Air Canada and Government of Canada Conclude Agreements on Liquidity Program

[montado]

Air Canada and Government of Canada Conclude Agreements on Liquidity Program

Today Air Canada announced that we have entered into a series of debt and equity financing agreements with the Government of Canada, which will allow Air Canada to access up to $5.879 billion in liquidity through the Large Employer Emergency Financing Facility (LEEFF) program.

“Air Canada entered the pandemic more than a year ago with one of the global airline industry’s strongest balance sheets relative to its size,” said Michael Rousseau, President and Chief Executive Officer, in a press release issued earlier today. “We have since raised an additional $6.8 billion in liquidity from our own resources to sustain us through the pandemic, as air traffic ground to a virtual halt in Canada and internationally.”

“The additional liquidity program we are announcing today achieves several aligned objectives as it provides a significant layer of insurance for Air Canada, it enables us to better resolve customer refunds of non-refundable tickets, maintain our workforce and re-enter regional markets. Most importantly, this program provides additional liquidity, if required, to rebuild our business to the benefit of all stakeholders and to remain a significant contributor to the Canadian economy through its recovery and for the long term.

“As vaccine deployments ramp up, we continue to work with the Government of Canada on the evolution of safe and science-based test and quarantine relief measures with a view to safely restarting our sector,” Michael continued. “We know that Canadians are looking forward to re-connecting with friends and family and taking those long-awaited vacations and business trips and we will be ready to safely connect Canadians within Canada and Canada to the world.”

The financial package provides for fully repayable loans that Air Canada would only draw down as required, as well as an equity investment, and is comprised of:

Gross proceeds of $500 million for Air Canada shares at a price of $23.1793 per share;
$1.5 billion in the form of a secured revolving credit facility at a 1.5% premium to the Canadian Dollar Offered Rate (CDOR); the facility is secured on a first lien basis by the assets of Aeroplan Inc., Air Canada’s shares in Aeroplan as well as certain assets of Air Canada, including certain intellectual property relating to the Aeroplan loyalty program;
$2.475 billion in the form of three unsecured non-revolving credit facilities of $825 million each with: the first, five-year tranche at a 1.75% premium to CDOR per annum; the second, six-year tranche at 6.5% per annum (increasing to 7.5% after 5 years); and the third, seven-year tranche, at 8.5% per annum (increasing to 9.5% after 5 years);
As part of the financial package, Air Canada issued an aggregate of 14,576,564 warrants exercisable for the purchase of an equal number of Air Canada shares, subject to customary adjustments, at a price of $27.2698 per share during a 10-year term, representing 10% of the total commitment available under the above secured and unsecured credit facilities; 50% of the warrants vested concurrently with the implementation of the credit facilities and the remaining 50% of the warrants will vest on a proportional basis to the amounts that Air Canada may draw under the above unsecured credit facilities;

Up to approximately $1.4 billion in the form of an unsecured credit facility tranche to support customer refunds of non-refundable tickets. The facility will have a seven-year term and carry an annual interest rate of 1.211%.
As part of the financial package, Air Canada has agreed to a number of commitments related to customer refunds, service to regional communities, restrictions on the use of the funds provided, employment and capital expenditures. These include:

Beginning April 13, 2021, offering eligible customers who purchased non-refundable fares but did not travel due to COVID-19 since February 2020, the option of a refund to the original form of payment. In support of its travel agency partners, Air Canada will not retract agency sales commissions on refunded fares;

The resumption of service or access to Air Canada’s network for nearly all regional communities where service was suspended because of COVID-19’s impact on travel, through direct services or new interline agreements with third party regional carriers;
Restricting certain expenditures, and restricting dividends, share buybacks and senior executive compensation;
Obligations to maintain employment at levels which are no lower than those at April 1, 2021; and

The completion of the airline’s acquisition of 33 Airbus A220 aircraft, manufactured at Airbus’ Mirabel, Quebec facility. Air Canada has also agreed to complete its existing firm order of 40 Boeing 737 Max aircraft. Completion of these orders remains subject to the terms and conditions of the applicable purchase agreements.

