Air Canada Second Trip to C.C.A.A.?

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rudder
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Re: Air Canada Second Trip to C.C.A.A.?

Post by rudder »

UAL issued equity in April (fully subscribed) but a debt solicitation (bonds) was withdrawn due to lack of subscription.

The AC debt piece is convertible so may not face the same fate.

AC is absolutely pulling out all of the cards to improve liquidity and avoid CCAA.
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FL-200
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Re: Air Canada Second Trip to C.C.A.A.?

Post by FL-200 »

sanjet wrote: Tue May 26, 2020 2:17 pm Looks like AC will issue new shares and debt to raise around a billion.

https://aircanada.mediaroom.com/2020-05 ... nior-Notes
The good news is they are doing this early. But overall, not a good sign.....
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L39Guy
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Re: Air Canada Second Trip to C.C.A.A.?

Post by L39Guy »

I interpret it as not wanting the government support which comes with too many onerous conditions.
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goldeneagle
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Re: Air Canada Second Trip to C.C.A.A.?

Post by goldeneagle »

L39Guy wrote: Tue May 26, 2020 8:22 pm I interpret it as not wanting the government support which comes with too many onerous conditions.
One of the statements during the announcements, companies need to consider government as 'lender of last resort', and they stated a company should exhaust all regular avenues of financing first. A secondary offering is a regular means of financing for a public company. Without reading the details of the act, I would expect the company is required to try a secondary offering before approaching the government for last resort financing.
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rudder
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Re: Air Canada Second Trip to C.C.A.A.?

Post by rudder »

goldeneagle wrote: Wed May 27, 2020 8:45 am
L39Guy wrote: Tue May 26, 2020 8:22 pm I interpret it as not wanting the government support which comes with too many onerous conditions.
One of the statements during the announcements, companies need to consider government as 'lender of last resort', and they stated a company should exhaust all regular avenues of financing first. A secondary offering is a regular means of financing for a public company. Without reading the details of the act, I would expect the company is required to try a secondary offering before approaching the government for last resort financing.
I think what the airline industry is looking for from the Feds is not a repayable loan facility, but rather an acknowledgement that status quo of paying significant portions of (now limited) revenue back in to the coffers of CRA and a multitude of other public agencies and not-for-profit former public institutions is not sustainable until full or near full travel demand recovery.

That acknowledgement has not happened, and probably will not. The airlines are on their own. Survival of the fittest.

There will be several less cash cows left when this is over.
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Re: Air Canada Second Trip to C.C.A.A.?

Post by '97 Tercel »

The AC stock is being held up by a house of cards - it can't be long before it goes below $10
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L39Guy
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Re: Air Canada Second Trip to C.C.A.A.?

Post by L39Guy »

goldeneagle wrote: Wed May 27, 2020 8:45 am
L39Guy wrote: Tue May 26, 2020 8:22 pm I interpret it as not wanting the government support which comes with too many onerous conditions.
One of the statements during the announcements, companies need to consider government as 'lender of last resort', and they stated a company should exhaust all regular avenues of financing first. A secondary offering is a regular means of financing for a public company. Without reading the details of the act, I would expect the company is required to try a secondary offering before approaching the government for last resort financing.
Here are some of the conditions attached to any relief taken from the LEEFF fact sheet (https://www.cdev.gc.ca/leeff-factsheet/.

Restrictions. The borrower will be subject to certain operating requirements while the loan is outstanding including (i) prohibitions on dividends, capital distributions and share repurchases, and (ii) certain executive compensation restrictions.

Covenants. The borrower will be subject to certain affirmative covenants while the loan is outstanding including (i) performance of obligations under existing pension plans; (ii) performance of material obligations under applicable collective bargaining agreements; and (iii) publishing an annual climate‑related financial disclosure report, highlighting how corporate governance, strategies, policies and practices will help manage climate-related risks and opportunities; and contribute to achieving Canada’s commitments under the Paris Agreement and goal of net zero by 2050.

