Mesa Air Group, Inc. (NASDAQ: MESA) today announced that it has entered into a five-year Loan and Guarantee Agreement on October 30, 2020, with the U.S. Treasury Department which provides Mesa Airlines with a secured term loan facility to borrow up to $200 million under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
On October 30, 2020, Mesa borrowed $43 million under the facility and has until December 15, 2020, to determine if it will borrow up to an additional $157 million in a subsequent borrowing. Mesa’s ability to borrow up to the additional $157 million is 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 will secure such additional indebtedness.
“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,” said Jonathan Ornstein, Chairman and Chief Executive Officer. “We are also very grateful for the strong show of support from the Arizona Congressional Delegation, particularly from Arizona Senators Martha McSally, Kyrsten Sinema, and Congresswoman Debbie Lesko (AZ-08). With the help of the full Arizona Congressional Delegation, Mesa Airlines was able to maximize our U.S. Treasury loan,” said Ornstein. “Senator McSally was extremely effective in her discussions with the Administration on our behalf, and Senator Sinema successfully worked to include language in the HEROES Act to provide additional economic support for Mesa and our employees”. Congresswoman Lesko led a letter of support to Treasury Secretary Mnuchin with the other Members of the House Delegation — Representatives Andy Biggs (R-AZ-05), Ruben Gallego (D-AZ-07), Paul Gosar (R-AZ-04), Raul Grijalva (D-AZ-03), Ann Kirkpatrick (D-AZ-02), Tom O’Halleran (D-AZ-01), David Schweikert (R-AZ-06), and Greg Stanton (D-AZ-09).
“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,” added Mike Lotz, President and CFO of Mesa Airlines.
The interest rate on all borrowings is the Adjusted LIBO Rate (as defined in the term loan facility) plus 3.50% for a five-year term with no amortization and no prepayment penalty. In consideration for the loan, Mesa is obligated to issue warrants to the U.S. 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 $43 million drawn under the facility, Mesa issued warrants to purchase 1,080,402 shares of common stock at an exercise price of $3.98 per share. Upon the subsequent borrowing under the facility, Mesa will issue to 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 $3.98.
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 collateralized by certain aircraft, aircraft engines, accounts receivable, ground service equipment, and tooling.
