Court Will Confirm Spirit Airlines Plan, Approve Opt-Out Nondebtor Releases

At a hearing today Judge Sean H. Lane indicated he will confirm the Spirit Airlines debtors’ plan of reorganization over the U.S. Trustee’s and Securities and Exchange Commission’s objections to the plan’s opt-out nondebtor releases. Judge Lane found that the plan satisfies all the technical requirements for confirmation under the Bankruptcy Code at a hearing on Feb. 13 but took the nondebtor release issue under advisement.

Marshall Huebner of Davis Polk, counsel for the debtors, indicated that a confirmation order must be entered today to close the plan’s equity rights offering and move the company toward emergence. At Judge Lane’s urging, Huebner agreed to confer with the UST and SEC to fashion appropriate language reflecting the judge’s oral ruling and submit a revised proposed confirmation order as soon as possible.

The UST and SEC asserted that requiring creditors to affirmatively opt out of the nondebtor plan releases, rather than giving them the option to opt in, rendered the releases nonconsensual in violation of the U.S. Supreme Court’s Purdue Pharma decision – an argument the UST has made in numerous cases with mixed results. Judge Lane did not provide any explanation for his rejection of this argument, but indicated that he intends to file a written opinion by the end of February.

In addition to moving Spirit Airlines closer to emergence, the ruling could have major implications for the Purdue case – also pending before Judge Lane – because the method for opioid claimants to consent to nondebtor releases for members of the Sackler family will be a key issue in the debtors’ anticipated plan. The Purdue debtors will likely rely on Judge Lane’s ruling and include opt-out, rather than opt-in, releases in their forthcoming plan.