Spirit Airlines Slashes Interest Expense With Financing Moves
U.S. airlines that entered 2020 with strong balance sheets didn't have trouble issuing new debt to supplement the government aid they received during the height of the COVID-19 pandemic. By contrast, those that came into the crisis with greater liabilities and less collateral to borrow against had to pay high interest rates to raise new debt. In many cases, they also had to issue stock at prices well below pre-pandemic levels, diluting their existing shareholders.
Spirit Airlines (NYSE: SAVE) definitely fell into the latter category. Management had to make some hard choices as the pandemic abruptly halted the budget airline's explosive growth. Last week, Spirit completed a series of transactions to blunt the impact of its costly 2020 financing moves. Let's take a look.
Spirit Airlines ended 2019 with about $3.6 billion of debt and lease liabilities, equal to nearly four times its earnings before interest, taxes, depreciation, amortization, and rent. Management assumed that Spirit's $1.1 billion of cash and investments provided an adequate buffer in the event of a downturn. Normally, that would have been true -- but it was wholly insufficient for last year's unprecedented air travel downturn.
Source Fool.com
