Archive for month: November, 2024

 

By DAVID LYONS | South Florida Sun Sentinel

November 26, 2024

When Spirit Airlines filed its Chapter 11 bankruptcy petition in New York last week, one of its top executives offered the court a note of optimism.

The troubled South Florida-based airline, said Fred Cromer, an executive vice president and chief financial officer in a court declaration, was entering its financial overhaul process “with an eye towards continuing to deliver low-cost, high-quality service to its loyal customers, and to do so for years to come.”

The question is, does the pioneering discounter have enough time to transform its service profile from a maverick bare-bones carrier to a more upscale airline?

On approach to one of the busiest Thanksgiving travel seasons in memory, Spirit flew as usual last week after filing a “prearranged” Chapter 11 bankruptcy petition designed to quickly reduce a large chunk of debt in a restructuring deal with lenders that calls for the creditors to take $350 million in newly created equity in the airline. They’re also lending Spirit a fresh $300 million to finance operations during the Chapter 11 process.

The lender deal became bad news for existing shareholders, whose stock will be canceled when the airline expects to exit bankruptcy at some point in March. Between now and then, U.S. Bankruptcy Judge Sean H. Lane and a lender-
dominated creditors committee will be co-piloting the airline.

Here is where Spirit stood less than a week after it filed its Chapter 11 petition on Nov. 18:

• Operating Cash: The judge signed an array of orders that allows Spirit to pay routine operating expenses ranging from employee salaries and fuel bills to a small army of vendors and airport landlords.
• The Stock: As promised by management, Spirit’s battered common stock was delisted from the New York Stock Exchange, with trading moved to the over-the-counter market. Now the shares are acting as a penny stock (symbol SAVEQ), changing hands at 15 cents a share Friday. Before the delisting, the 52-week high for the stock (symbol SAVE) exceeded $17 with the low at $1.08.
• Retention Bonuses: Six days before the Chapter 11, the Spirit board authorized $5.4 million in retention bonuses to five upper echelon executives led by CEO and president Ted Christie, who would receive $3.8 million, according to a regulatory filing. Companies typically use such bonuses to keep critical leadership in place during stressful times, according to compensation specialists. Christie, who joined the company in 2012 as chief finance officer, has piloted Spirit through a number of challenges: Spirit’s rough-hewn customer relations, COVID-19, two ill- fated merger/takeover attempts by Frontier Airlines and JetBlue Airways, a manufacturer’s engine recall that is grounding multiple aircraft, debt restructuring talks, and the Chapter 11 bankruptcy filing.
• Airbus Sales: The bankruptcy court apparently is taking a look at a proposed pre-bankruptcy deal where Spirit agreed to sell 23 Airbus jetliners to the Fort Lauderdale-based aviation firm GA Telesis. A hearing is scheduled for next week, according to the court docket. Asked whether it anticipates that the deal will be approved, a GA Telesis spokesperson said: “YES — We have full intention as does Spirit to continue with the transaction as documented.”

Spirit did not immediately respond to emailed questions about the stock, retention bonuses, aircraft deal and whether travelers might be booking away from the airline.

Bondholders in control

As outlined by Cromer in his declaration to the court, approximately $1.635 billion of outstanding funded debt would be restructured and the company’s total funded debt would decline by approximately $795 million with the lenders collectively receiving $840 million in secured notes and new common stock in the reorganized company. The lenders are, in effect, holding most of the cards, analysts say.

The airline is emphasizing a “business as usual” posture, stating that employees, vendors, landlords and anyone else doing business with the company will be paid on time during the Chapter 11 proceedings while the airline flies the schedule it laid out for the fourth quarter of this year. It currently serves more than 80 destinations in the U.S., Latin America and Caribbean.

“In sum,” Cromer wrote, “Spirit seeks to implement a financial restructuring that positions it for future stability, growth, and success without impacting its vendors or other commercial counterparties and without interrupting its ability to serve its guests during the Chapter 11.”

As of the Chapter 11 filing, Spirit employed approximately 12,800 “direct employees,” approximately 84% of them unionized. They include approximately 3,400 pilots, 5,800 flight attendants, 740 aircraft maintenance technicians, 400 ramp service employees, 330 customer service agents, and 100 flight dispatchers. Their labor agreements would remain intact. The airline contracts out work to nearly 10,000 other workers.

Encroachment by rival airlines

After evolving from a trucking company into a charter airline in Michigan in 1990, Spirit relocated to South Florida in Miramar in 1999 and started operating as an “ultra low-cost carrier” offering customers rock bottom “unbundled” base fares. If they wanted anything else such as checked baggage, seat assignments, priority boarding, refreshments, or Wi-Fi, they would pay for those services a la carte. Spirit used those low fares “to address underserved markets, which helps it to increase passenger volume and load factors on the flights it operates,” Cromer noted in his court declaration.

