Business Context and Reporting Period
This Form 8-K Current Report was filed by Allegiant Travel Company on October 7, 2020. The filing discloses the entry into a material definitive agreement involving the issuance of new debt securities to strengthen the company's capital structure.
Key Financial Metrics and Debt Structure
- Debt Issuance: $150 million aggregate principal amount of 8.500% Senior Secured Notes due 2024.
- Interest Rate: 8.500% per annum, payable semi-annually on February 1 and August 1, commencing February 1, 2021.
- Maturity Date: February 5, 2024.
- Security: Notes are secured by first priority security interests in substantially all company assets (excluding aircraft and engines) on a pari passu basis with existing credit facilities.
- Liquidity Covenant: The company must maintain a minimum aggregate liquidity of $300 million.
- Leverage Covenant: The company must maintain a maximum total leverage ratio of 5.00:1.00.
Material Changes and Covenants
The issuance represents a significant addition to the company's senior secured indebtedness. The Indenture includes restrictive covenants limiting restricted payments, additional indebtedness, liens, and asset dispositions. Failure to meet the leverage or liquidity covenants triggers an additional interest penalty of 2.0% per annum on the Notes until compliance is restored.
Outlook, Risks, and Redemption Terms
- Redemption: Prior to August 5, 2023, the company may redeem Notes at 100% of principal plus a "make-whole" premium. On or after August 5, 2023, redemption is at 100% of principal without premium.
- Change in Control: Triggers a mandatory repurchase offer at 101% of principal plus accrued interest.
- Asset Sales: Proceeds from certain asset sales may require mandatory repurchase of Notes if not used for permitted debt prepayment or reinvestment.
- Default Risks: Events of default include payment defaults, covenant breaches, cross-defaults to the Credit and Guaranty Agreement, and bankruptcy. Acceleration upon default requires payment of principal plus a make-whole premium.
Investor Verification Checklist
- Verify the company's current liquidity position against the $300 million minimum covenant requirement.
- Confirm the current total leverage ratio to ensure it remains below the 5.00:1.00 threshold.
- Review the full text of the Indenture (Exhibit 4.1) for specific definitions of "First Lien Debt" and permitted liens.
- Assess the impact of the 8.500% interest rate on future cash flow projections given the airline industry's volatility.
- Check for any existing cross-defaults under the Credit and Guaranty Agreement with Barclays Bank PLC.