Spirit Airlines downgraded to ’D’ by Fitch after second bankruptcy filing

Investing.com -- Fitch Ratings has downgraded Spirit Airlines’ Long-Term Issuer Default Rating (IDR) to ’D’ from ’CCC-’ following the airline’s Chapter 11 bankruptcy filing on August 28, 2025.

This marks Spirit’s second bankruptcy filing this year, coming just months after it emerged from its previous Chapter 11 proceedings in March 2025. The airline plans to implement a "comprehensive operational and financial overhaul" to reduce its cost structure amid ongoing profitability challenges.

Fitch also downgraded Spirit IP Cayman Ltd.’s and Spirit Loyalty Cayman Ltd.’s senior secured debt to ’C’ with a Recovery Rating of ’RR4’ from ’CCC-’/’RR4’, while affirming Spirit’s 2017-1 class AA, 2017-1 class A, and 2015-1 class A certificates.

The rating agency expects a longer restructuring timeline as Spirit aims to rightsize its fleet, focus on more profitable routes, and reduce costs. The airline has stated operations will continue normally during the restructuring process, though Fitch warns customers may book with other carriers, potentially accelerating cash burn.

Spirit’s financial position deteriorated significantly before the filing, with $473 million in operating cash outflow during the first half of 2025 and cash reserves dropping from over $1 billion at the end of 2024 to $407.5 million by the second quarter of 2025. The company fully drew its $275 million revolver and raised an additional $250 million in July through engine and spare parts sales.

Fitch believes the risk of liquidation is "elevated" following this second bankruptcy filing. The agency notes Spirit has limited remaining assets to monetize, and ongoing operating losses coupled with business model uncertainties reduce the likelihood of additional creditor support.

For its recovery analysis, Fitch assumes Spirit will reorganize as a going concern rather than liquidate. The agency estimates a sustainable post-reorganization EBITDA of $220 million and applies a 5.0x multiple, generating an estimated enterprise valuation of $990 million after accounting for administrative claims.

The EETC certificates continue to benefit from solid overcollateralization, supporting their current ratings. Both the 2015-1 and 2017-1 certificates maintain moderate cushions with loan-to-values at 88.2% and 90.2% respectively in Fitch’s ’A’ level stress scenario.

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