Spirit Airlines Nears Bankruptcy, Creditors May Approve Equity 'Cancellation:' Here's What It Means For Investors As Shares Fall With A Thud

Shares of Spirit Airlines Inc. SAVE plunged by 62.73% in after-hours and closed nearly 5.29% lower at $3.22 apiece on Tuesday after the company failed to file its earnings for the quarter ended September 2024. The discount airline in a filing late Tuesday, said that it is in talks with its creditors to carve out a restructuring plan which could "lead to the cancellation of the Company's existing equity."

What Happened: The budget airline is in discussion with its noteholders for potential bankruptcy or out-of-court restructuring that has been underway for months. This comes after Spirit’s effort to merge with Frontier Group Holdings Inc. ULCC and its takeover by JetBlue Airways Corporation JBLU fell out.

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Why It Matters: As the ultra-discount airline’s efforts to save itself fail, its equity holders may suffer because of the cancellation of shares. However, the company’s statement indicates that the plan that it is trying to negotiate would not hamper general unsecured creditors, employees, customers, vendors, suppliers, aircraft lessors, or the holders of its secured debt backed by aircraft.

The bondholders include the owners of about $1 billion, 8% coupon loyalty bonds which are due 2025 and $500 million in unsecured convertible bonds due 2026. This former debt is backed by claims on elements of the company's frequent-flyer program.

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Price Action: The shares of Spirit Airlines have underperformed the NYSE Composite on a year-to-date basis as it has fallen by 80.31%, whereas the index gave a 17.88% return in the same period. The relative strength index at 40.79 shows that the stock is neither overbought nor oversold.

The consensus estimates of all the 12 analysts tracking the stock as per Nasdaq, is a “sell” with an average price target is $2.13 apiece.

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