Business Context and Reporting Period
Company: Gogo Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: April 25, 2019
Event: Entry into a material definitive agreement involving the issuance of new senior secured notes and the redemption of existing notes.
Key Financial Metrics and Capital Structure
- New Debt Issuance: $905 million aggregate principal amount of 9.875% Senior Secured Notes due 2024.
- Interest Rate: 9.875% per annum, payable semi-annually in arrears (first payment November 1, 2019).
- Maturity Date: May 1, 2024.
- Debt Redemption: Full redemption of $690 million aggregate principal amount of 12.500% Senior Secured Notes due 2022.
- Use of Proceeds: Funded the redemption of the existing notes; remaining proceeds intended for general corporate purposes, including potential repurchase of 3.75% Convertible Senior Notes due 2020.
- Security: Notes are senior secured indebtedness, guaranteed by Gogo Inc. and restricted subsidiaries, secured by first-priority liens on substantially all assets.
Material Changes Versus Prior Period
The filing details a significant refinancing transaction executed on April 25, 2019:
- Debt Replacement: The company replaced $690 million of higher-coupon (12.500%) debt maturing in 2022 with $905 million of new debt at a 9.875% coupon maturing in 2024.
- Net Proceeds: The transaction generated net proceeds of approximately $215 million (gross issuance of $905 million less $690 million redemption), subject to transaction costs.
- Covenant Structure: The new indenture includes covenants limiting indebtedness, dividends, and asset sales, which will cease to apply if the notes achieve investment-grade ratings from Moody's and S&P.
Guidance, Outlook, and Risks
Management Commentary and Strategy: The transaction extends the maturity profile of the company's debt and reduces the interest rate burden on the refinanced portion. Management intends to use remaining proceeds to manage the 2020 convertible notes.
Redemption Options:
- Equity Redemption: Prior to May 1, 2021, up to 40% of notes may be redeemed with equity offering proceeds at 109.875% of principal.
- Strategic Investment Redemption: Prior to May 1, 2020, up to $150 million may be redeemed with strategic investment proceeds at 103% of principal.
- Make-Whole Redemption: Available prior to May 1, 2021, at 100% plus a make-whole premium.
- Standard Call: On or after May 1, 2021, notes are redeemable at declining premiums (104.938% in 2021, 102.469% in 2022, 100% thereafter).
Risks and Contingencies:
- Change of Control: Triggers a mandatory repurchase offer at 101% of principal if accompanied by a rating downgrade.
- Collateral Release: Certain intellectual property assets may be transferred to a Swiss subsidiary, releasing them from the collateral pool under specific circumstances.
- Events of Default: Standard provisions exist that could accelerate payment of principal and interest.
Investor Verification Checklist
- Verify the exact net proceeds received after transaction costs and the specific allocation toward the 2020 convertible notes.
- Confirm the current credit ratings of the new 2024 notes to determine if restrictive covenants remain in effect.
- Review the "Crossing Lien Intercreditor Agreement" (Exhibit 4.2) to understand the priority of the new debt relative to any Asset-Based Lending (ABL) facilities.
- Assess the impact of the 9.875% interest expense on future cash flow projections compared to the previous 12.500% obligation.
- Monitor the company's ability to meet the semi-annual interest payments commencing November 1, 2019.