April 29, 2021
LEEFF loan to Transat protects Canadian jobs
Today, the Canada Enterprise Emergency Funding Corporation (CEEFC) announced it will provide financial support to Transat A.T. Inc. (“Transat”) to protect jobs in Canada’s airline sector.
Transat will receive loan financing through the Large Employer Emergency Financing Facility (“LEEFF”) totaling $700 million. As a condition of the loan agreement, Transat has agreed to provide refunds for all pandemic-related cancellations to eligible customers—$310 million of the total financing will be a repayable loan to finance these refunds. Transat has also committed to maintaining active jobs as well as honouring collective agreements and pension benefits.
LEEFF loans provide bridge financing to Canada’s largest employers whose needs during the pandemic are not being met through private market financing. The program provides large Canadian employers with access to credit to preserve jobs and continue operations during this challenging period. Among other key principles, the terms of LEEFF, including the financing provided to Transat, impose limits on executive compensation and restricts the payment of dividends and other distributions by a recipient.
Other applications for LEEFF financing are currently under consideration. To protect the financial interests of taxpayers, rigorous due diligence and the collaboration of existing lenders is required.
CEEFC maintains an updated list of approved LEEFF financing, which can be found at https://www.ceefc-cfuec.ca/approved-loans/.
Key terms of LEEFF can be found at https://www.ceefc-cfuec.ca/leeff-factsheet/.
- LEEFF is open to all large, for-profit Canadian employers who have a significant impact on Canada’s economy and provide millions of jobs to Canadians. Companies in the financial sector are not eligible for LEEFF. In order to qualify for LEEFF, a company must have more than $300 million of annual revenues and require a loan of at least $60 million.
- Certain not-for-profit enterprises, such as airports, may also be eligible. Any company that has been found guilty of tax evasion is not eligible.
- Companies that receive financing through LEEFF are required to commit to publishing annual climate-related disclosure reports consistent with the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, including how their future operations will support environmental sustainability and national climate goals.
- Companies must agree to sustain their domestic operations, make reasonable commercial efforts to minimize the loss of jobs, and demonstrate a clear plan to return to financial stability. They must also agree to place restrictions on executive compensation, dividends, and share buybacks.
As this program is intended to be financing of last resort, applicants may be concurrently examining other financing opportunities. Applicant information is disclosed only if LEEFF financing is approved.
Transat issued to CEEFC an aggregate of 13 million warrants (each a “Warrant”) as consideration for CEEFC making the $312 million unsecured loan (the “Unsecured Loan Facility”) and the $78 million secured loan facilities (together, the “Loan Facilities”) available to the Corporation. Immediately prior to the issuance of the Warrants, CEEFC and its affiliates owned no voting or equity securities in the capital of the Corporation. Immediately following the issuance of the Warrants, CEEFC holds 13 million Warrants.
Each Warrant entitles CEEFC to purchase one Class B voting share (each a “Class B Share”) at an exercise price of $4.50 per Class B Share (the “Exercise Price”) or, at the option of CEEFC, by way of “cashless exercise”. The aggregate number of Class B Shares issuable upon exercise of the Warrants is 9,436,772 Class B Shares (the “Share Maximum”), assuming CEEFC does not otherwise own or exercise control over any Class B Shares or Class A variable voting shares (“Class A Shares”) of the Corporation (collectively, the “Voting Shares”) at the time of exercise, unless otherwise approved by the Toronto Stock Exchange. In the event that the number of Class B Shares to be issued upon exercise of the Warrants exceeds the Share Maximum, the Warrants will be, upon exercise, settled by way of cash payment to CEEFC in accordance with the terms of the Warrants.
Warrants will vest (“Vested Warrants”) in proportion to drawdown of the Unsecured Loan Facility during the 18 month availability period. Vested Warrants may be exercised, in whole or in part, at any time prior to 5:00 pm on April 29, 2031 (the “Time of Expiry”), provided that only half of the Vested Warrants may be exercised prior to April 30, 2022. One half of the Vested Warrants will be canceled if the Unsecured Loan Facility is repaid prior to April 30, 2022.
If all Warrants vested prior to April 30, 2022 and CEEFC exercised all of the Vested Warrants exercisable prior to that date, CEEFC would own an aggregate of 4,718,386 Class B Shares, representing 11.11% of the outstanding Voting Shares (or 12.08% of the outstanding Class B Shares) on a partially diluted basis after giving effect to such exercise. If all Warrants vested and CEEFC exercised all Vested Warrants prior to the Time of Expiry, CEEFC would acquire 9,436,772 Class B Shares representing 19.99% of the outstanding voting shares (or 21.56% of the outstanding Class B Shares). The foregoing percentages are calculated on the basis of 34,333,280 Class B Shares and 3,413,810 Class A Shares outstanding.
CEEFC is restricted from transferring any Class B Shares issuable upon exercise of the Warrants prior to August 30, 2021 pursuant to applicable securities laws, subject to certain exceptions. CEEFC is restricted from transferring any Warrants prior to the repayment of the Loan Facilities.
CEEFC intends to hold the Warrants for investment purposes. Depending on market conditions and other factors, including Transat’s business and financial condition, CEEFC may dispose of some or all of the securities of Transat that it owns. CEEFC and its affiliates do not intend to acquire additional equity securities of Transat except through the possible exercise of the Warrants.
For further information: For media inquiries please contact: Canada Enterprise Emergency Funding Corporation, Media Relations Team, email@example.com