In connection with the Government’s equity investment, Air Canada has agreed to provide customary registration rights. The Air Canada shares and warrants issued to the Government are subject to certain transfer restrictions as well as an exercise cap which limits the Government’s aggregate voting rights from the shares acquired pursuant to this investment (including upon any exercise of the warrants) to 19.99%.

Glossary of Terms and FAQ

Glossary of Terms

Large Employer Emergency Financing Facility (LEEFF).
LEEFF is a program instituted by the Government of Canada to provide liquidity assistance in the form of interest-bearing term loans to large Canadian employers who have been affected by the COVID-19 pandemic.

Canada Enterprise Emergency Funding Corporation (CEEFC).
CEEFC is a federal Crown corporation, incorporated in May 2020 and is wholly owned by Canada Development Investment Corporation, a parent Crown corporation. CEEFC is responsible for administering the Large Employer Emergency Funding Facility.

Revolving Credit Facility – An open-ended loan similar to a credit card. The borrower (Air Canada) can withdraw and pay back up to the maximum value of the loan repeatedly for the duration of the loan.

Secured revolving credit facility – When a credit facility is secured, it means that the borrower (Air Canada) has provided a form of collateral to the lender (in this case, the Government of Canada) to back the loan.

Unsecured non-revolving credit facility – In an unsecured non-revolving loan facility, none of the borrower’s (Air Canada’s) assets are subject to liens in favour of the lender (Government of Canada). However, because of the increased risk to the lender, interest rates are higher. In addition, with a non-revolving loan facility, once the borrower repays the loan, those funds cannot be borrowed again.

Canadian Dollar Offered Rate (CDOR) – A benchmark bank lending rate established every day based on submitted rates from a panel of banks active in the Canadian Banker’s Acceptance market. This is used for calculating short term loans by banks and is currently about 0.45%.

Warrant – A warrant is a form of security that allows the warrant holder (in this case, the Government of Canada) to purchase company shares at a specific price within a specific period of time. Warrants allow the warrant holder to leverage their investment and increase their return if the value of the borrower’s company increases as hoped.

FAQ

Q: We keep saying that Air Canada went into this with a strong balance sheet. We also raised an additional $6.8 billion this last year. So why are we further borrowing from the Government of Canada? Aren’t we going unnecessarily into more debt?
A: We should be very proud that we entered this pandemic in such a strong position – and proud that the market had enough confidence in our ability to overcome that we were able to raise such a significant amount of money in the heart of this crisis. These both bode very well for our recovery.

We view these loans as an added layer of insurance that, paired with our existing liquidity, enables us to better resolve customer refunds of non-refundable tickets, maintain our workforce and re-enter regional markets. Most importantly, this program provides additional liquidity, if required, to rebuild our business.

Q: Some of the interest rates appear to be extremely high – particularly the three unsecured non-revolving credit facilities that have interest rates of CDOR plus 1.75, 6.5 and 8.5 per cent respectively. And these rates rise even further over time. Can’t we get better lending rates from the private market?
A: These loans are unsecured which means there is more risk for the lender. Furthermore, we are not obliged to avail ourselves of these loans. If our business improves in such a way that we do not need to access them we won’t, and there will be no interest paid. If we do decide to draw on these them, we can also repay them as quickly as we choose.

Q: We’ve been talking about “sector support” all this time. How is this considered “support”, when it’s all loans that have to be repaid, some of them at high interest rates? Is this really what we asked for?
A: To be clear, Air Canada has never asked for a “bailout”, nor would we want to accept one. We believe strongly that we can and should stand on our own two feet. We were however looking for access to funding with reasonable terms as added insurance. We believe we have successfully obtained both in reaching this agreement.

Q: Does the new $500 million in Air Canada equity give the government influence or power in our decision making going forward or how we do business?
A: That the Government of Canada is becoming a shareholder can be taken as a sign that they believe our company has a strong future and sees our shares holding their value and increasing over time. The Government will be able to vote their shares like any other shareholder but also like with any other shareholder, their influence will be limited to their voting shares. Their equity does not give them a majority vote. In fact, the Government’s investment (excluding warrants) will represent approximately 6% of all shares, with the warrants representing another approximately 4% (assuming they all vest and are exercised).

