Item 8.01 Other Events.
Senior Secured Notes Offering
On November 9, 2022, the Company announced a private offering (the “Offering”) of an additional $500 million in aggregate principal amount of 8.00% Senior Secured Notes due 2025 (the “Additional Notes”) by Spirit IP Cayman Ltd., an indirect wholly-owned subsidiary of the Company, and Spirit Loyalty Cayman Ltd., an indirect wholly-owned subsidiary of the Company (the “Issuers”). The Issuers had previously issued 8.00% Senior Secured Notes due 2025 in an aggregate principal amount of $850 million pursuant to an indenture, dated September 17, 2020 (the “Indenture”), of which $340 million were redeemed on May 10, 2021 (the “Existing Notes” and, together with the Additional Notes, the “Notes”).
The Additional Notes will be issued as additional notes pursuant to a supplemental indenture to the Indenture, and will be guaranteed by the Company and certain subsidiaries of the Company. The Additional Notes will be secured, on a pari passu basis with the Existing Notes, by a first priority lien on the core assets of the Company’s Free Spirit loyalty program comprised of cash proceeds from its co-branded credit card programs and Spirit Saver$ Club program and intellectual property utilized in connection with the loyalty program as well as the Company’s brand intellectual property. A third-party appraisal has estimated the combined value of the core assets of the Company’s Free Spirit loyalty program and its Spirit Saver$ club to be approximately $2.6 billion and the value of the Company’s brand intellectual property to be approximately $1.6 billion. The Additional Notes are not expected to be fungible with the Existing Notes for U.S. federal income tax purposes, and are not expected trade fungibly with the Existing Notes over the facilities of the DTC or otherwise, but will be treated as a single series of senior secured debt securities with the Existing Notes and as a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase.
In connection with the Offering, the Company expects to enter into an amendment to the Parent Brand Sublicense, dated as of September 17, 2022 with Spirit Finance Cayman 2 Ltd., to increase the brand license fee paid by the Company thereunder to an amount equal to the greater of (a) $18.75 million and (b) five percent (5.0%) of the Company’s total revenue in the immediately prior four fiscal quarters, divided by four.
The Issuers intend to use the net proceeds received from the Offering to (i) fund the notes reserve account and (ii) after the funding of the notes reserve account, distribute the remaining net proceeds of the Offering to the Company. The Company intends to use such net proceeds to repay (a) the outstanding principal balance of the 5.11% Series 2017-1C EETC due through 2023 at maturity on February 15, 2023 and (b) the outstanding principal balance of the 4.93% Series 2015-1C EETC due through 2023 at maturity on April 1, 2023, and for general corporate purposes.
Certain of the statements above are forward-looking statements subject to the various risks and uncertainties described in our reports filed with the U.S. Securities and Exchange Commission. See “-Forward-Looking Statements” below.
This report does not constitute an offer to sell or a solicitation of an offer to buy the Additional Notes or any other securities and shall not constitute an offer, solicitation or sale in any jurisdiction in which such an offer, solicitation or sale would be unlawful prior to the registration and qualification under the securities laws of such state or jurisdiction. The Additional Notes are being offered only to persons reasonably believed to be “qualified institutional buyers” in an offering exempt from registration in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States in reliance on Regulation S under the Securities Act. The Additional Notes proposed to be offered will not be registered under the Securities Act or any state securities laws and may not be offered or sold in the United States without registration or an applicable exemption from the registration requirements of the Securities Act or any applicable state securities laws.
Forward-Looking Statements
Forward-Looking Statements in this report and certain oral statements made from time to time by representatives of the Company contain various forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act) which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions intended to identify forward-looking statements. Forward-looking statements include, without limitation, statements regarding the Company's intentions and expectations regarding revenues (including the targeted combined annual cash proceeds figures included in this report), capacity and passenger demand, additional financing, capital spending, operating costs and expenses, pre-tax income, pre-tax margin, taxes, hiring, aircraft deliveries and stakeholders, vendors and government support, as well as statements regarding the Offering described in this report. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors include, among others, the extent of the impact of the COVID-19 pandemic on the Company’s business, results of operations and financial condition, and the extent of the impact of the COVID-19 pandemic on overall demand for air travel, the impact of the new 5G-C-band service deployed by AT&T and Verizon and its potential impact on the technology we rely on to operate our aircraft; pendency and the consummation of the merger with JetBlue and the potential negative impacts on future business that may result from a failure to complete the merger with JetBlue in a timely manner or at all; restrictions on the Company’s business by accepting financing under the CARES Act and other related legislation, the competitive environment in our industry, our ability to keep costs low and the impact of worldwide economic conditions, including the impact of economic cycles or downturns on customer travel behavior and other factors, as described in the Company’s filings with the Securities and Exchange Commission, including the detailed factors discussed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as supplemented in the Company’s Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2022, June 30, 2022 and September 30, 2022. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Risks or uncertainties (i) that are not currently known to us, (ii) that we currently deem to be immaterial, or (iii) that could apply to any company, could also materially adversely affect our business, financial condition, or future results. Additional information concerning certain factors is contained in the Company's Securities and Exchange Commission filings, including but not limited to the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.