Treasury's Second Report Under Section 4026(b)(1) of the CARES Act
Summary
A U.S. Department of the Treasury report under Section 4026(b)(1) of the CARES Act on loans to air carriers, eligible businesses and national security businesses; it is Treasury's second such report and reflects seven transactions. Treasury entered into the seven loan transactions for a total of $14.655 billion, of which $1.575 billion had been disbursed. The borrowers are Alaska Airlines, American Airlines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, SkyWest Airlines and United Airlines; the largest loans are up to $5.477 billion to American Airlines and up to $5.17 billion to United Airlines. Several loans are secured by loyalty programs, and Treasury will receive warrants equal to 10% of the total loan amount drawn. The report also restates CARES Act limits on employment reductions, stock repurchases and dividends.
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“Treasury's Second Report Under Section 4026(b)(1) of the CARES Act.”
Original at home.treasury.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/u-s-department-of-the-treasury-4026-b-1-b-loan-report-10-02-2020-b06114dfaf/
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Report Under Section 4026(b)(1) of the CARES Act on
Loans to Air Carriers, Eligible Businesses, and National Security Businesses
Program Description
Section 4003 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act)
authorizes the Treasury Department to make loans, loan guarantees, and other
investments to provide liquidity to eligible businesses related to losses incurred as a result
of coronavirus.
The CARES Act provides:
(1) up to $25 billion for loans and loan guarantees for passenger air carriers; eligible
businesses that are certified under 14 CFR part 145 and approved to perform
inspection, repair, replace, or overhaul services; and ticket agents (as defined in
49 U.S.C. § 40102);
(2) up to $4 billion for loans and loan guarantees for cargo air carriers; and
(3) up to $17 billion for loans and loan guarantees for businesses critical to
maintaining national security.
A loan or loan guarantee under section 4003 may be made in such form and on such
terms and conditions and contain such covenants, representations, warranties, and
requirements as the Treasury Secretary determines appropriate. However, the CARES
Act specifies a number of requirements applicable to these loans. Among other
requirements under the statute, borrowers must agree to maintain employment levels as
of March 24, 2020 to the extent practicable, and in any case not reduce their employment
levels by more than 10 percent from the levels on such date, until September 30, 2020.
Borrowers must also agree to certain restrictions on employee compensation; agree not
to repurchase stock, except to the extent required under a contractual obligation in effect
as of March 27, 2020; and agree not to pay dividends or make other capital distributions
with respect to the borrower’s common stock until 12 months after the loan has been
repaid.
In addition, the CARES Act requires that Treasury receive a warrant or equity instrument
in the borrower if the borrower is a public company (unless Treasury determines that the
issuance of warrants or equity is infeasible, in which case the company must provide a
senior debt instrument), or a warrant, equity instrument, or senior debt instrument if the
borrower is a private company, to compensate taxpayers.
Reporting Requirements
The CARES Act requires Treasury to make a number of disclosures regarding its loans
and loan guarantees under section 4003 of the CARES Act:
(1) under section 4026(a) of the CARES Act, not later than 72 hours after any
transaction under section 4003(b)(1), (2), or (3) of the CARES Act, Treasury must
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publish on its website a description of the transaction, certain transaction terms,
and transaction documentation;
(2) under section 4026(b)(1)(A) of the CARES Act, not later than seven days after any
loan or loan guarantee under section 4003(b)(1), (2), or (3), Treasury must submit
to Congress a report summarizing the actions taken under those provisions and
certain related financial information;
(3) under section 4026(b)(1)(B) of the CARES Act, not later than seven days after
delivering the report to Congress described above, Treasury must publish the
report on its website; and
(4) under section 4026(b)(1)(C) of the CARES Act, every 30 days while a loan or loan
guarantee under section 4003(b)(1), (2), or (3) is outstanding, Treasury must
publish on its website a report summarizing its reports to Congress described
above.
Current Report
This is Treasury’s second report under section 4026(b)(1) of the CARES Act and reflects
seven transactions: two transactions on September 25, 2020, three transactions on
September 28, 2020, and two transactions on September 29, 2020.
Treasury entered into seven loan transactions under section 4003(b)(1), (2), or (3), for a
total of $14.655 billion. Of this amount, $1.575 billion has been disbursed.
Alaska Airlines, Inc.
Treasury agreed to make a loan of up to $1.301 billion to Alaska Airlines, Inc. (Alaska
Airlines), a wholly owned subsidiary of Alaska Air Group, Inc., and one of the largest
domestic airlines in the United States. Alaska Airlines had approximately 22,000 U.S.
employees in March 2020 and carried more than 46 million passengers in 2019.