Q: What are LEEFF and CEEFC and what role do they play in these arrangements?
LEEFF stands for Large Employer Emergency Financing Facility and CEEFC for Canada Enterprise Emergency Funding Corporation.
A: LEEFF is a program instituted by the Government of Canada to provide liquidity assistance in the form of interest-bearing term loans to large Canadian employers who have been affected by the COVID-19 pandemic and CEEFC is the federal Crown corporation responsible for administering LEEFF.

[rudder]

https://apple.news/AVYS4j1cQT2uefgRl3rr05w

“Canadians are now part owners of Air Canada, but this time they could make money. But unlike in some previous bailouts, we'll all make money if Air Canada shares rise”

Only in Canada could a $500MM investment in a $9B company be considered a ‘bailout’.

Typical Lib rhetoric - hit a bloop single and declare it a home run.

[Tbayer2021]

https://apple.news/AVYS4j1cQT2uefgRl3rr05w

“Canadians are now part owners of Air Canada, but this time they could make money. But unlike in some previous bailouts, we'll all make money if Air Canada shares rise”

Only in Canada could a $500MM investment in a $9B company be considered a ‘bailout’.

Typical Lib rhetoric - hit a bloop single and declare it a home run.

Have you ever bothered to look up the definition of "bailout"? My guess is you haven't since it rubs you the wrong way for some reason. I definitely don't think government ownership is anywhere near a good idea, but it is very much a bailout. For a group that loves to call the left a bunch of snowflakes, you guys sure get your panties in a bunch when even a correct term is used.

[iflyroads]

https://apple.news/AVYS4j1cQT2uefgRl3rr05w

“Canadians are now part owners of Air Canada, but this time they could make money. But unlike in some previous bailouts, we'll all make money if Air Canada shares rise”

Only in Canada could a $500MM investment in a $9B company be considered a ‘bailout’.

Typical Lib rhetoric - hit a bloop single and declare it a home run.

rudder tell us how you really feel

[sanjet]

https://apple.news/AVYS4j1cQT2uefgRl3rr05w

“Canadians are now part owners of Air Canada, but this time they could make money. But unlike in some previous bailouts, we'll all make money if Air Canada shares rise”

Only in Canada could a $500MM investment in a $9B company be considered a ‘bailout’.

Typical Lib rhetoric - hit a bloop single and declare it a home run.

Crazy part is they might make double their return in just 18-24 months plus the interest on the loan.

[“”Bob””]

Why does a 9B company need a bailout?

[Kosiw]

The Lib gov'ts "seat at the AC table" seems nefarious...watch for them to influence AC to push their green agenda.

[rudder]

Why does a 9B company need a bailout?

The one who needed a bailout was the government that promised cash refunds to all travellers.

The Libs got what they wanted and AC got a reasonable combination of debt and equity capital infusion on terms that were fair and manageable. AC got the terms it did because it is solvent, had unencumbered assets, and most certainly had a Plan B and Plan C if terms offered by the government were unreasonable.

Only question now is how long a CEO that took an 80% YOY compensation reduction will stick around.

[“”Bob””]

Oh no... a CEO might leave! Whatever will they do!

[altiplano]

No way.

Rousseau is not going anywhere - at least not until this is done.

He will have this thing turned as soon as the travel gates re open. The debts will be repaid in short order with interest and the board will give him a fat payday for seeing covid through. The stock will make gains, the government will take a profit on selling their equity and all the ignorant commenters will continue with their complaints of it is their money bailing out Air Canada again and that time their neighbours luggage was lost in '94 and they'll never fly Air Canada again.
.

[simply_no_one]

The Lib gov'ts "seat at the AC table" seems nefarious...watch for them to influence AC to push their green agenda.

They have no seat at the table. Being a minority share holder doesn't do much.

[redbusdriver]

No way.

Rousseau is not going anywhere - at least not until this is done.

