Air Canada 2010 Annual Report Download - page 106

2010 Air Canada Annual Report
106
(d) In August 2010, the Corporation completed a private offering of two series of senior secured notes, consisting of
US$600 senior secured first lien notes due 2015 (the “U.S. Dollar First Lien Notes”) and $300 senior secured first
lien notes due 2015 (the “Canadian Dollar First Lien Notes” and, collectively with the U.S. Dollar First Lien Notes,
the “First Lien Notes”). In August 2010, the Corporation also completed a private offering of US$200 senior secured
second lien notes due 2016 (the “Second Lien Notes” and, together with the First Lien Notes, the “Notes”). The
Corporation received net proceeds of $1,075, after deduction of fees, expenses and discounts. The Corporation used
approximately $729 of the net proceeds of the offerings to repay all of the outstanding debt under the Credit Facility
described in note (e) below, including $29 for early payment fees.
The U.S. Dollar First Lien Notes bear interest at a rate of 9.250% per annum, the Canadian Dollar First Lien Notes
bear interest at a rate of 10.125% per annum, and the Second Lien Notes bear interest at a rate of 12.000% per
annum, in each case payable February 1 and August 1 of each year, beginning on February 1, 2011. The Corporation
is required to pay additional special interest of 2% per annum on the Notes if (i) the priority lien debt value ratio
(appraised value of collateral / priority lien debt) is less than 1.7:1.0, or (ii) the total appraised value ratio (total
appraised value of collateral / secured debt) is less than 1.25:1.0.
The Corporation may redeem some or all of the First Lien Notes at any time on or after August 1, 2012 at certain
established redemption prices, plus accrued and unpaid interest. At any time prior to August 1, 2012, Air Canada may
redeem some or all of the First Lien Notes at a price equal to 100% of their principal amount plus a “make-whole”
premium, and accrued and unpaid interest. At any time prior to August 1, 2012, Air Canada may redeem up to 35%
of the aggregate principal amount of each issue of First Lien Notes with the proceeds of certain equity offerings,
at established redemption prices, plus accrued and unpaid interest. In addition, at any time and from time to time
prior to August 1, 2014, the Corporation may redeem, during any twelve-month period, up to 10% of the original
aggregate principal amount of each issue of First Lien Notes at a redemption price of 103% of the principal amount,
plus accrued and unpaid interest.
The Corporation may redeem some or all of the Second Lien Notes at any time on or after February 1, 2013 at
certain established redemption prices, plus accrued and unpaid interest. At any time prior to February 1, 2013, Air
Canada may redeem some or all of the Second Lien Notes at a price equal to 100% of their principal amount plus
a “make-whole” premium, and accrued and unpaid interest. At any time prior to February 1, 2013, Air Canada may
redeem up to 35% of the aggregate principal amount of the Second Lien Notes with the proceeds of certain equity
offerings and by paying a redemption price equal to 112% of the principal amount of the Second Lien Notes being
redeemed, plus accrued and unpaid interest thereon.
The prepayment options within the First Lien Notes and Second Lien Notes are considered embedded derivatives.
The value of these embedded derivatives at December 31, 2010 is negligible. Upon specified change of control
events or upon certain sales of assets, the Corporation must offer to repurchase the Notes.
The Notes are senior secured obligations of the Corporation, (i) secured on a first-lien basis (in the case of the First
Lien Notes) or on a junior lien basis (in the case of the Second Lien Notes), subject to certain permitted liens, by
accounts receivable, certain real estate interests, certain spare engines, ground equipment, certain airport slots and
gate leaseholds, and the Corporation’s licenses to operate its Pacific routes and the airport slots and gate leaseholds
utilized in connection with these Pacific routes and (ii) guaranteed on a senior secured basis by a subsidiary of the
Corporation, subject to certain thresholds and exclusions.
(e) In July 2009, the Corporation received financing proceeds of $600, less financing fees of $20, under a secured term
credit facility (the “Credit Facility”) pursuant to which the Corporation also issued warrants for the purchase of Air
Canada’s Class A Variable Voting Shares or Class B Voting Shares as further described below. During the first quarter
of 2010, the Corporation entered into arrangements with a new lender, comprised of a group of entities that are
related to each other, to obtain a $100 increase to the facility. The addition to the facility increased, on a pro rata
basis, the scheduled repayments, including the final payment. The Corporation received financing proceeds of $100,
less financing fees of $2 in February 2010. No additional warrants were issued as a result of the increase to the credit
facility. The Credit Facility was repayable in 16 consecutive quarterly instalments commencing in August 2010 of
$30 with the final instalment of $120 due in July 2014.