Florida’s Spirit Airlines cuts expenses by shifting finances

Spirit Airlines (NK, Fort Lauderdale Int’l) has announced that it entered into “a series of liability management transactions given the favourable market dynamics,” selling stock to holders of its convertible notes, allowing it to buy back some of its high-cost debt. At the same time, it repurchased most of its convertible debt with the proceeds of a new convertible debt offering on much better terms. The company relayed in a May 3 stock exchange filing that it had made USD371.3 million from an issuance of just under 10.6 million shares of its common stock, at USD35.05 per share, to holders of its 4.75% senior secured notes due in 2025. It used almost all of these proceeds, USD368.7 million, to redeem the USD340 million principal amount of its USD850 million 8% five-year bonds announced last August, plus a premium of USD27.2 million and USD1.5 million in accrued interest. As a result, USD510 million in these bonds remain outstanding. Spirit simultaneously issued USD500 million worth of new convertible debt due in 2026 with an interest rate of just 1% and a conversion price of USD49.07 per share. It used these proceeds to repurchase USD146.8 million of the convertible debt it issued last year, plus a premium of USD290.7 million and accrued interest of USD3.2 million, leaving USD28.2 million outstanding. These actions will reduce Spirit Airlines’ annual interest expenses by USD30.1 million. The company now has about 105.3 million shares outstanding, rising to about 110.6 million when the remaining portion of the convertible debt issued last year converts into shares. This is almost 60% more than it had at the end of 2019, representing a significant dilution for shareholders.