The business went well until COVID-19 all but grounded the industry in 2020, a year that saw most of the industry seek financial aid from the U.S. Government.

“As the seventh largest carrier in the United States, Spirit was not immune to the macroeconomic effects of the COVID-19 pandemic, an oversupplied domestic market, and larger rivals who have capitalized on premium and cost- conscious travelers alike,” Cromer wrote in his court declaration. “In the post- pandemic period, the U.S. airline industry has seen material change as a result of shifting customer demand and operating headwinds.”

“Business travel through 2023 had not fully returned to pre-COVID volumes,” Cromer added, and “premium leisure demand soared which, in combination with unbundled fare competition,” allowed carriers such as Delta and Southwest to “compete for an even greater portion of basic economy share” held by ultra low-cost carriers such as Spirit.

The airline has cut back its route network as it has sought to slash costs ahead of the Chapter 11 filing. Other airlines including discounters Frontier and Allegiant Air have since added routes in and around Spirit’s traditional Florida airspace. In the meantime, the so-called “Big Four” carriers that dominate 80% of the U.S. market — Delta Air Lines, American Airlines, United Airlines and Southwest Airlines — have been offering their own economy fares.

In a note to investors, Raymond James analyst Savanthi Syth wrote that Spirit’s capacity cuts for November and December along routes that overlapped with other carriers largely benefited Frontier, JetBlue and Minneapolis-based Sun Country, with lesser traffic gains by Alaska Airlines and Southwest.

Project Bravo

In a bid to drive more revenue, Spirit hopes to attract new customers with an upscale program of newly tiered fares and services unveiled over the summer. Dubbed in the court filing as part of a strategic overhaul called “Project Bravo,” the company has new premium offerings for customers that became available in August. They included four new travel options called “Go Big,” “Go Comfy,” “Go Savvy,” and “Go,” the latter of which is the airline’s original base fare category.

In effect, the more passengers pay, the more options they’d receive including free Wi-Fi, cabin baggage, snacks and drinks, “all with the flexibility of no change or cancel fees,” Cromer wrote.

Spirit would also add larger overhead bins and introduce premium cabins with access to free streaming Wi-Fi. People holding premium tickets would have dedicated wait lines at some airports; overall, the airline would seek to simplify boarding zones in its terminals.

The airline is already realigning its route system, dropping less profitable destinations in favor of so-called “top value seeker” cities.

The airline would also renew its focus at Fort Lauderdale-Hollywood International Airport, where it stands No. 1 in passengers carried. More “focus cities” would be added in early 2026 where management thinks it could exercise more pricing power.

But bigger airlines such as Delta think they’re dealing with a better hand than discounters when it comes to premium services. On an investor call, Delta President Glen Hauenstein took an indirect shot at Spirit, saying larger carriers with premium products “had a little bit of a downdraft” after the pandemic versus airlines focused on price.

“I think we’ve seen that manifest itself in the bankruptcy we saw filed this week,” he said.

Another takeover play?

Cromer in his declaration acknowledged that Spirit had renewed merger talks with Frontier before the bankruptcy filing, but they went nowhere.

“Over the last few months, the Company and Frontier restarted negotiations around a possible merger transaction,” he wrote. “In recent weeks, certain members of the Ad Hoc Groups were made aware of such discussions as well. Those discussions were discontinued and are no longer ongoing.”

Frontier has declined comment.

Earlier this year, after a Boston federal judge killed a proposed $3.8 billion takeover of Spirit by JetBlue Airways on antitrust grounds, the company’s stock value plunged by 60%, Cromer said. It was an event that triggered management’s effort to start exploring all of its financial options, while simultaneously figuring out how to drive new business.

Henry Harteveldt, founder and president of Atmosphere Research, a San Francisco-based consulting firm, said another round of buyout talks during the bankruptcy case is not out of the question.

“Nothing is stopping Frontier, or, for that matter, any other airline, from opening discussions,” he said.

“Another option,” Harteveldt said, is that other airlines could ask Spirit about acquiring other planes, airport gates or landing slots, or even pilot training facilities.

The outcome

Whether a Spirit Airlines with a lighter debt load and new marketing strategy will emerge from Chapter 11 equipped to become profitable remains to be seen. Joseph “Joey” Smith, an investment banker and aviation specialist at Cassel Salpeter & Co. in Miami, believes the carrier’s history as an industry disrupter will be an important asset going forward.

