On the date of its shareholder meeting and weeks following a relief package for Air Canada, Transat announced it has come to an agreement with the Government of Canada to borrow up to $700 million through the Large Employer Emergency Financing Facility (LEEFF).
The company simultaneously said refunds for trips cancelled due to the pandemic would begin immediately.
It’s “the amount we needed to move forward with confidence,” said Jean-Marc Eustache, President and Chief Executive Officer, in a media release. “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 funding comprises fully repayable credit facilities made available by the Canada Enterprise Emergency Funding Corporation under the Large Employer Emergency Financing Facility.
Transat would use the funds only on an as-needed basis:
- $390 million for liquidity needed until Transat’s business has recovered to a level where it can generate cash once again. That amount is broken down:
- $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.
- $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.
- Transat has issued a total of 13,000,000 warrants for the purchase of an equivalent number of shares of Transat, at $4.50 per share 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.
- $310 million consisting of an unsecured credit facility to provide reimbursement to travellers 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%.
On its part, Transat will:
- Reimburse travellers 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;
- Restrict dividends, stock repurchases and executive compensation;
- Maintain 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 two years from the implementation of the new financing.
In total, the available financing represents 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.
“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,” Eustache’s statement goes on to say.
“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.”