S&P Global: Spirit Airlines Inc. downgraded to ‘D’ on Chapter 11 Bankruptcy filing; EETC ratings lowered

• Spirit Airlines Inc. filed for Chapter 11 bankruptcy protection on Nov 18, 2024.
• Therefore, we lowered our issuer credit rating to 'D' from 'CCC'
• We also lowered our ratings on Spirit's enhanced equipment trust certificates (EETCs) by one notch, in line with the lower issuer credit rating.S&P Global Ratings today took the rating actions listed above.

We downgraded Spirit Airlines after it filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code.

Spirit entered into a restructuring agreement with a supermajority of its loyalty and convertible bondholders, including equitization of $795 million of its existing debt as well as a $350 million equity investment upon emergence. The company intends to finance its operations throughout Chapter 11 proceedings with a $300 million debtor-in-possession (DIP) facility, subject to bankruptcy court approval. Spirit expects to emerge from the court-supervised bankruptcy process in the first quarter of 2025, at which point we will reassess our issuer credit rating on the company based on its new capital structure and going forward business plan. Post restructuring, the company intends to issue $840 million of senior secured notes, pro rata, to its existing senior secured and convertible noteholders.

The filing follows a period of deterioration in the company's operating performance and projected material liquidity shortfall in an unsustainable capital structure. At the time of its filing, Spirit's outstanding debt included $1.1 billion of senior unsecured notes due September 2025, about $525 million of convertible notes due in 2025 and 2026, and various aircraft and equipment obligations.

In line with the downgrade, we lowered our issue-level ratings on the company's 2015-1 Class A and 2017-1 Class AA, Class A, and Class B certificates by one notch. Spirit announced that the vendors, aircraft lessors, and holders of secured aircraft debt will continue to be paid through the restructuring and that the company will continue its operations through the bankruptcy proceedings. We base our ratings on the EETCs on an ICR of 'CCC-', reflecting our preliminary view of Spirit's credit profile upon emergence, the substantial collateral coverage by good-quality aircraft, and the legal and structural protections available to the certificates. We continue to view Spirit's likelihood of affirmation and reorganization as high. The secured notes relating to each aircraft are cross-collateralized and cross-defaulted--a provision that we believe increases the likelihood that Spirit Airlines would cure any defaults and agree to perform its future obligations (including its payment obligations) under the indentures in bankruptcy.