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Spirit Airlines Opts for Standalone Recapitalization

In a significant move regarding its restructuring efforts, Spirit Airlines, Inc. has announced that it will pursue a standalone recapitalization plan. This decision comes in light of Frontier Group Holdings, Inc.'s recent proposal for an alternative restructuring plan, which has been formally rejected by Spirit. Over the last few weeks, both companies have been in discussions as Frontier sought to combine operations with Spirit, setting forth a New Proposal on February 4, 2025. However, upon thorough evaluation, Spirit's management and Board of Directors deemed the proposal unsuitable for their stakeholders.

Evaluating Frontier's Proposal

Frontier's New Proposal included the issuance of $400 million in second-lien debt and a 19% equity stake in Frontier, contingent on the proposed merger. While this plan appeared to present immediate financial relief, Spirit's leadership raised concerns about the overall value being offered to its stakeholders. They found that the New Proposal presented risks that could ultimately result in a lower payout than existing plans, alongside significant uncertainty regarding regulatory approval and potential delays in the restructuring process. Such challenges could lead to prolonged and costly Chapter 11 proceedings.

Spirit’s management was diligent in consulting with external legal and financial advisors to ensure all aspects of the New Proposal were considered. Ultimately, it was clear that the terms didn't align with Spirit's strategic goals.

Spirit's Counterproposal

In response to Frontier's New Proposal, Spirit Airlines swiftly drafted a counterproposal aimed at ensuring greater value for its stakeholders. This counterproposal, known as the Spirit Counterproposal, outlined a comprehensive relief package consisting of an aggregate value of $600 million in debt and $1.185 billion in equity. It also proposed market-based mechanisms to determine equity distribution for Spirit stakeholders while eliminating the need for a planned $350 million equity rights offering. Furthermore, Spirit’s proposal demanded that Frontier cover the $35 million termination fee linked to the existing Backstop Commitment Agreement.

Despite the favorable structure of the Spirit Counterproposal, Frontier rejected it outright on February 10, 2025, reaffirming its willingness to only proceed with the original terms of the New Proposal. This rejection was perceived by Spirit as a sign of Frontier's inability to meet the demands of its stakeholders.

Looking Ahead

The rejection of Frontier's proposal and acceptance of the standalone recapitalization plan signifies a turning point in Spirit's ongoing restructuring saga. The management remains focused on completing this restructuring in the first quarter of 2025, with a crucial court hearing set for February 13, 2025, for plan confirmation. Approximately 99.99% of voting creditors have signaled support for Spirit's plan, demonstrating strong backing for management's initiatives.

In pursuing its restructuring, Spirit Airlines aims to significantly reduce its debt load while positioning itself for long-term success amid a challenging airline industry environment. The leadership is confident that the path chosen will better serve its loyal customer base and stakeholders in the long run, emphasizing its commitment to maintaining affordable travel options across its extensive networks within the U.S., Latin America, and the Caribbean.

Conclusion

As Spirit Airlines forges ahead with its standalone recapitalization strategy, all eyes will be on the critical court hearings scheduled for later this month. Stakeholder engagement and adherence to a transparent restructuring process remain paramount for the carrier as it navigates these trying times. For additional details regarding Spirit's ongoing restructuring effort, stakeholders can visit the company's Investor Relations website or their dedicated restructuring resource page.