(Bloomberg) — Certain Spirit Airlines Inc. bondholders obtained special protection in a $840 million financing deal poised to propel the airline out of bankruptcy, guarding 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 include restrictions for 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 bonds sought the language, according to people with knowledge of the matter. Those bondholders will get $140 million of the exit notes as well as a minority equity stake in the airline.
The protection is a response to a string of distressed deals that have pushed creditors down the repayment line and provided better terms to rival bondholders steering these transactions. The terms of the exit notes, which could change during Spirit’s bankruptcy and must be approved by a judge, wouldn’t prevent Spirit from pursuing potential liability management transactions in the future if the deal treats all bondholders equally, said some of the people, who asked not to be identified discussing creditor talks.
A representative for Spirit declined to comment.
Two bondholder groups are supporting Spirit’s restructuring: one owns most of the carrier’s $1.1 billion in senior secured notes due in 2025 and another owns most of its roughly $525 million in convertible notes. The senior noteholder group includes Citadel Advisors, Pacific Investment Management Co. and Western Asset Management Co., Bloomberg News previously reported. Convertible bondholders include affiliates of Cyrus Capital Partners LP and Shaolin Capital Management.
The language used in Spirit’s exit notes is potentially novel, CreditSights special situations analyst Evan DuFaux said. The current terms are likely a placeholder to protect certain bondholders and the language will likely be narrowed in the final indenture, DuFaux said.
Besides the notes, the owners of Spirit’s senior notes will get most 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 the proposed restructuring from DuFaux in November. Bondholders are also providing $300 million in debtor-in-possession financing to support Spirit throughout its Chapter 11 process and $350 million in new equity.
