MIAMI – Air Canada (AC) announced it has concluded an agreement with the Canadian government to secure debt and equity financing for US$4.7bn (C$5.9bn), obtained thru the LEEFF (Large Employer Emergency Financing Facility).
The financing package is composed of fully repayable loans, that AC would only draw down as required, equity investments, and comprises :
- Gross proceeds of C$50m for AC shares at a price of C$23.1793 per share;
- C$1.5bn in the form of a secured revolving credit facility at a 1.5% premium to the Canadian Dollar Offered Rate (CDOR); the facility is secured on a first lien basis by the assets of Aeroplan Inc., Air Canada’s shares in Aeroplan as well as certain assets of AC, including certain intellectual property relating to the Aeroplan loyalty program;
- C$2.475bn in the form of three unsecured non-revolving credit facilities of C$825m each with the first, five-year tranche at a 1.75% premium to CDOR per annum; the second, six-year tranche at 6.5% per annum (increasing to 7.5% after 5 years); and the third, seven-year tranche at 8.5% per annum (increasing to 9.5% after 5 years);
- As part of the financial package, AC issued an aggregate of 14,576,564 warrants exercisable for the purchase of an equal number of AC shares, subject to customary adjustments, at a price of $27.2698 per share during a 10-year term, representing 10% of the total commitment available under the above secured and unsecured credit facilities; 50% of the warrants vested concurrently with the implementation of the credit facilities and the remaining 50% of the warrants will vest on a proportional basis to the amounts that AC may draw under the above-unsecured credit facilities;
- Up to approximately C$1.4bn in the form of unsecured credit, facility tranche to support customer refunds of non-refundable tickets. The facility will have a seven-year term and carry an annual interest rate of 1.211%.
Air Canada Engages in Strict Commitments
The Canadian airline has agreed to commitments going from customer refunds to service to regional communities, restrictions on the use of the funds provided, employment, and capital expenditures, these obligations being part of the financing package.
In detail, this will include refunds, based on the original form of payment, for non-refundable tickets purchased but not used because of Covid-19 since February last year. AC will not recover travel agencies commissions in a move to support the trade partners. This action is to begin on April 13.
The carrier engages itself in resuming or giving access to regional services, disrupted by the pandemic, either thru the offer of direct flights or by interline agreements with other carriers.
The carrier is bound to apply a reduction to certain expenses, not to distribute dividends, abstain from shares buyback, and from paying compensations to senior executives. AC also agrees to maintain employment levels not lower than those in force on April 1, 2021.
Aircraft Acquisition Obligations
The Airline is also under the obligation to complete the acquisition of 33 Airbus A220 aircraft, manufactured by Airbus Canada facilities in Quebec and the pending firm order for 40 Boeing 737 MAX, both being subject to the purchase order terms and conditions.
The shares acquired by the Canadian government are subject to restriction in transfers while the voting rights, acquired thru the purchase, shall not exceed 19.9% including warrants exercise.
Featured image: Air Canada C-FRAM Boeing 777-300ER – Photo : Simon Gloyn-Cox/Airways