Item 1.01. Entry into a Material Definitive Agreement.
Loan Agreement
On September 29, 2020 (the "Closing Date"), SkyWest Airlines, Inc. ("SkyWest
Airlines"), a wholly-owned subsidiary of SkyWest, Inc. (the "Company"), entered
into a Loan and Guarantee Agreement, dated as of the Closing Date (the "Loan
Agreement"), among SkyWest Airlines, as the borrower, the Company, as guarantor,
the other guarantors party thereto from time to time, the United States
Department of the Treasury (the "Treasury"), as lender, and the Bank of New York
Mellon, as administrative agent and collateral agent. The Loan Agreement, as
executed on the Closing Date, provides for a secured term loan facility (the
"Facility") which permits SkyWest Airlines to borrow up to $573 million as
further described below. The Company and SkyWest Airlines have been advised by
the Treasury that it intends to allocate additional loans under the Coronavirus
Aid, Relief, and Economic Security Act (the "CARES Act") in October 2020 and
that such additional allocations are currently expected to cause the amount
available to SkyWest Airlines under the Facility to increase, with such
increased amount being subject to final approval by the Treasury. Any such
increase will require a written amendment to the Loan Agreement executed by all
of the parties thereto.
On the Closing Date, SkyWest Airlines borrowed $60 million under the Facility
and may, at its option, borrow additional amounts in up to two subsequent
borrowings until March 26, 2021. The proceeds from the Facility will be used for
certain general corporate purposes and operating expenses in accordance with the
terms and conditions of the Loan Agreement and the applicable provisions of the
CARES Act.
Borrowings under the Facility will bear interest at a variable rate per annum
equal to (a)(i) the London interbank offer rate divided by (ii) one (1) minus
the Eurodollar Reserve Percentage (as defined in the Loan Agreement) plus (b)
3.00%. Accrued interest on the loans shall be payable in arrears on the first
business day following the 14th day of each March, June, September and December
(beginning with September 15, 2021), and on the Maturity Date (as defined
below). The applicable interest rate for the $60 million loan drawn on the
Closing Date under the Facility will be 3.37% per annum for the period from the
Closing Date through September 15, 2021 at which time the interest rate will
reset in accordance with the foregoing formula.
All advances under the Facility will be in the form of term loans, all of which
will mature and be due and payable in a single installment on September 29, 2025
(the "Maturity Date"). Voluntary prepayments of loans under the Facility may be
made, in whole or in part, by SkyWest Airlines, without premium or penalty, at
any time and from time to time. Amounts prepaid may not be reborrowed. Mandatory
prepayments of loans under the Facility are required, without premium or
penalty, to the extent necessary to comply with SkyWest Airlines' covenants
regarding the expiry of certain agreements constituting Collateral (as defined
below), the debt service coverage ratio, certain dispositions of the Collateral,
certain debt issuances secured by liens on the Collateral and certain indemnity,
termination, liquidated damages or insurance payments related to the Collateral.
In addition, if a "change of control" (as defined in the Loan Agreement) occurs
with respect to the Company or SkyWest Airlines, SkyWest Airlines will be
required to repay the loans outstanding under the Facility.
On the Closing Date, the obligations of SkyWest Airlines under the Loan
Agreement are secured by aircraft engines and aircraft parts (collectively, the
"Collateral"). SkyWest Airlines is permitted under the Loan Agreement to add
certain types of assets to the Collateral and, subject to certain conditions,
release Collateral, in each case from time to time at its discretion.
The Loan Agreement requires SkyWest Airlines, under certain circumstances,
including within ten (10) business days prior to the last business day of March
and September of each year, beginning March 2021, to appraise the value of the
Collateral and recalculate the collateral coverage ratio. If the calculated
collateral coverage ratio is less than 1.6 to 1.0, SkyWest Airlines will be
required either to provide additional Collateral (which may include cash
collateral) to secure its obligations under the Loan Agreement or repay the term
loans under the Facility, in such amounts that the recalculated collateral
coverage ratio, after giving effect to any such additional Collateral or
repayment, is at least 1.6 to 1.0. Based on the appraisal submitted by SkyWest
Airlines in connection with the execution of the Loan Agreement, the appraised
value of the Collateral is presently in excess of the 2.0 to 1.0 initial
collateral coverage ratio necessary to access the amount under the Facility.
The Loan Agreement also includes affirmative, negative and financial covenants
that, among other things, limit the ability of the Company and its restricted
subsidiaries to pay dividends, repurchase common stock of the Company or make
certain other payments, make certain investments, incur liens on the Collateral,
dispose of the Collateral, enter into certain affiliate transactions and engage
in certain business activities, in each case subject to certain exceptions. In
addition, under the Loan Agreement, the Company must maintain a minimum
aggregate liquidity.
The Loan Agreement requires the Company to comply with the relevant provisions
of the CARES Act, including, but not limited to, the provisions that prohibit
the repurchase of the Company's common stock and the payment of common stock
dividends, and those that restrict the payment of certain executive
. . .
Item 2.03. Creation of a Direct Financial Obligation or an Obligation Under an
Off-Balance Sheet Arrangement of a Registrant.
The information provided in Item 1.01 above under the caption "Loan Agreement"
is incorporated herein by reference to the extent responsive to Item 2.03.
Item 3.02. Unregistered Sales of Equity Securities.
The information provided in Item 1.01 above under the caption "Warrant Agreement
and Warrants" is incorporated herein by reference to the extent responsive to
Item 3.02.
Item 8.01. Other Events.
On September 29, 2020, the Company issued a press release captioned "SkyWest
enters into a $573 million Secured Loan Facility under CARES Act." A copy of the
press release is attached hereto as Exhibit 99.1 and is incorporated herein by
reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
Number Title of Document
99.1 Press Release, dated September 29, 2020.
104 Cover Page Interactive Data File (formatted in Inline XBRL and
contained in Exhibit 101)
Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Words such as
"forecasts," "expects," "intends," "believes," "anticipates," "estimates,"
"should," "likely" and similar expressions identify forward-looking statements.
Such statements include, but are not limited to, statements about the expected
timing and benefits of the secured term loan facility under the CARES Act and
the related issuance of warrants and other statements that are not historical
facts. All forward-looking statements included in this Current Report on Form
8-K are made as of the date hereof and are based on information available to the
Company as of such date. The Company assumes no obligation to update any
forward-looking statements for any reason. Readers should note that many factors
could affect the future operating and financial results of the Company and the
timing of certain events and could cause actual results to vary materially from
those expressed in forward-looking statements set forth in this report. These
factors include, but are not limited to, uncertainties regarding the impact of
the secured term loan facility on the Company's business and operations, and the
consequences of the COVID-19 outbreak to economic conditions, the travel
industry and the Company's major partners in general and the financial condition
and operating results of the Company in particular. Risk factors, cautionary
statements and other conditions which could cause the Company's actual results
to differ materially from management's current expectations are contained in the
Company's filings with the Securities and Exchange Commission, including its
most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K.
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