(Bloomberg) — Certain bondholders of Spirit Airlines Inc. have been given special protection in an $840 million financing deal aimed at bailing the airline out of bankruptcy and shielding them from financial restructurings that have roiled debt investors in recent years by favoring some creditors over others.
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Spirit’s exit notes contain restrictions on so-called liability management transactions that favor some bondholders over others, according to papers filed in New York bankruptcy court. Owners of Spirit’s convertible notes sought the language, people with knowledge of the matter said. These bondholders will receive $140 million from the exit notes, as well as a minority stake in the airline.
The protections are a response to a series of distressed deals that have pushed down creditors and offered better terms to rival bondholders driving those transactions. The terms of the exit notes, which could change during Spirit’s bankruptcy and need to be approved by a judge, would not prevent Spirit from pursuing potential liability management transactions in the future if the deal treats all bondholders equally, some people said . asked not to be identified while discussing discussions with creditors.
A Spirit representative declined to comment.
Two groups of bondholders support Spirit’s restructuring: one owns most of its $1.1 billion in senior secured notes due in 2025 and the other owns most of its approximately $525 million in convertible notes. The group of senior noteholders includes Citadel Advisors, Pacific Investment Management Co. and Western Asset Management Co., Bloomberg News previously reported. Holders of convertible notes include affiliates of Cyrus Capital Partners LP and Shaolin Capital Management.
The language used in Spirit’s exit notes is potentially new, according to CreditSights special situations analyst Evan DuFaux. The current terms are likely a placeholder to protect certain bondholders and the language will likely be narrowed in the final contract, DuFaux said.
In addition to the notes, owners of Spirit’s senior notes will get the bulk of the airline’s equity once it emerges from bankruptcy, but owners of the convertible notes will also get a share, according to an analysis of DuFaux’s proposed restructuring in November. Bondholders are also providing $300 million in debtor-in-possession financing to support Spirit through the Chapter 11 process and $350 million in new equity.
Spirit is planning a relatively quick trip through Chapter 11 with a plan that calls for bondholders to swap $795 million in debt for equity in the reorganized company.
The case concerns Spirit Airlines Inc., 24-11988, US Bankruptcy Court, Southern District of New York (Manhattan).
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