He will have this thing turned as soon as the travel gates re open. The debts will be repaid in short order with interest and the board will give him a fat payday for seeing covid through. The stock will make gains, the government will take a profit on selling their equity and all the ignorant commenters will continue with their complaints of it is their money bailing out Air Canada again and that time their neighbours luggage was lost in '94 and they'll never fly Air Canada again.
.

yes, him and others will get raises and bonuses, while we likely will be working more for less.

[Latitude]

Unfortunately, a really poor deal for AC in my opinion. Almost all of it is a loan, with tons of strings attached including restoring regional routes (where AC is losing money), cash refunds, etc. All of this, with a loan that it’s interests will rise significantly over time. We need traveller’s and/or a bailout, not this loan as you’re just going to sink overtime.

[CPT.HarshColdReality]

Could it be that the June 1st date mean something we don't know. Perhaps the time the border with the USA might open. QC says everyone will get a 1st dose by June 24th. If everyone is vaccinated are we still going to have to wear masks, social distance and live in fear?

[scdriver]

Could it be that the June 1st date mean something we don't know. Perhaps the time the border with the USA might open. QC says everyone will get a 1st dose by June 24th. If everyone is vaccinated are we still going to have to wear masks, social distance and live in fear?

Guaranteed there will be still mask and distancing mandates until most people have received a second dose, but I suspect the general consensus among the population will be get mostly back to normal after one dose. Ergo, increased pax numbers - hopefully

[altiplano]

Trudeau now saying he supports expanded restrictions on interprovincial travel.

BC floating the idea that travel to that province should be restricted.

https://www.google.com/amp/s/www.cbc.ca/amp/1.5986848

[sanjet]

Trudeau now saying he supports expanded restrictions on interprovincial travel.

BC floating the idea that travel to that province should be restricted.

https://www.google.com/amp/s/www.cbc.ca/amp/1.5986848

Takes a certain amount of arrogance to screw up vaccine procurements and then screw Canadians even more.

[rudder]

https://financialpost.com/transportatio ... -taxpayers

This article contains a much better description and analysis of the mechanics and impact of the Federal financial aid package for AC.

[elite]

Trudeau now saying he supports expanded restrictions on interprovincial travel.

BC floating the idea that travel to that province should be restricted.

https://www.google.com/amp/s/www.cbc.ca/amp/1.5986848

Takes a certain amount of arrogance to screw up vaccine procurements and then screw Canadians even more.

Honestly, “justinkind” belongs in jail for his sheer incompetence! Instead of obsessing to correct the English language with idiotic words, if he ran the country properly we wouldn’t have 10 doses of vaccines per Canadian coming three years from now!

Being private businesses airlines have financial responsibility to their stake holders. If Justin and his government make so many demands and restrictions on these businesses, they have to either pay for the financial damage they cause or let the airlines pass on the cost to consumers like a free market as opposed to a quasi socialist people’s republic imitating china’s communist party!

[“”Bob””]

Lol.. tell us how you really feel!

[Squid]

No way.

Rousseau is not going anywhere - at least not until this is done.

He will have this thing turned as soon as the travel gates re open. The debts will be repaid in short order with interest and the board will give him a fat payday for seeing covid through. The stock will make gains, the government will take a profit on selling their equity and all the ignorant commenters will continue with their complaints of it is their money bailing out Air Canada again and that time their neighbours luggage was lost in '94 and they'll never fly Air Canada again.
.

So are you simply saying AC didn’t need anything? I think we are in tougher shape than you believe to make it through this. Depending on recovery of course and the way the government handles re-opening this country more cash can be burned. Deeper debt we go the longer it may take but I admire your optimism.

[altiplano]

No way.

Rousseau is not going anywhere - at least not until this is done.

He will have this thing turned as soon as the travel gates re open. The debts will be repaid in short order with interest and the board will give him a fat payday for seeing covid through. The stock will make gains, the government will take a profit on selling their equity and all the ignorant commenters will continue with their complaints of it is their money bailing out Air Canada again and that time their neighbours luggage was lost in '94 and they'll never fly Air Canada again.
.

