Court filing
Addendum — Alert Memorandum: Caribbean Sun Airlines Non-Compliance (SIGPR-A-21-002)
Record facts
| Court | Special Inspector General for Pandemic Recovery |
|---|---|
| Filed | 2021-09-21 |
Summary
An addendum dated September 21, 2021 from the Special Inspector General for Pandemic Recovery to its Alert Memorandum on Caribbean Sun Airlines, Inc., Report Number SIGPR-A-21-002. The addendum states that SIGPR received Caribbean Sun's response on September 13, 2021, and that Treasury responded on September 17, 2021 that the company, while late, had complied with the Notice of Non-Compliance; SIGPR finds Treasury's reply acceptable. Enclosure 1 is the September 8, 2021 alert memorandum from the Assistant Inspector General for Auditing to Treasury's Chief Recovery Officer. That memorandum reports a $6,768,749 loan made on December 7, 2020 under Section 4003 of the CARES Act, recounts a survey issued March 25, 2021 and a Treasury notice of August 3, 2021, and recommends Treasury act under Section 7.01 of the Agreement.
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SIGPR-A-21-002 September 21, 2021 Addendum to Alert Memorandum: Caribbean Sun Airlines, Inc. has not Responded to the Department of the Treasury’s Notice of Non-Compliance with the US Treasury Aviation Loan and Guarantee Agreement (Report Number: SIGPR-A-21-002) On September 8, 2021, we issued Alert Memorandum: Caribbean Sun Airlines, Inc. has not Responded to the Department of the Treasury’s Notice of Non-Compliance with the US Treasury Aviation Loan and Guarantee Agreement (Enclosure 1). The alert memorandum discussed that Caribbean Sun Airlines, Inc. (Caribbean Sun) had not complied with the Department of the Treasury’s (Treasury) Notice of Non-Compliance. The alert memorandum recommended Treasury take immediate action, under the authority provided for in §7.01 – Events of Default of the Loan and Guarantee Agreement. The Events of Default clause allowed Treasury to declare the loan to be due and payable in whole or in part. On September 13, 2021, we received a copy of Caribbean Sun’s response which was provided to Treasury’s Program Manager for Aviation Loans and forwarded to us. On September 17, 2021, Treasury provided its response stating that it expects all borrowers to be fully compliant with their obligations under their loan agreements and although Caribbean Sun, while doing so late, did comply with the Non-Compliance Notification and submitted its survey response to SIGPR (Enclosure 2). We appreciate Treasury’s assistance in obtaining Caribbean Sun’s response to our survey and the timely response and find Treasury’s reply acceptable. SIGPR-A-21-002 ENCLOSURE 1 SIGPR-A-21-002 Alert Memorandum: Caribbean Sun Airlines, Inc. has not Responded to the Department of the Treasury’s Notice of Non-Compliance with the US Treasury Aviation Loan and Guarantee Agreement Report Number: SIGPR-A-21-002 September 8, 2021 SIGPR-A-21-002 1 September 8, 2021 TO: Jacob D. Leibenluft Chief Recovery Officer U.S. Department of the Treasury FROM: Theodore R. Stehney Assistant Inspector General for Auditing Special Inspector General for Pandemic Recovery (SIGPR) SUBJECT: Alert Memorandum: Caribbean Sun Airlines, Inc. has not Responded to the Department of the Treasury’s Notice of Non- Compliance with the US Treasury Aviation Loan and Guarantee Agreement Report Number: SIGPR-A-21-002 The purpose of this memorandum is to notify you that Caribbean Sun Airlines, Inc. (Caribbean Sun) has not responded to the Department of the Treasury’s (“Treasury”) Notice of Non-compliance with US Treasury Aviation Loan and Guarantee Agreement (the Agreement). We recommend Treasury take immediate action to address this non- compliance. Background Section 4003, Division A, Title IV, Subtitle A of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) authorizes the Treasury to make loans, loan guarantees, and other investments to provide liquidity to eligible businesses related to losses incurred as a result of the coronavirus pandemic. Sections 4003(b)(1)- (3) appropriated $46 billion to help stabilize the airline industry and businesses critical to maintaining national security. SIGPR is tasked to provide oversight of CARES Act programs. On December 7, 2020, Caribbean Sun obtained a loan from the Treasury under Section 4003 for $6,768,749. Pertinent provisions of Caribbean Sun’s Loan and Guarantee Agreement (“Agreement”) state: Treasury Access. The Borrower Eligible