Mesa Airlines accesses $200mn CARES loan

US regional carrier Mesa Airlines (YV, Phoenix Sky Harbor) will be able to borrow up to USD200 million under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) after parent, Mesa Air Group entered into a five-year loan and guarantee agreement with the US Treasury Department on October 30, 2020. The group, in a statement, said the airline had already borrowed USD43 million under the facility as of October 30, 2020. It had until December 15, 2020, to determine if it would draw down on the remaining USD157 million. The carrier’s ability to borrow up to the maximum was subject to the satisfaction of certain conditions precedent under the secured term loan facility, including, among other things, updated appraisals, compliance with the collateral coverage ratio, and the release of liens on the collateral that would secure such additional indebtedness, it said. Chairman and Chief Executive Officer, Jonathan Ornstein, said Mesa Airlines had received full Arizona congressional support for the US Treasury loan. “This USD200 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,” added Mike Lotz, President and Chief Financial Officer of Mesa Airlines. In consideration for the loan, Mesa is obligated to issue warrants to the US Treasury Department to purchase shares of common stock of Mesa, based on, and in connection with, amounts drawn under the facility. In connection with the initial USD43 million drawn under the facility, Mesa issued warrants to purchase 1,080,402 shares of common stock at an exercise price of USD3.98 per share. Upon the subsequent borrowing under the facility, Mesa will issue to the Treasury additional warrants to purchase shares of common stock determined by multiplying the principal amount of the subsequent borrowing by 10% and dividing the result by USD3.98. The loan agreement has two financial covenants: a minimum collateral coverage ratio and a minimum liquidity level. The loan agreement also prohibits Mesa from paying dividends, conducting stock buybacks, as well as places certain limitations on executive compensation. The loan is collateralised by certain aircraft, aircraft engines, accounts receivable, ground service equipment, and tooling.