Spirit Airlines earns upgrade from Fitch amid turnaround plans

Investing.com -- Fitch Ratings has elevated the Long-Term Issuer Default Rating of Spirit Airlines (OTC:SAVEQ), Inc. to ’CCC+’ from ’D’, as announced on Thursday, March 13, 2025. Concurrently, the ratings agency has assigned a ’B-’ rating with a Recovery Rating of ’RR3’ to the senior secured exit notes co-issued by Spirit IP Cayman LTD. and Spirit Loyalty Cayman LTD., both subsidiaries of Spirit Airlines, Inc. Fitch has also withdrawn the ratings on loyalty program notes issued by these entities due to their reorganization in bankruptcy.

Despite the upgrade, Spirit’s rating continues to be hampered by high leverage, risks associated with its turnaround strategy, and ongoing cash burn which could strain liquidity if planned improvements in margins are delayed. However, these risks are partially offset by the debt restructuring conducted in bankruptcy, which has left Spirit with less debt and no significant near-term maturities. Additionally, the company’s minimal upcoming capital expenditures limit near-term cash needs, apart from funding operating cash outflows.

The company’s turnaround strategy, which involves network restructuring and revenue initiatives, is anticipated to support unit revenues and boost margins. However, Fitch expects Spirit to continue generating losses at the EBIT level in 2025 and potentially through 2026, reflecting the company’s constrained credit profile.

In the near term, Fitch expects Spirit’s liquidity to remain sufficient, but pressure could arise beyond 2025 if the company’s projected profit improvements fail to materialize. Spirit projects operating losses in 2025, resulting in negative cash flow from operations of nearly $200 million.

Fitch expects Spirit’s leverage to remain high at least through 2026. Despite reducing its total debt by $1.1 billion through the bankruptcy process, Spirit retains a substantial amount of debt on its balance sheet. Fitch expects EBITDAR leverage to remain well over 10x in 2025, declining to around 8x by year-end 2026.

Spirit has minimal capital spending planned over the next three to four years, which limits cash needs and the requirement for future financing. In 2024, Spirit deferred all firm-order aircraft on order from Airbus from the second quarter of 2025 through the end of 2026, pushing these deliveries to 2030-2031.

In 2025, Spirit plans to reduce capacity by roughly 13% from 2024 levels. A relatively flat fleet count and engine related aircraft groundings will keep capacity below 2024 levels through 2027. Fitch views Spirit’s capacity constraint as a necessary step towards improving profitability.

On exit from bankruptcy, Spirit plans to have around $764 million in cash on the balance sheet and access to $275 million in undrawn revolver capacity. Fitch expects the company to burn cash for the remainder of 2025, ending the year with less than $600 million in unrestricted cash on the balance sheet.

Upon exit from bankruptcy, Spirit will issue $840 million in senior secured notes. The structure and collateral for the notes are primarily the same as Spirit’s pre-bankruptcy loyalty notes, with the exception that the new notes will also have a lien over all of Spirit’s assets that do not serve as collateral for its revolver.

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