Governance. CEEFC will reserve the right to appoint an observer to the board of the borrower.

Once again, this government is trying to impose its will and political philosophy in exchange for support much like they tried to do last year. Most business, if they can, would take a pass on this offer.
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Re: Air Canada Second Trip to C.C.A.A.?

Post by YYZSaabGuy »

L39Guy wrote: Thu May 28, 2020 8:03 am
goldeneagle wrote: Wed May 27, 2020 8:45 am
L39Guy wrote: Tue May 26, 2020 8:22 pm I interpret it as not wanting the government support which comes with too many onerous conditions.
One of the statements during the announcements, companies need to consider government as 'lender of last resort', and they stated a company should exhaust all regular avenues of financing first. A secondary offering is a regular means of financing for a public company. Without reading the details of the act, I would expect the company is required to try a secondary offering before approaching the government for last resort financing.
Here are some of the conditions attached to any relief taken from the LEEFF fact sheet (https://www.cdev.gc.ca/leeff-factsheet/.

Restrictions. The borrower will be subject to certain operating requirements while the loan is outstanding including (i) prohibitions on dividends, capital distributions and share repurchases, and (ii) certain executive compensation restrictions.

Covenants. The borrower will be subject to certain affirmative covenants while the loan is outstanding including (i) performance of obligations under existing pension plans; (ii) performance of material obligations under applicable collective bargaining agreements; and (iii) publishing an annual climate‑related financial disclosure report, highlighting how corporate governance, strategies, policies and practices will help manage climate-related risks and opportunities; and contribute to achieving Canada’s commitments under the Paris Agreement and goal of net zero by 2050.

Governance. CEEFC will reserve the right to appoint an observer to the board of the borrower.

Once again, this government is trying to impose its will and political philosophy in exchange for support much like they tried to do last year. Most business, if they can, would take a pass on this offer.
Those conditions are not materially different than those borrowers face in typical corporate credit facilities, excepting the climate disclosure language which I agree is politically motivated - I'm surprised we didn't see equity employment reporting included "Because it's 2015".

But the other terms you've quoted are pretty boilerplate. Restrictions on dividends, capital distributions and share repos are normally either explicitly laid out, or implicitly achieved through, for example, constraints on permitted leverage levels. The executive comp restrictions are unusual, but you can imagine the reaction if government loan proceeds were diverted to fund "excessive" compensation packages - look no further than the grumbling over Bombardier, as a recent example. The right to appoint a board rep is not typically found in corporate credit facilities, but on the other hand, this isn't a standard credit facility: it's a lifeline for borrowers unable to access capital markets on customary terms and who are therefore, by definition, higher-risk, either because of their own financials and/or because of economic/industry conditions.

I don't have an issue with higher-risk borrowers being subjected to more stringent borrowing requirements, particularly when it's taxpayer money being put at risk. Hopefully the feds learned some lessons from the last time they tried this: bailing out Chrysler and GM in the 2008 GFC cost the feds an estimated $3.7 Billion - see https://en.wikipedia.org/wiki/Effects_o ... _on_Canada
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goldeneagle
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Re: Air Canada Second Trip to C.C.A.A.?

Post by goldeneagle »

YYZSaabGuy wrote: Thu May 28, 2020 10:00 am Those conditions are not materially different than those borrowers face in typical corporate credit facilities, excepting the climate disclosure language which I agree is politically motivated - I'm surprised we didn't see equity employment reporting included "Because it's 2015".
We had an election not to long back, climate stuff was in the platform winning party ran on, it is part of the mandate they were given. Wether we like it or not, they have an obligation to follow thru on the mandate they were elected on. Folks are forever complaining about politicians that dont follow thru on election promises, and now they want to imply complaints when said politicians do follow thru on election promises. Cant win at that game.

