In a significant ruling for bankruptcy law practitioners, Judge Sean H. Lane of the U.S. Bankruptcy Court for the Southern District of New York has approved the use of third-party releases in Spirit Airlines' Chapter 11 reorganization plan, determining that the airline's "opt-out" mechanism for creditors satisfies the legal requirement for consent.
The 47-page decision issued on March 7, 2025, addresses objections raised by the U.S. Trustee and the Securities and Exchange Commission, who argued that the releases—which shield certain non-debtor parties from future litigation—were improperly imposed without creditors' affirmative consent.
"For the reasons stated above, the Third-Party Releases and opt-out mechanism in the Plan are approved," Judge Lane wrote in his memorandum of decision, which provides detailed analysis of what constitutes valid consent following the Supreme Court's 2024 Harrington v. Purdue Pharma decision.
Comprehensive Financial Restructuring
Spirit Airlines filed for Chapter 11 protection in November 2024 with a pre-negotiated restructuring support agreement (RSA) that had the backing of approximately 80% of the company's debt holders. The reorganization plan includes several key financial components:
- $300 million in senior secured superpriority debtor-in-possession financing
- Exchange of $700 million of Senior Secured Notes and $140 million of Convertible Notes for exit secured notes financing
- Equitization of approximately $795 million in remaining debt to equity interests
- A fully backstopped equity rights offering raising $350 million
- An exit revolving credit facility
Under the plan, priority claims and general unsecured creditors will receive full payment or remain unimpaired—a feature made possible by the agreement of senior creditors to convert substantial debt to equity.
Legal Significance of the Ruling
The court's decision centers on whether an "opt-out" mechanism—where creditors are deemed to consent to releases unless they take action to decline—is sufficient to establish consent after the Supreme Court's Purdue Pharma ruling, which prohibited nonconsensual third-party releases but left open what constitutes valid consent.
Judge Lane found that the circumstances in Spirit's case justified the opt-out approach, citing:
- Clear and prominent presentation of the releases in all plan materials
- Consistent presentation of the releases throughout the case
- Substantial recoveries for affected creditors, giving them economic incentive to pay attention
- The well-publicized nature of the bankruptcy proceedings
- No objections from the Official Committee of Unsecured Creditors
"The Court concludes that the proposed Third-Party Releases here are consensual—and the proposed opt-out mechanism permissible—for several reasons," the judge wrote, distinguishing the case from others where courts rejected similar mechanisms.
Widespread Support Among Stakeholders
Voting results demonstrated overwhelming support for the plan. Class 4 (Senior Secured Notes Claims) voted 100% in favor, while Class 5 (Convertible Notes Claims) voted 99.97% in favor by dollar amount and 95.56% by number.
Davis Polk & Wardwell LLP represents Spirit Airlines in the proceedings, with a team led by Marshall S. Huebner, Darren S. Klein, Benjamin S. Kaminetzky, Marc J. Tobak, Christopher S. Robertson, Moshe Melcer, and Kayleigh Yerdon.
The airline's reorganization has proceeded on an expedited timeline, with the bankruptcy filing in November 2024 and a confirmation hearing held on February 13, 2025. The court had previously entered a confirmation order on February 20, 2025, setting aside the third-party release issue for the separate written decision issued last week.
This ruling provides important guidance for how bankruptcy courts in the Southern District of New York may evaluate consensual third-party releases in the post-Purdue Pharma legal landscape.
This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 47 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.
Memorandum of Decision - 47 pages (link to PDF)