April 29 - Transat A.T. Inc. announced that it has reached an agreement with the Government of Canada to borrow up to $700 million in additional liquidity through the Large Employer Emergency Financing Facility (LEEFF).

 

“The agreement reached with the Government of Canada provides us with an additional $700 million in liquidity, which is the amount we needed to move forward with confidence. Our strong balance sheet prior to the pandemic and the aggressive actions we have taken since have enabled us to weather this unprecedented crisis so far. With this support, we now look forward to resuming operations as soon as safe travel is possible and travel restrictions can be lifted. We will then be able to implement our plan to make Transat a solid and profitable company once again, one that will continue to symbolize leisure travel for its many customers in Quebec and elsewhere,” declared Jean-Marc Eustache, President and Chief Executive Officer.

 

“The funds obtained will also enable us to reimburse our customers whose travel had to be cancelled due to the pandemic under conditions that are sustainable for the company, which we welcome.”

 

The new fully repayable credit facilities made available by the Canada Enterprise Emergency Funding Corporation under the Large Employer Emergency Financing Facility, which Transat would use only on an as-needed basis, are as follows:

• An amount of $390 million, representing the liquidity needed to support Transat until its business has recovered to a level where it can generate cash once again, broken down as follows:

          • An amount of $78 million in the form of a non-revolving and secured credit facility bearing interest at CDOR (Canadian Dollar Offered Rate) plus 4.5% and maturing in 2 years; the facility is secured by a first-ranking charge on the assets of Transat A.T. Inc

          • A $312 million non-revolving and unsecured credit facility with a 5-year maturity, loaned at a rate of 5% in the first year, increasing to 8% in the second year, and by 2% per annum thereafter, with the possibility of capitalization of interest in the first two years

          • In the context of the financing arrangement, Transat issued a total of 13,000,000 warrants for the purchase of an equivalent number of shares of Transat (subject to certain limitations described below), with customary adjustment provisions, at an exercise price of $4.50 per share (representing the volume-weighted average trading price for the five trading days preceding the issuance of the warrants) over a 10-year period, representing 18.75% of the total commitment available under the above non-revolving and unsecured credit facility. The warrants are to vest in proportion to the drawings that will be made, and 50% would be forfeited if the loan were to be repaid in full in the first year

• An amount of $310 million consisting of an unsecured credit facility to provide reimbursement to travelers who were scheduled to depart on or after February 1, 2020, for whom a travel credit was issued as a result of COVID–19. This amount is repayable over a 7-year term and is loaned at the current 7-year Canada Bond rate of 1.2%

 

The number of shares issuable upon exercise of the warrants may not exceed 25% of the current number of issued and outstanding shares, nor may it result in the holder owning 20% or more of the outstanding shares upon exercise of the warrants. In the event of an exercise of warrants that surpasses these thresholds, the excess will be payable in cash on the basis of the difference between the market price of Transat’s shares and the exercise price. Finally, in the event that the credit facility is repaid in full by its maturity, Transat will have the right to redeem all of the warrants for a consideration equal to their fair market value. The warrants will not be transferable prior to the expiry of the period giving rise to the exercise of such redemption right. In addition, the holder of the warrants will benefit from registration rights to facilitate the sale of the underlying shares and the warrants themselves (once the transfer restriction has been lifted).

 

In connection with the establishment of these credit facilities, Transat has made certain commitments, including:

• The reimbursement of travelers who were scheduled to depart on or after February 1, 2020, to whom a travel credit has been issued due to COVID-19. Refunds will begin immediately, with terms to be communicated separately. As per the agreement, to be eligible, customers will need to expressly indicate their desire for a refund

• Restrictions on dividends, stock repurchases and executive compensation

• Maintaining active employment at the level of April 28, 2021

 

In addition to the new funding, the amounts already drawn on the existing facilities will remain in place and will be extended for a period of two years from the implementation of the new financing. The ratios applicable to the existing facilities will be suspended for a period of 18 months. The undrawn credit under the short-term subordinated facility will be cancelled.

 

In total, the available financing will therefore represent a maximum of $820 million. This includes the newly issued LEEFF funding, as well as existing funding of $120 million divided into $50 million under the secured revolving credit facility with National Bank of Canada and the Bank of Nova Scotia and $70 million under the subordinated credit facility with National Bank of Canada and Export Development Canada.

 

If all of the available facilities were to be used, it would be at an average rate of approximately 6%, plus the warrants.

 

 

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