SPIRIT Airlines won court approval to leave bankruptcy via a lender-backed take-private deal after rejecting a takeover offer from rival Frontier Group Holdings.
Judge Sean Lane said on Thursday (Feb 20) he would authorise 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 and Western Asset Management, according to court documents.
Spirit in November sought court protection to restructure about US$1.6 billion in debt after losing ground post-pandemic as larger airlines lured travellers 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.
The airline moved forward with the restructuring despite repeated overtures from Frontier, which had proposed a combination of the rival budget carriers. Spirit said earlier this month that it had rejected Frontier’s most recent proposal, saying it would not deliver as much value to creditors. A combined Spirit and Frontier would create the fifth-largest US airline based on miles flown by paying passengers.
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.
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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 on Thursday was widely supported by Spirit lenders, who will own the company out of Chapter 11. It cuts about US$795 million in debt and obliges bondholders to inject US$350 million into the company via an equity-rights offering.
Exit financing that’s part of the transaction includes protection that restricts so-called liability management transactions that favour some creditors over others. Owners of Spirit’s convertible bonds sought the language, Bloomberg News reported in December.
Existing Spirit equity will be cancelled for no compensation, which is common in large Chapter 11 cases. BLOOMBERG
