The News
A group of holdout creditors doomed Spirit Airlines’ government bailout, according to government officials and other people familiar with the matter.
Ares, Citadel, and distressed-debt specialist Cyrus were among the senior most Spirit creditors that remained steadfastly opposed to a government deal that would see their repayment dinged or vanish — and which possessed rejection rights they threatened to exercise, according to the people. Their resistance stemmed from the fact that they had invested hundreds of millions of dollars apiece into Spirit’s most senior debt — debt which, under typical circumstances, would make them first in line to be made whole.
Spirit had three main creditor groups, two of which were willing to play ball with the Trump administration, Semafor previously reported — due to the fact that they were going to get almost nothing out of a Chapter 11 restructuring.
Spirit is now likely bound for a Chapter 7 liquidation, where the company’s assets would be sold off to satisfy its debts in order of seniority — with repayment starting at the top of the stack, with the holdouts. The Wall Street Journal reported earlier Friday that Spirit is preparing to cease operations.
“We’re looking at Spirit and we’ll help them if we can but we have to come first. America comes first,” President Donald Trump said on Friday afternoon.
A Spirit spokesperson said the airline was operating as usual and declined to comment on ongoing discussions. A spokesperson for the creditor group also declined to comment.
Rohan’s view
President Donald Trump has bulldozed equity investors, rival governments, and corporate titans before. He is now at least 0-2 going up against the bond market. First, early on in his second term, “bond vigilantes” prompted a pullback on some of his more aggressive tariff plans against our closest neighbors.
But the sophisticated investors who handed him a defeat here aren’t the same kind of bond vigilantes. They’re more like mercenaries, who have long experience picking over the carcasses of struggling companies and reaping handsome profits. The market rewards them for their risk — the space they operate in is a feast-or-famine business, and for their intransigence. And while they may be pilloried by the US president, Spirit’s 11,000 employees, and the countless Americans who fly Spirit’s routes — they’ve done the right thing here. By holding firm against the US government intervention, they’ve managed to protect the sanctity of the Chapter 11 process.