You are correct about the rest, pretty standard stuff. Looks like AC priced the offering today. almost 31 million shares for 16.25, then 650 million US in convertables that will convert at 15.25us, so about 21cdn at todays exchange. When you tally it all up, assuming the debentures do convert eventually, it's about 25% dilution against the current share base, but it adds 1.4 billion to the cash side of the balance sheet, so what it all now depends on, how fast do they burn thru that money...
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Re: Air Canada Second Trip to C.C.A.A.?

Post by rudder »

Rousseau said daily cash burn for March was $22MM per day and cash on hand on March 31 was $6.4B. He further estimated that cash on hand on June 30 would at least be equal to March 31.

It is likely that once AC gets the staff right sized and payroll costs for active staff only that burn rate will be down to $10MM per day or lower. And if the AC equity and convertible debt offers are fully subscribed, it is likely that the AC cash balance on June 30 will exceed $6.4B.

Rousseau set the cash floor at $2.4B. So at least $4B cushion at the end of the second quarter burning perhaps less that $300MM per month going forward.

No CCAA for AC in 2020. As for a bet on future stock pricing? That is a much less certain bet.
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Re: Air Canada Second Trip to C.C.A.A.?

Post by altiplano »

I have heard that they are projecting that they can hold on until into Q1/21 before they hit their bingo cash number. If traffic/bookings pick up before then, imif additional revenue continues growing (ie cargo), if recovery comes, that date pushes.
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rudder
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Re: Air Canada Second Trip to C.C.A.A.?

Post by rudder »

altiplano wrote: Thu May 28, 2020 11:16 am I have heard that they are projecting that they can hold on until into Q1/21 before they hit their bingo cash number. If traffic/bookings pick up before then, imif additional revenue continues growing (ie cargo), if recovery comes, that date pushes.
The submission that CR/Rousseau made on the Q1 analyst call was that AC has been consistently profitable through differing revenue levels over the past several years. Therefore, they are suggesting that even at 70% of 2019 revenue that AC can get back in the black provided the entire expense structure is reduced to or below the 70% threshold.

The challenge will be getting from here to there.
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Re: Air Canada Second Trip to C.C.A.A.?

Post by YYZSaabGuy »

goldeneagle wrote: Thu May 28, 2020 10:40 am
YYZSaabGuy wrote: Thu May 28, 2020 10:00 am Those conditions are not materially different than those borrowers face in typical corporate credit facilities, excepting the climate disclosure language which I agree is politically motivated - I'm surprised we didn't see equity employment reporting included "Because it's 2015".
We had an election not to long back, climate stuff was in the platform winning party ran on, it is part of the mandate they were given. Wether we like it or not, they have an obligation to follow thru on the mandate they were elected on. Folks are forever complaining about politicians that dont follow thru on election promises, and now they want to imply complaints when said politicians do follow thru on election promises. Cant win at that game.
That's a fair point, and I don't disagree. On the other hand: this government has pretty consistently been more concerned with virtue-signalling than with taking tangible steps or tough decisions to deal with climate change as a substantive issue. It's not clear to me that requiring borrowers to file reams of reporting "highlighting how corporate governance, strategies, policies and practices will help manage climate-related risks and opportunities; and contribute to achieving Canada’s commitments under the Paris Agreement and goal of net zero by 2050" actually accomplishes anything worthwhile. But that's probably not the objective, either? Just so long as it gives them bragging rights. :rolleyes:
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Re: Air Canada Second Trip to C.C.A.A.?

Post by L39Guy »

Last year, the Liberals forced organizations to attest to their social policies such as pro life in order to get grant funding. This is repugnant, forcing organizations to fall in line with the Liberal's views in order to access taxpayer (that's you and me) funds.

Similarly, forcing organizations to fall in line with the Liberals climate agenda or any other agenda in order to access funds is equally repugnant this year. Public money should not be doled out in this manner.
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Raymond Hall
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Re: Air Canada Second Trip to C.C.A.A.?

