Today, Mesa Airlines announced that it has entered into an agreement for a loan facility of up to $200 million under the CARES (Coronavirus Aid, Relief, and Economic Security) Act. The five-year loan agreement will help the group to get through the COVID-19 pandemic crisis.
Mesa Air Group enters five-year loan and guarantee deal
On October 30, 2020, the US Treasury Department agreed to provide the Mesa Air Group with a secured term loan of up to $200m through the CARES Act. Under the agreement, Mesa borrowed an initial $43m on Friday. The company has until the middle of December to decide if it will subsequently borrow up to $157m of additional funding.
Mesa’s ability to borrow the additional $157m is subject to it satisfying certain conditions under the five-year loan and guarantee agreement. Among other considerations, the conditions include updated appraisals, compliance with the collateral coverage ratio, and the release of liens on the collateral that will secure the additional debt.
Mesa’s Chairman and Chief Executive Officer, Jonathan Ornstein, said
“I want to thank Treasury Secretary Steven Mnuchin and Assistant Secretary Mitchell Silk for their willingness to work with Mesa to find a way forward.”
Mike Lotz, President and CFO of Mesa Airlines added,
“This $200 million will strengthen Mesa as we navigate through these volatile times of COVID-19 and allow us to continue our long history as the largest airline headquartered in Arizona.”
Loan terms and interest
The loan agreement has two financial conditions: a minimum collateral coverage ratio and a minimum liquidity level. The deal also forbids Mesa to pay dividends, conducting stock buybacks and puts certain limitations on executive compensation. Certain aircraft, aircraft engines, accounts receivable, ground service equipment, and tooling provide collateral for the loan.
The interest rate on all borrowings is the Adjusted LIBO Rate plus 3.50% for a five-year term with no amortization and no prepayment penalty. Under the loan agreement, Mesa is obligated to issue warrants to the U.S. Treasury Department to purchase shares of Mesa’s common stock based, on, and in connection with, amounts drawn under the facility.
With the initial $43 million borrowed under the agreement, Mesa issued warrants to buy 1,080,402 shares of common stock at an exercise price of $3.98 per share. With additional loans under the facility, Mesa will issue extra warrants to the Treasury to buy shares of common stock determined by multiplying the principal amount of the latter borrowing by 10% and dividing the result by $3.98.
About Mesa Airlines
With its headquarters in Phoenix, Arizona, Mesa Air Group is the holding company of Mesa Airlines, a regional air carrier providing scheduled passenger service to 103 cities in 35 states, the District of Columbia, and Mexico. As of September 30, 2020, Mesa operated a 145 aircraft fleet with approximately 373 daily departures and 3,400 employees.
What do you think of Mesa’s loan deal?