So are you simply saying AC didn’t need anything? I think we are in tougher shape than you believe to make it through this. Depending on recovery of course and the way the government handles re-opening this country more cash can be burned. Deeper debt we go the longer it may take but I admire your optimism.

I did not say anywhere that "AC didn't need anything." Indeed I don't think you read my comment at all.

This provides the stability in liquidity to ride this out. AC may have been able to hold on alone depending how long this continues, but possibly not with all its limbs intact.

What AC really needs is the end of the fear narrative, reopening of our border, end of covid detention hotels, and reopening of international routes.

When that comes, AC will rush to rebuild market share. That's our biggest battle now in the recovery. US and International airlines are all sniffing around at what they can pick off from Canada.

But AC was profitable going into this and they will be again coming out of this. As this is put in the rear view mirror and cash flow returns, these credit facilities will be among the first cleared out. It will be good for both AC and the government from a PR perspective, although Canadians will forget the loan is repaid as usual, and MR will be able to restore his pay day.

[elite]

The problem is that Justin and his cohorts do not understand economics and are driven by their socialist ideology as opposed to protecting Canada, its people and its economy. For over a year they have constantly attacked aviation industry by various limitations while they are clueless how to battle the pandemic or procure vaccines. It is simple economics. If they continue to put limitations on travel they must carry the cost of it too. For instance in the U.S furloughs have been very limited if any while in Canada there have been massive lay-offs and more coming still. While the aid in the states was very targeted to the sectors affected and as a result aviation was protected that all pilots are at work and hiring is restarting, here the response was very slow, very small, and very convoluted that companies didn’t even want to use it.

As a result, the so called “bail-out” that is offered to Air Canada and may be offered to other carriers is a joke and reminiscent of the aftermath of 911 during another liberal regime. What it demanded in return for “loan guarantees” for a lousy 75 million, not even the money itself but to back that loan, was such sweeping control in the airline that it was no use and sealed the fate of Canada 3000. The same is taking place now. The liberals are penny wise and pound foolish. They waste billions and billions but when it comes to actually helping industries that are affected, they always fail because they try to appear prudent to the public. If they were prudent however, there would not be so much corruption and wasted tax dollars.

Recent history shows that a combination of a liberal regime and a global event such as 911 or a pandemic means disaster for Canada. That combined with a politically uninitiated and apathetic public is a perfect storm!!

[“”Bob””]

I remember when Westjet barely made it through the three or so days of closed airspace the Liberals enacted at the behest of the US Bush administration.

Likewise the permanent addition of cockpit doors the Liberals enforced because of an FAA Airworthiness Directive and enhanced security measures which mirrored those enacted in the United States under the Aviation Transport Security Act (enacted 11 days after C3’s bankruptcy) nearly dealt Westjet a death blow.

['97 Tercel]

The problem is that Justin and his cohorts do not understand economics and are driven by their socialist ideology as opposed to protecting Canada, its people and its economy. For over a year they have constantly attacked aviation industry by various limitations while they are clueless how to battle the pandemic or procure vaccines. It is simple economics. If they continue to put limitations on travel they must carry the cost of it too. For instance in the U.S furloughs have been very limited if any while in Canada there have been massive lay-offs and more coming still. While the aid in the states was very targeted to the sectors affected and as a result aviation was protected that all pilots are at work and hiring is restarting, here the response was very slow, very small, and very convoluted that companies didn’t even want to use it.

As a result, the so called “bail-out” that is offered to Air Canada and may be offered to other carriers is a joke and reminiscent of the aftermath of 911 during another liberal regime. What it demanded in return for “loan guarantees” for a lousy 75 million, not even the money itself but to back that loan, was such sweeping control in the airline that it was no use and sealed the fate of Canada 3000. The same is taking place now. The liberals are penny wise and pound foolish. They waste billions and billions but when it comes to actually helping industries that are affected, they always fail because they try to appear prudent to the public. If they were prudent however, there would not be so much corruption and wasted tax dollars.

Recent history shows that a combination of a liberal regime and a global event such as 911 or a pandemic means disaster for Canada. That combined with a politically uninitiated and apathetic public is a perfect storm!!

Absolutely spot on