Post by Raymond Hall »

Some observations. From experience. Everyone always underestimates the amount of time that it will take to accomplish any objective. Multiply your worst-case time estimate by five and you many still be short. Multiply your worst-case cost estimate by at least the same amount, or perhaps ten, and you may still run over budget. Nothing ever resolves quickly. There are lags, delays, hangovers, interruptions, and unexpected intervening events to everything, always, despite everyone's best intentions otherwise.

A good example is the 737 Max. Original estimate, at shutdown, was five to six months to resolve the issues. That was 15 months ago, and as I understand it, there is no present realistic estimate of when the aircraft might be re-certified.

In my law practice, I have a constant stream of incoming clients tell me that the matter is really simple, that it shouldn't take much work, and that in a few months we can resolve the issues in their favour. Not a big deal. Enter opposing counsel. Goodbye to any expectation of an expedited solution. Goodbye to any reasonable estimate of what it might cost the client. For dozens of reasons, few of which might be foreseen. It just happens.

So, I must ask myself. Is this financial issue, not just with Air Canada, but with the entire airline industry, going to resolve itself any time soon? Although, as I stated earlier, I truly wish, hope and pray that Air Canada can stick-handle these problems without resorting to the ultimate resource, I am not optimistic that it will be able to do so, albeit through no fault of its own.

Just my opinion, for what it's worth.
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Re: Air Canada Second Trip to C.C.A.A.?

Post by Raymond Hall »

There is a much bigger picture here. Canadian corporations are not immune to what is happening elsewhere.

Politics trumps (pardon the pun) science and economics. Tonight, the U.S. headed south.

Whatever expectations that we might have had for a speedy return to normality in terms of the health of the global airline industry and its economics have now been put into question as the U.S. administration today issued another jolt of reality. It is challenging its own citizens' right to peaceful protest, as well as threatening to use military force against its own citizens.

Economic health is invariably founded upon political stability. Stable, we are not. Look for weeks of more chaos, uncertainty and economic upheaval.

And that is separate and apart from the impact of these protests on the cumulative health of the nation in the midst of a viral epidemic, given the lack of social distancing evident everywhere during the public demonstrations.

Own stock in anything but gold? Sell. Now.
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Re: Air Canada Second Trip to C.C.A.A.?

Post by ayseven »

Unfortunately the seeds of discontent are such that bringing on the army might make things worse. They have major problems down there, and if you ask me, are very close to an all out civil war. You have to get over the last Civil War at some point, and start treating everyone the same. Certain elements refuse to do that, and the ones who feel left out get angry. Having policemen uphold the actual law, and not turn into murderers themselves, would be a nice start. Whether it makes sense or not, some here see an opening and run with it, so it DOES become our problem too.

Having said all that, the stock market as a whole is a deck of cards, not just AC. No different than any casino. But one thing that affects it is consumer confidence. The more people on this site moan and groan about the sky falling, (and to be fair, it isn't pleasant for a lot of people right now), the more likely it WILL be worse later on. Things do usually work out in then end, from my experience.
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rudder
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Re: Air Canada Second Trip to C.C.A.A.?

Post by rudder »

Is yet another thread going to be hihacked into an unrelated debate?
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Re: Air Canada Second Trip to C.C.A.A.?

Post by North Shore »

rudder wrote: Tue Jun 02, 2020 12:59 pm Is yet another thread going to be hihacked into an unrelated debate?
NO.

On topic of AC and CCAA from now on, please, gentlemen!
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Re: Air Canada Second Trip to C.C.A.A.?

Post by AA123455 »

North Shore wrote: Tue Jun 02, 2020 2:22 pm
rudder wrote: Tue Jun 02, 2020 12:59 pm Is yet another thread going to be hihacked into an unrelated debate?
NO.

On topic of AC and CCAA from now on, please, gentlemen!

How about we talk about the $1.6B getting raised, and how AC almost certainly won’t go into CCAA in 2020! Perhaps AC has enough liquidity to roll into Q2 20201.

Everyone involved in AC (employees and investors alike) should be celebrating this!
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