“How they’ve been operating to date looks like they are really trying to shake things up again,” Smith said. “And I give them credit for that. I have admiration for somebody who is being true to their founding DNA. I think it will be interesting.”

This article has been updated to include the full attribution for the Cassel Salpeter
& Co. aviation specialist.

Originally Published: November 25, 2024 at 5:00 AM EST

 

Click here to read the PDF.

Click here to read the full article.

 

By Ana Mulero
November 6, 2024

With climbing biotech M&A and IPO activity following the post-pandemic slump, experts offer insights on maximizing value and otherwise capitalizing on exit opportunities.

What Investors Are Looking For

Investors are prioritizing quality over quantity in clinical data and seeking companies whose leadership teams have proven track records, which are crucial for future exits that deliver returns.

These shifting investor priorities emerged as biotech companies navigated the challenging environment that followed the acute phase of the COVID-19 pandemic. Cody Powers, principal at ZS Associates, noted that many companies have been patiently waiting for the right moment to make their move. “The companies that survived the tough past few years were biding their time waiting for the IPO window to open” and are ready to seize IPO opportunities, with capital, investor enthusiasm and bank readiness all aligned, Powers told BioSpace. “We’re not in a bubble [anymore]; it’s the opposite—a lot of companies are lined up . . . ready to declare for IPOs, and this is exactly what happened.”

Kyverna Therapeutics closed 2024’s second-largest biotech IPO in February. Preparations began in September 2023 once the clinical-stage company collected post-treatment data on KYV-101, its CD19-targeted CAR T cell therapy for autoimmune diseases such as lupus nephritis and myasthenia gravia, as this was a key part of its exit strategy, former CEO Peter Maag told BioSpace. In September 2023, post-treatment data for lupus nephritis revealed no cases of immune effector cell–associated neurotoxicity syndrome—a known risk associated with CAR T cell therapy—in patients taking KYV-101. In November of that year, Kyverna reported collecting real-world patient data in the clinic, which ultimately contributed to the FDA’s clearance for a Phase II trial, Maag said.

“It was important to our IPO to be able to generate real-world patient data,” he told BioSpace. “Our goal was to provide initial evidence of comparable effect in autoimmune patients, but with a more acceptable risk profile.”

The Gilead-backed cell therapy startup Kyverna ultimately raised nearly $367 million in its upsized IPO. In September, Kyverna announced Maag’s resignation from his role and the board. He was succeeded by Warner Biddle, who most recently held senior commercial roles at Gilead’s Kite Pharma after a prominent career at Genentech. Christi Shaw, Kite Pharma’s former CEO, also joined the board as part of the transition to the new development phase of the KYV-101 program.

Ira Leiderman, healthcare managing director at investment banking firm Cassel Salpeter, said leadership with prior wins is seen as an indicator of a company’s ability to achieve similar market success, and added that the data must not only be good, but the potential markets big. Biotech investors are increasingly seeking “rock-star management teams and a clear path toward blockbuster therapies, not just niche products.”

Andrew Lam, managing director and head of biotech private equity at Ally Bridge Group, pointed to CG Oncology, the first biotech to go public in 2024, which raised an upsized IPO of $380 million in January. “[CG’s] strong management, excellent clinical data and significant investor backing made their IPO the largest of 2024,” Lam told BioSpace. Ally Bridge had supported CG since its series A financing round, when it invested $13.6 million and then became a significant shareholder after the biotech went public.

“[CG] is the most successful IPO of the current class of 2024,” Lam said. That’s because the company had a strong investor syndicate in its crossover round and differentiated data.

Jakob Dupont, executive partner at Sofinnova Investments, told BioSpace that leadership teams with expertise in finance and clinical development are of particular value. He highlighted the recent successes of the biotech firms that Sofinnova has supported, including startup RayzeBio.

Established in 2020, radiopharma-focused, clinical-stage RayzeBio was considered to have a rockstar leadership team with experience across the biotech, finance and pharmaceutical sectors. Key figures included former President and CEO Ken Song—who previously led Ariosa Diagnostics, acquired by Roche in 2016, and now leads Candid Therapeutics, which made its debut in September to position itself as a T cell engager market leader—and former CMO Susan Moran, who previously held leadership positions at Sanofi, Takeda, Puma Biotechnology and BridgeBio. Following closing its upsized $311 million IPO in September 2023, RayzeBio was acquired in February by Bristol Myers Squibb for $4.1 billion. The crown jewel of the acquisition was RayzeBio’s actinium-based targeted radiopharmaceutical candidate, RYZ101, which is in Phase III development for treating gastroenteropancreatic neuroendocrine tumors.

