Moody's gives Ba2 to Spirit Airlines notes

Moody's Investors Service said it gave a Ba2 rating to Spirit IP Cayman Ltd.’s additional offering of 8% notes. The agency also affirmed the Ba2 senior secured rating assigned to the outstanding notes and affirmed its B1 ratings for Spirit Airlines Inc. Moody's also changed the outlook to negative from stable.

Spirit IP will use a portion of the proceeds for any required funding of the notes reserve account. The remainder will be loaned to Spirit on an intercompany basis. Spirit will use the proceeds for general corporate purposes, including the retirement at the respective maturities of the class Cs of its two outstanding equipment trust certificate financings. There was $155 million outstanding on these two obligations at Sept.30. The first maturity is on Feb. 15, 2023, and the second on April 1, 2023.

"Tapping the indenture of the existing notes will increase financial leverage for an extended period compared to our prior expectations," said Jonathan Root, Moody's lead analyst for Spirit, in a press release.

"While the additional cash will enhance liquidity, the decision to issue additional notes may indicate the potential for operating challenges which could result in additional cash burn," Root added.

Though the agency said it expects the robust demand for air travel to continue for the next 12-18 months, there is a risk a recession would crimp passenger demand making it difficult to cover higher costs through increased ticket prices.

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