirit’s debt, provide increased financial flexibility, accelerate investments, and position Spirit for long-term success.  

Specifically, Spirit has received backstopped commitments for a $350 million equity investment from existing bondholders and will complete a deleveraging transaction to equitize $795 million of funded debt.

Further, existing bondholders are providing $300 million in debtor-in-possession financing, which will support the restructuring, along with Spirit’s available cash reserves and cash from operations.

“I am pleased we have reached an agreement with a supermajority of both our loyalty and convertible bondholders on a comprehensive recapitalization of the Company, which is a strong vote of confidence in Spirit and our long-term plan,” Ted Christie, Spirit’s president and CEO, said. “This set of transactions will materially strengthen our balance sheet and position Spirit for the future while we continue executing on our strategic initiatives to transform our Guest experience, providing new enhanced travel options, greater value and increased flexibility.”

The airline expects to emerge from bankruptcy in the first quarter of 2025.

Difficult year for Spirit

Spirit Airlines’ woes go back several years, as it was generally not able to recover from the pandemic travel shutdowns. The last year it turned a profit was in 2019. Since then, it has struggled as bigger airlines lowered their fares post-pandemic to attract more traffic, and that ate into Spirit’s customer base and revenue.

Last year, it struck a deal to merge with JetBlue (NASDAQ:JBLU) but in January of this year, a federal judge struck down the deal on the grounds that it would take a much-needed low-coast carrier out of the market.

The stock tanked after that, plummeting into penny stock territory. In October, news reports surfaced that Spirit might declare bankruptcy as it had hit a snag in efforts to restructure its debt with bondholders. Specifically, it was looking to renegotiate about $1.1 billion in loyalty bonds that will come due in 2025.

Late in October, Spirit got an extension on the deadline to reach a deal to refinance the debt to December 23. Spirit stock price got a bit of a jolt from that news, rising more than 50% to over $3.20 per share.

However, on November 12 the stock plummeted back down to around $1 per share after the airline filed a Form 12b-25 with the SEC, reporting that the company is unable to file its third quarter earnings report “without unreasonable effort or expense.”

Lower revenue, higher expenses in Q3

In that November 12 filing, Spirit said the company has been “in active and constructive discussions with holders of its senior secured notes due 2025 and convertible senior notes due 2026” and is “exploring strategic alternatives” to improve liquidity.

While there would be no earnings report, Spirit officials estimated that the operating margin in Q3 would be approximately 12 percentage points lower year-over-year due to lower revenue and higher operating expenses.

Revenue is estimated to have decreased $61 million year-over-year in Q3 due to lower average yields, including the negative impact from no longer charging for change and cancellation fees. Operating expenses are estimated to have increased $46 million year-over-year, primarily due to a jump in aircraft rent expense, salaries, and landing fees among others.

This filing obviously raised a lot of red flags for investors, thus the massive selloff last week, leading up to Monday’s bankruptcy announcement.