Spirit Airlines soars 40% after debt refinancing extension granted

Shares of low-cost carrier Spirit Airlines, with a market capitalization of $161 million, surged 40% in premarket trading today, Monday, October 21, after the company announced that it had been granted a two-month extension to finalize a debt refinancing deal with its bondholders. If it fails to do that, Spirit risks losing the ability to process credit card payments next year.

Details

Spirit Airlines stock jumped 40% in premarket trading today to $2.06 per share. On Friday, after the market closed, the airline announced that it had extended the deadline to secure a refinancing deal for approximately $1.1 billion in bonds, as reported by Barron’s.

Spirit is to repay senior secured bonds in 2025 and convertible senior bonds in 2026. The extension, granted by U.S. Bank National Association, means that now Spirit has until December 23 (versus October 21 originally), to reach a deal with its bondholders. If not, the bank will discontinue its contract to process credit card payments for the airline.

Context

Spirit, a Florida-based low-cost carrier, has been struggling with mounting losses. In the second quarter of 2024, its net loss skyrocketed to $192.9 million from just $2.0 million in the previous-year period. As reported by the financial news site TheStreet, the airline attributed its poor performance to several factors: “Rising costs and union negotiations over employee salaries have resulted in heavy cash burn, while a recall of the Pratt & Whitney engines used in Spirit’s Airbus A321neo EADSF planes limited the routes that Spirit can run to bring in customer dollars.”

As a result, Spirit now faces $3.3 billion in outstanding debt and finds itself in talks with bondholders to avoid potential bankruptcy. This comes after a failed merger with JetBlue Airways, as noted by the Wall Street Journal. In January 2024, a federal court blocked the merger amid a Department of Justice antitrust challenge. While both companies initially appealed the decision, they eventually abandoned the deal, citing regulatory obstacles. 

Analyst insights 

According to MarketWatch, 12 analysts cover Spirit. Three recommend holding the stock, while the others rate the company a “sell.” The average target price is $2.04 per share, about 39% above the last closing price.