It’s been a rather turbulent week for Spirit Airlines (NYSE:SAVE), to say the least. After a judge blocked the company’s merger with JetBlue (NASDAQ:JBLU) earlier this week, reports are now surfacing that Spirit Airlines appears to be pursuing restructuring options in a bid to save the company. In today’s session, SAVE stock has sank to a new all-time low, declining more than 28% at the time of writing.
A Wall Street Journal report released today suggests that Spirit Airlines’ $1.1 billion in debt maturities due in Q3 of next year are the crux of the issue. It’s a difficult environment for companies looking to refinance debt, with higher risk-free rates cooling corporate debt markets. Accordingly, with a merger out of the question, the company’s management team may need to resort to some dire measures to continue as a going concern.
Let’s dive into what investors may want to make of this report and why SAVE stock has plummeted on this report.
Can SAVE Stock Be Saved?
In recent months, the corporate debt market has become a focal point for many investors. Given the higher interest rate environment, refinancing debt isn’t as simple as it has been in the immediate period following the pandemic. The Federal Reserve’s attempts to cool inflation have resulted in investors asking for higher premia for higher-risk debt. And in the case of Spirit Airlines, the company’s debt load and forward-looking prospects put this company in a difficult position, with limited investor demand likely for any sort of debt refinancing from the airline.
Spirit Airlines’ notoriously cheap fares became a central focal point of the recent court decision to block the merger. Fares would likely have risen as a result of the deal, harming consumers.
However, without higher fares or a more competitive market share, it appears investors are pricing in a higher likelihood Spirit will need to utilize the bankruptcy system to restructure its debts. The company noted in a statement that it will take “prudent steps to ensure the strength of its balance sheet and ongoing operations.” That seems to indicate that more plane sales (likely leading to lower revenue) and debt restructuring talks may be the focus of the management team, with any sort of growth prospects likely put on hold.
For investors looking to play the airline space from a growth angle, that’s not great. And while Spirit may certainly come out of a restructuring stronger, for now, it’s a stock that many investors clearly don’t want to touch.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
