Spirit Airlines shares crater in after-hours trading as it nears a bankruptcy deal that could wipe out shareholders

On By Littum

Upper line

Shares of Spirit Airlines cratered sharply in aftermarket trading Tuesday evening when the company announced it was in talks with creditors to restructure its debt in a deal — shortly after the Wall Street Journal reported the company is preparing to file for bankruptcy, and its planned merger with rival low-cost carrier Frontier had collapsed.

Key facts

In one archiving late Tuesday, Spirit said it was in “active and constructive discussions” with a “supermajority” of its secured bondholders for a debt restructuring deal — as Bloomberg reports could be completed in a Chapter 11 bankruptcy process.

The company noted that if the agreement with its bondholders is reached, it is “expected to lead to the cancellation of the existing equity of the company.”

The low-cost carrier’s share price cratered more than 62.7% in after-hours trading to $1.20.

The company also said it will not be able to submit its third-quarter earnings on time due to ongoing discussions with creditors.

In a snapshot of its Q3 numbers, the company says its operating margin was down about 12% year-over-year, and its operating income was down about $61 million year-over-year.

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News Peg

Earlier Tuesday, Wall Street Journal reported the company was preparing to file for bankruptcy after its merger talks with Frontier Airlines fell through. Last month was both Journal and Bloomberg reported Spirit was in initial discussions with Frontier to revive a merger agreement. Such a deal would reportedly have been completed as part of a Chapter 11 bankruptcy process by Spirit. But on Tuesday, the Journal reported that Frontier had chosen not to move forward with the deal, although the airline has not publicly commented on the matter.

Key background

Debt-ridden Spirit Airlines has struggled since its $3.8 billion merger deal with JetBlue was blocked by regulators in January. A US federal judge ruled in favor of the Justice Department, which had sued to block the merger over concerns it would reduce competition in the low-cost airline market and drive up prices for consumers. Before announcing the JetBlue deal, Spirit was engaged in discussions with Frontier about a merger agreement appreciated to about $2.9 billion. A few months after the JetBlue deal was blocked, Spirit CEO Ted Christie told investors he was “encouraged” by the airline’s post-merger plan and insisted the company was not considering bankruptcy. Last month, the company announced plans to sell 23 of its older Airbus planes, which are estimated to bring in about $519 million. The airline also said it plans to cut jobs, which will save the company about $80 million in annual costs, but did not specify how many workers would be affected.

Further reading

Spirit Airlines shares rise 20% amid plan to sell planes and cut jobs (Forbes)

Spirit Airlines stock surges 60% after debt refinancing deadline extension (Forbes)