Business and its Affiliates will provide Treasury, the Treasury Inspector General, the Special Inspector General for Pandemic Recovery, and such other entities as authorized by Treasury timely and unrestricted access to all documents, papers, or other records, including electronic records, of the Borrower related to the Loans, to enable Treasury, the Treasury Inspector General, and the Special Inspector General for Pandemic Recovery to make audits, examinations, and otherwise evaluate the Borrower’s compliance with the terms of this Agreement. This right also includes timely and SIGPR-A-21-002 2 reasonable access to the Borrower’s and its Affiliates’ personnel for the purpose of interview and discussion related to such documents. Agreement, Section 10.07. Events of Default. If any of the following events (each, an “Event of Default”) shall occur: (e) any Credit Party shall fail to observe or perform any covenant, condition or agreement contained in this Agreement or any other Loan Document . . . and such failure shall continue unremedied for a period of thirty (30) or more days after notice thereof by the Administrative Agent or the Initial Lender to the Parent . . . then, and in every such event…and at any time thereafter during the continuance of such event, the Initial Lender may, and the Administrative Agent may, and at the request of the Required Lenders or the Initial Lender shall, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other Obligations of the Credit Parties accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower and the other Credit Parties…. Agreement, Section 7.01. Specific Concern On March 25, 2021, we issued a survey to Caribbean Sun but did not receive a response. On August 2, 2021, we issued an Alert Memorandum, notifying Treasury that Caribbean Sun was non-responsive. On August 3, 2021, Treasury issued a Notice of Non-compliance, requiring Caribbean Sun to respond to our survey within 30 days. (Appendix B). Pursuant to Treasury’s Notice of Non-compliance, issued on August 3, 2021, Caribbean Sun had until September 2, 2021, to respond to SIGPR’s survey. As stated in Treasury’s notice of non-compliance, failure to respond to SIGPR’s survey by September 2, 2021, would constitute an “Event of Default” under Section 7.01(d) of the Agreement. An event of default would allow Treasury to pursue remedies under the Agreement, including declaring the loan immediately due and payable in whole or in part. As of the date of this report, Caribbean Sun has not responded to SIGPR’s survey nor has it satisfied the loan. Conclusion Caribbean Sun’s lack of response to Treasury’s Notice of Non-compliance with the US SIGPR-A-21-002 3 Treasury Aviation Loan and Guarantee Agreement constitutes an “Event of Default” under Section 7.01(e). Recommendation The Special Inspector General for Pandemic Recovery recommends that Treasury take immediate action under the authority provided in Section 7.01 of the Agreement. Please provide a response to this recommendation along with any proposed corrective action. Your response will be incorporated in its entirety as an addendum to this memorandum. Compliance Statement This audit is being conducted in accordance with generally accepted government auditing standards (GAGAS) which provides that during an audit, auditors may provide interim reports of significant matters to appropriate entity and oversight officials. Such communications alert officials to matters needing immediate attention and allows them to take corrective action before the final report is completed. The related ongoing audit, when completed, will comply with GAGAS. The associated performance audit report that will be issued in the future will incorporate the issues discussed in this alert memorandum. Audit Team This audit was managed and conducted by the individuals listed below: Michael Sinclair Audit Manager Reynaldo Gonzales Auditor-In-Charge Renata Malionek Auditor SIGPR-A-21-002 A-1 Appendix A – Memorandum Distribution Chief Recovery Officer – U.S. Department of the Treasury Office of General Counsel – U.S. Department of the Treasury Inspector General – Special Inspector General for Pandemic Recovery Office of General Counsel – Special Inspector General for Pandemic Recovery SIGPR-A-21-002 Appendix B – Notice of Non-Compliance with the US Treasury Aviation Loan and Guarantee Agreement SIGPR-A-21-002 ENCLOSURE 2 SIGPR-A-21-002
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