Mesa Air Group Enters Into a $200 Million Secured Loan Facility Under CARES Act; Thanks Arizona Delegation for Critical Support

Rhea-AI Summary

Mesa Air Group (NASDAQ: MESA) has secured a five-year Loan and Guarantee Agreement with the U.S. Treasury, allowing up to $200 million under the CARES Act. On October 30, 2020, Mesa borrowed $43 million, with the option to borrow an additional $157 million, subject to certain conditions. The loan carries an interest rate of Adjusted LIBO Rate plus 3.50%. In exchange, Mesa will issue warrants to the Treasury for shares of common stock. The agreement includes financial covenants and prohibits dividend payments and stock buybacks.

Positive

• Secured a loan facility of up to $200 million, enhancing liquidity.
• Initial borrowing of $43 million boosts immediate financial stability.
• Support from Arizona Congressional Delegation aids financial negotiations.

Negative

• Loan is subject to stringent financial covenants, limiting operational flexibility.
• Potential dilution of shares due to warrants issued for loan agreement.

PHOENIX, Nov. 02, 2020 (GLOBE NEWSWIRE) -- 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.

About Mesa Air Group, Inc.

Headquartered in Phoenix, Arizona, Mesa Air Group, Inc. 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 30th, 2020, Mesa operated a fleet of 145 aircraft with approximately 373 daily departures and 3,400 employees. Mesa operates all of its flights as either American Eagle, United Express, or DHL Express flights pursuant to the terms of capacity purchase agreements entered into with American Airlines, Inc., United Airlines, Inc., and DHL.

Forward-Looking Statements

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the amount available to Mesa for borrowing under the secured term loan facility with the U.S. Treasury in connection with the subsequent borrowing and the expected timing of that borrowing. All forward-looking statements in this release are made as the date hereof and are based on information available to Mesa as of such date. These forward-looking statements represent the judgment of the Company, as of the date of this release, and the Company disclaims any intent or obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.

Investor Relations
Jonathan Ornstein
investor@mesa-air.com

Media
Matt Harris
media@mesa-air.com

FAQ

What is Mesa Air Group's recent loan agreement with the U.S. Treasury?

Mesa Air Group entered into a five-year Loan and Guarantee Agreement with the U.S. Treasury for up to $200 million under the CARES Act.

How much has Mesa Air borrowed under the loan agreement?

Mesa Air borrowed $43 million under the loan agreement on October 30, 2020.

What are the financial implications of the loan for Mesa Air?

The loan enhances liquidity but comes with financial covenants that restrict dividends and impose limitations on executive compensation.

What is the interest rate on Mesa Air's loan?

The interest rate on the loan is the Adjusted LIBO Rate plus 3.50%.

What is the potential impact on shareholders from the loan agreement?

The issuance of warrants tied to the loan could lead to share dilution for existing shareholders.