Transat A.T. Inc. (TSX: TRZ) announced this morning that it has entered into an agreement with the Government of Canada to borrow up to $700 million in additional liquidity. The agreement was made through the government’s Large Employer Emergency Financing Facility program mean to provide liquidity assistance.
The repayable credit made available by the Canada Enterprise Emergency Funding Corporation through the program is meant for Transat to use on an as-needed basis. Under the terms of the agreement, the $700 million credit is broken down as follows:
- $390 million credit intended for Transat’s business recovery, which includes: $78 million non-revolving and secured credit with a 2-year maturity and bearing interest at Canadian dollar offered rate plus 4.5%; and $312 million non-revolving and unsecured credit facility with a 5-year maturity and bearing variable interest at 5% for the first year, 8% for the second year, and increasing by 2% per annum thereafter.
- $310 million of unsecured credit intended to refund canceled scheduled flights on or after February 1, 2020, due to the pandemic. This amount is repayable over 7 years, bearing interest at the current 7-year bond rate of 1.2%.
Related to the $312 million unsecured credit, Transat issued a total of 13 million warrants exercisable to purchase common shares at $4.50 per share within 10 years from issuance. This amounts to $58.5 million, representing 18.75% warrant coverage of the $312-million credit. Pursuant to the terms, the warrants are to vest in proportion to Transat’s drawings. Should the loan be repaid in full in the first year, 50% of the warrants would be forfeited.
Prior to this new agreement, Transat had existing funding of $120 million secured from the National Bank of Canada, Bank of Nova Scotia, and Export Development Canada. This brings the total amount of available financing to Transat to $820 million.
Following this credit arrangement with the government, the company commits to reimburse travelers whose flights got canceled due to the pandemic; restrict dividends, stock repurchases, and executive compensation; and maintain its April 28, 2021 active employment level moving forward.
Transat A.T. Inc. last traded at $4.53 on the TSX.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.