Powers noted current investor focus on leadership is part of a larger shift from investing based solely on confidence in the science to a longer-term view, recognizing that solid science does not always guarantee market success. Early-
stage investors, influenced by the formerly stagnant M&A environment, now understand that science alone is not enoug —they must also account for factors like pricing and manufacturing challenges that could limit a therapy’s potential, according to Powers. “These considerations beyond just the strength of the science are now front and center,” he said. The investor landscape “is more nuanced, with a broader set of factors to consider than before.”

Practical Tips for Executing a Biotech Exit

Experts recommend adopting a multi-pronged approach to exit strategies to enhance their chances of success, particularly by optimizing outcomes during the exit process, made easier by leveraging successful investor funding strategies. These include exploring diverse options, being open to down rounds, considering selling royalties and building strong investor syndicates.

Don’t put all your eggs in one basket.

Biotech companies should explore various exit strategies simultaneously, experts recommended, noting that this approach has become a new trend in the industry. Companies are increasingly recognizing that pursuing multiple exit options at the same time can attract more interest from potential buyers and investors, ultimately enhancing their chances of a successful exit.

“Biotech stories are rarely linear and there are more often than not large bumps in the road,” Kale Frank, managing director of Silicon Valley Bank’s life science and healthcare division, told BioSpace. “The more resources you have at your disposal and the more options you can have on the table, the more you will be able to smooth out some of those bumps.”

Powers noted that most high-profile M&A exits involve public companies that went through IPOs to better position themselves for acquisition by larger firms. For private companies, the decision between an IPO and M&A often depends on whether they have long-term growth potential, he added. But he noted that with renewed investor optimism, companies are more willing to put off a potential exit, sometimes accepting smaller funding rounds while keeping hopes for an IPO or preserving long-term value.

Frank added that “the savviest management teams are for sure looking at all options, but also thinking about ways to increase their probability of success. They have more levers to pull, both if things go well and if things don’t go according to plan A.”

Be open to a down round.

Frank argued that private companies may sometimes need to resort to down rounds—when capital is raised at a valuation lower than the previous financing round—to secure funding and move forward. Down rounds, while not ideal, can keep companies operational, allowing them to hit key milestones and improve outcomes in better market conditions.

Consider selling royalties.

Royalty financing has become an increasingly popular alternative to equity- dilutive funding options like venture capital and IPOs, as it allows companies to raise capital based on future revenue-sharing agreements, Brad Sitko, chief investment officer at XOMA Royalty, previously told BioSpace. Striking royalty deals can also help ensure financial readiness by providing immediate capital, reducing financial risk and strengthening the company’s positioning during exit negotiations, he said.

Sitko argued that opportunities in royalty monetization enable companies to access capital by selling future royalty streams despite emerging challenges in securing adequate financing, such as greater investor selectiveness. “This financing tool, combined with exit trends, suggests a potential reversal of [rising] biotech bankruptcies,” Stiko said.

Build a strong investor syndicate.

Just like CG, companies should diversify their investor base by building a strong syndicate of crossover investors who can provide financial support before and after an IPO, DuPont said. Having crossover investors with the resources to reinvest after the IPO ensures stability and fosters continued growth.

Maag added that Kyverna drew in the appropriate investors after its successful extension of a series B financing in August 2023, establishing a solid groundwork for its expansion. The company’s focus then shifted to strategically outlining long-term financing, Maag further noted.

“This marks my second IPO in my professional career, and every time it is a very different ball game,” Maag said. His first IPO was with Miromatrix Medical, which raised $49.7 million in June 2021; this set the stage for the company’s two- step acquisition by United Therapeutics in December 2023, highlighting a common M&A strategy for full integration within about 2.5 years.

Focus on the short term.

Maag also emphasized the importance of prioritizing near-term inflection points in biotech exit strategies. Achieving such upcoming milestones or events, which typically include key clinical trial results, regulatory approvals or significant partnership announcements, can drastically increase a company’s value and make it a more appealing target for acquisition or investment.

As such, Maag said companies often plan their exit strategies around these milestones to maximize their valuation and attract interest from potential buyers or investors. “Focus on developing a set of initiatives that keep adding immediate value to your business proposition and let clinical data showcase your value creation potential to investors,” Maag added.

Ana Mulero

Ana Mulero is a freelance writer based in Puerto Rico and Florida. She can be reached at anacmulero@outlook.com, on Linkedin and @anitamulero on X.

Click here to read the PDF.

Click here to read the full article.