MIAMI – Mesa Air Group announced on Monday, November 2 that it is has entered an agreement with the US Treasury Department to enter a five-year loan for up to US$200m under the CARES Act.
“I want to thank Treasury Secretary Steven Mnuchin and Assistant Secretary Mitchell Silk for their willingness to work with Mesa to find a way forward,” said Jonathan Ornstein, Chairman and Chief Executive Officer. “We are also very grateful for the strong show of support from the Arizona Congressional Delegation. With the help of the full Arizona Congressional Delegation, Mesa Airlines was able to maximize our U.S. Treasury loan.”
Mesa has borrowed US$43m to start, it has until December 15 to decide how much more the group may need to borrow up to US$157m more. If Mesa does take on an additional loan, it will use those to invest in updated appraisals, compliance with collateral coverage ratio and the release of liens on the collateral that will secure such additional indebtedness.
“This US$200m will strengthen Mesa as we navigate through these volatile times of COVID-19 and allow us to continue our long history as the largest airline headquartered in Arizona,” added Mike Lotz, President, and CFO of Mesa Airlines.
Interest, Warrants, and Covenants
The interest rate on all borrowings is the adjusted LIBO rate plus 3.5% for the five-year term. Mesa is obligated to issue warrants to the US Treasury Department to purchase shares of common stock of Mesa based on, and in connection with, amounts drawn under the facility.
In connection with the initial US$43m drawn under the facility, Mesa issued warrants to purchase 1,080,402 shares of common stock at an exercise price of US$3.98 per share. Upon the subsequent borrowing under the facility, Mesa will issue to Treasury additional warrants to purchase shares of common stock determined by multiplying the principal amount of the subsequent borrowing by 10% and dividing the result by US$3.98.
The Loan Agreement has two financial covenants, a minimum collateral coverage ratio and a minimum liquidity level. The Loan Agreement also prohibits Mesa from paying dividends, conducting stock buybacks, as well as places certain limitations on executive compensation. The loan is collateralized by certain aircraft, aircraft engines, accounts receivable, ground service equipment, and tooling.
“Senator McSally was extremely effective in her discussions with the Administration on our behalf, and Senator Sinema successfully worked to include language in the HEROES Act to provide additional economic support for Mesa and our employees,” Ornstein would go on to say.
Featured image: United Express CRJ700 N514MJ Photo: Wiki Commons