By Angela McDaniels
Tacoma, Wash., July 29 - Air Canada has arranged a series of financings that will raise C$1.02 billion in additional liquidity, according to a company news release.
The company received a term credit facility of up to C$700 million from Export Development Canada, Aeroplan Canada Inc. and ACE Aviation Holdings Inc. as lenders.
The minimum interest rate is 12.75% per year, and the credit agreement includes minimum liquidity and a fixed-charge coverage covenants.
The initial drawdown will be C$600 million. Air Canada can request up to an additional C$100 million within the first year by obtaining new commitments.
The initial C$600 million is repayable in quarterly installments of C$30 million starting Aug. 1, 2010, with a final payment of C$120 million due by the fifth anniversary of the initial drawdown.
Proceeds will be used to refinance debt and to provide funding for working capital and other general corporate purposes.
GE Finance Holding Co. is the administrative agent, and GE Capital Markets Inc. and GE Capital Markets (Canada) Ltd. are acting as arrangers.
Air Canada has also obtained an extension of a previous $75 million secured loan to December 2013 from December 2009 and reached an agreement with a supplier that will provide the company with a payment of about C$220 million in consideration of various contractual commitments.
Warrants
In connection with the credit agreement, the lenders will receive warrants for the purchase of class A variable voting shares or class B voting shares representing 5% of Air Canada's issued and outstanding shares.
The lenders will receive additional warrants representing up to another 5% of the company's shares if Air Canada does not grant additional security over certain assets within 90 days of closing.
Existing facilities repayment
Air Canada said that immediately prior to the drawdown under the new credit agreement, Canadian Imperial Bank of Commerce will assign to the new lenders all of its right, title and interest in its secured credit facility with Air Canada.
The company will also terminate its revolving loan agreement with Aeroplan Canada Inc. and its secured engine facility for 22 engines. The total principal amounts outstanding repaid by Air Canada as a result of the termination of these facilities is C$117 million.
Other agreements
Air Canada also amended its agreement with one of principal credit card processors, entered into a sale leaseback agreement with GE Capital Aviation Services and amended its purchase agreement with Boeing.
The changes to the credit card processor agreement reduce the amount of cash deposits and security to be held by the credit card processor and return deposits to Air Canada when the unrestricted cash threshold increases to C$1.1 billion from C$800 million.
The threshold will increase to C$1.1 billion once Air Canada maintains unrestricted cash of more than C$1.2 billion for two consecutive months.
Under the agreement with GE Capital Aviation Services, Air Canada will sell and lease back three Boeing 777-300ER aircraft, which will result in C$122 million of incremental liquidity.
The amended purchase agreement with Boeing reduces the number of options for additional Boeing 787 aircraft to 13 from 23 and provides for purchase rights for 10 Boeing 787 aircraft.
"The C$1 billion of new liquidity will give us breathing room towards achieving sustainable profitability," Calin Rovinescu, president and chief executive officer, said in the release.
"This will require a fundamental repositioning of the airline with a focus on both cost management and a new approach to revenue generation to offset the dramatic erosion in yield."
Air Canada is an airline based in Montreal.
| Issuer: | Air Canada
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| Issue: | Term credit facility
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| Amount: | Up to C$700 million
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| Maturity: | Five years
|
| Coupon: | At least 12.75%
|
| Warrants: | For 5% of Air Canada's outstanding shares
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| Lenders: | Export Development Canada, Aeroplan Canada Inc. and ACE Aviation Holdings Inc.
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