Budget airline Spirit Airlines just hit turbulence. S&P Global Ratings downgraded Spirit's credit rating to 'CCC' from 'CCC+' on June 5th, 2024, citing concerns about the company's financial health and ability to meet upcoming debt obligations.
By Aditya M
Why the Downgrade?
S&P highlighted several factors contributing to the downgrade:
- Tight Finances: Spirit is expected to experience a significant cash flow deficit in the next year. This is due to competitive pricing, imbalanced demand in key markets, and limited capacity growth caused by engine issues.
- Looming Debt: The airline faces a major hurdle in September 2025 with a $1.1 billion loyalty bond coming due. Spirit also has a $500 million convertible note maturing in 2026.
- Refinancing Risk: With its weakened financial performance, refinancing these debts appears challenging. S&P even suggests a "distressed exchange" is likely, which basically means investors may not be fully repaid.
Negative Outlook
The 'CCC' rating falls deep into "junk bond" territory, indicating a high risk of default. The negative outlook attached to the rating reflects S&P's uncertainty about Spirit's ability to address its debt issues and maintain a sustainable capital structure.
What's Next for Spirit?
Spirit is reportedly in talks with lenders to explore options for refinancing its debt. The company has advisors on board and aims to reach a resolution this summer. Successfully navigating these discussions and potentially restructuring its debt will be crucial for Spirit's future.
Impact on Travelers
In the immediate term, this downgrade likely won't affect passengers directly. However, it could potentially impact Spirit's ability to invest in its fleet, routes, or services. Investors, on the other hand, should carefully consider the risks involved before investing in Spirit's bonds or stocks.
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