TRANSAT SECURES $700 MILLION LOAN FROM OTTAWA.

WILL BEGIN REFUNDING PASSENGERS

• Transat A.T. Inc. has struck a deal to borrow up to $700 million from the federal government and said it would immediately start refunding customers whose travel plans were upended by COVID-19.

The fully repayable credit facilities are being made available by the Canada Enterprise Emergency Funding Corporation under the Large Employer Emergency Financing Facility, Transat said Thursday in a statement. Transat said it only plans to use the funds on an as-needed basis. If all of the available facilities are used, the average interest rate will be about six per cent.

“Today is probably Transat’s best day since the start of the pandemic,” chief financial officer Denis Pétrin said Thursday during the annual shareholder meeting, which was held virtually. “It marks the start of the rebuild. We are now waiting impatiently for the vaccination and the health situation to allow the lifting of travel restrictions.”

Ottawa’s aid package for Transat comes two weeks after the federal government agreed to loan Air Canada as much as $5.9 billion to help it navigate through the pandemic. Canada’s biggest airline abandoned plans to buy Transat when the companies concluded they wouldn’t be able to secure European Commission approval.

The agreement ends months of uncertainty for Transat, which had warned this year its very survival would be at stake if it failed to secure at least $500 million in new financing. Those fears were heightened on Good Friday, when the Air Canada deal was officially declared dead.

COVID-19 has deprived Transat of 78 per cent of revenue over the past year. The company, which cancelled all flights when Canada suspended air travel to Mexico and the Caribbean in January, said Thursday it’s “less and less likely” operations can resume as scheduled in mid-june.

The new financing — the result of nine months of negotiations — gives Transat $820 million in total available credit, plus $303 million in unrestricted cash on hand at the end of last quarter. Transat also plans to hold financing talks with Quebec with a goal of cutting borrowing costs, Pétrin said.

“The money that is being lent to us today will be used prudently,” CEO Jean-marc Eustache told shareholders. “It will be beneficial for employment and the Canadian economy, and will be, I’m convinced of that, an excellent investment over time.”

While the government support is positive, “major challenges remain,” analyst Cam Doerksen said Thursday in a note to clients. Doerksen works for National Bank of Canada in Montreal. “Given that travel restrictions continue to tighten in Canada, and may even become more restrictive, we see no path for Transat to operate any meaningful capacity for the upcoming peak summer season.”

This means cash burn “is likely going to continue to be at a high level through the remainder of the fiscal year,” Doerksen added. Transat’s monthly losses are now running at $30 million, Pétrin said.

As a result, Transat’s total net debt may hit $940 million next year, “which is a major burden for a company that has a market capitalization of about $180 million,” Doerksen said.

Transat shares rose almost six per cent to close at $4.80 in Toronto. That’s still short of the $5 per share that Air Canada had agreed to pay for the company with its final offer.

Will Transat eventually be sold? “It’s an option that we are going to consider, together with that of a continuation in the current conditions,” Eustache said. Transat expects to determine “shortly” if a possible bid by Québecor Inc. CEO Pierre Karl Péladeau is “in the best interests of all stakeholders,” he said.

Talks with Péladeau “are going very well,” Eustache told reporters on a conference call. “He’s still very interested by Transat.”

Eustache declined to say if other suitors are interested in the company.

Reimbursing travellers is one of three commitments Transat made in connection with the federal government financing. The others are restrictions on dividends, buybacks and executive compensation, and the preservation of active employment at current levels. Transat has 772 employees, down from 5,200 before the pandemic.

All Air Transat ticket holders who were scheduled to depart on or after Feb. 1, 2020, and who received a COVID-19 travel credit, may request a refund, the company said Thursday. To be eligible, customers will need to expressly indicate their desire for a refund.

About 30,000 ticket holders contacted the company in the space of 90 minutes Thursday morning to ask for their money back, Eustache said. Transat, which has about 550,000 customers to be reimbursed, recalled 60 employees “to answer the phone,” the CEO said.

“We have the money to reimburse everyone,” Eustache said. “We won’t be able to do it all at once.”

As of Jan. 31, Transat had issued $519.1-million worth of travel credits for cancelled trips, 44 per cent of which was in trust accounts.

Along with the aid package, Transat issued the federal government 13 million warrants giving Ottawa the right to buy an equivalent number of shares over a 10-year period, at an exercise price of $4.50 per share. The warrants will vest in proportion to the drawings on the financing.

THE MONEY THAT IS BEING LENT TO US ... WILL BE USED PRUDENTLY.