Shares of Spirit Airlines (SAVE) plunged 59% on Wednesday as the low-cost carrier explores a deal with creditors to restructure its debt amid a bankruptcy threat after the collapse of merger talks with Frontier (ULCC ).
On Tuesday, a Wall Street Journal report said the airline is preparing to file for bankruptcy within weeks as its talks over its partnership with Frontier collapsed.
This report followed a separate statement from the company on Tuesday evening, which said it has been in “constructive discussions” to close a restructuring deal with holders of its senior secured notes due 2025.
If an agreement is signed with creditors, “it is expected to lead to the write-off of the company’s existing capital,” Spirit said. If an agreement is not reached with bondholders, the company said it would consider all alternatives.
Spirit shares have fallen more than 90% this year.
Spirit also said Tuesday that it would not be able to report its quarterly results for the period ending Sept. 30 as restructuring talks have also diverted significant management time and internal resources from completing its financial statements.
The airline has struggled to emerge from a mountain of debt while merger talks with other airlines have failed to materialise.
Last month, Spirit and Frontier reportedly revived merger talks. Initial discussions about a partnership between the two airlines in 2022 ended after JetBlue (JBLU) outbid Frontier. However, the JetBlue merger was blocked in January by a federal judge over antitrust concerns.
Wall Street has become increasingly bearish on the airline, with analysts maintaining zero Buy ratings, four Hold recommendations and eight Sell recommendations on the stock, according to Bloomberg data.
In a note to a client late Tuesday, TD Cowen analysts lowered their full-year estimates under the assumption that the airline “contracts significantly in a restructuring.”
“[Tuesday’s] “The news also creates the risk that customers will book outside the airline, which will put even greater pressure on liquidity,” wrote TD Cowen analyst Tom Fitzgerald.
“In the event of a restructuring, the focus will be on the fate of Spirit’s fleet,” Fitzgerald added. “We expect the airline to sell the remaining encumbered assets to pay off the debt associated with the aircraft and work to decline leases for the remainder of the fleet.”
Last month, Spirit said it would lay off more than 300 pilots in January and sell older planes to cut costs.
Inés Ferré is a senior business reporter at Yahoo Finance. Follow her on X in @ines_ferre.