The loan is secured by Alaska Airlines’ Mileage Plan loyalty program. The loan has an
interest rate equal to LIBOR plus 2.5% and matures on September 26, 2025. Alaska
Airlines elected to draw $135 million upon closing of the loan and may draw the
remaining loan funds in multiple draws through March 26, 2021. The loan proceeds will
be used to provide liquidity to continue Alaska Airline’s operations. The transaction
agreement includes covenants by Alaska Airlines to comply with certain restrictions on
employee compensation, stock repurchases, dividends, and reductions in employment
levels, as required by the CARES Act. Treasury will receive warrants to purchase
common stock equal to 10% of the total loan amount drawn. Treasury expects, subject
to certain conditions and satisfactory documentation, to increase the amount of the loan
available to Alaska Airlines to $1.928 billion.
American Airlines, Inc.
Treasury agreed to make a loan of up to $5.477 billion to American Airlines, Inc.
(American Airlines), a wholly owned subsidiary of American Airlines Group, Inc. and one
of the largest domestic airlines in the United States. American Airlines had
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approximately 157,000 U.S. employees in March 2020 and carried more than 150
million passengers in 2019.
The loan is secured by American Airlines’ AAdvantage loyalty program. The loan has
an interest rate equal to LIBOR plus 3.5% and matures on June 30, 2025. American
Airlines elected to draw $550 million upon closing of the loan and may draw the
remaining loan funds in multiple draws through March 26, 2021. The loan proceeds
will be used to provide liquidity to continue American Airline’s operations. The
transaction agreement includes covenants by American Airlines to comply with certain
restrictions on employee compensation, stock repurchases, dividends, and reductions
in employment levels, as required by the CARES Act. Treasury will receive warrants
to purchase common stock equal to 10% of the total loan amount drawn. Treasury
expects, subject to certain conditions and satisfactory documentation, to increase the
amount of the loan available to American Airlines to $7.5 billion.
Frontier Airlines, Inc.
Treasury agreed to make a loan of up to $574 million to Frontier Airlines, Inc. (Frontier
Airlines), a wholly owned subsidiary of Frontier Airlines Holdings, Inc., and one of the
largest domestic airlines in the United States. Frontier Airlines had approximately
5,000 U.S. employees in March 2020 and carried more than 21 million passengers in
2019.
The loan is secured by the Frontier Airlines’ Frontier Miles loyalty program. The loan
has an interest rate equal to LIBOR plus 2.5% and matures on September 26, 2025.
Frontier Airlines elected to draw $150 million upon closing of the loan and may draw
the remaining loan funds in multiple draws through March 26, 2021. The loan
proceeds will be used to provide liquidity to continue Frontier Airline’s operations. The
transaction agreement includes covenants by Frontier Airlines to comply with certain
restrictions on employee compensation, stock repurchases, dividends, and reductions
in employment levels, as required by the CARES Act. Treasury will receive warrants
to purchase common stock equal to 10% of the total loan amount drawn. Treasury
expects, subject to certain conditions and satisfactory documentation, to increase the
amount of the loan available to Frontier Airlines.
Hawaiian Airlines, Inc.
Treasury agreed to make a loan of up to $420 million to Hawaiian Airlines, Inc.
(Hawaiian Airlines), a wholly owned subsidiary of Hawaiian Holdings, Inc. and one of
the largest domestic airlines in the United States. Hawaiian Airlines had approximately
7,400 U.S. employees in March 2020 and carried more than 11 million passengers in
2019.
The loan is secured by Hawaiian Airlines’ HawaiianMiles loyalty program and certain
aircraft. The loan has an interest rate equal to LIBOR plus 2.5% and matures on June
30, 2024. Hawaiian Airlines elected to draw $45 million upon closing of the loan and
may draw the remaining loan funds in multiple draws through March 26, 2021. The loan
proceeds will be used to provide liquidity to continue Hawaiian Airline’s operations. The
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transaction agreement includes covenants by Hawaiian Airlines to comply with certain
restrictions on employee compensation, stock repurchases, dividends, and reductions in
employment levels, as required by the CARES Act. Treasury will receive warrants to
purchase common stock equal to 10% of the total loan amount drawn. Treasury
expects, subject to certain conditions and satisfactory documentation, to increase the
amount of the loan available to Hawaiian Airlines to $622 million.
JetBlue Airways Corporation
Treasury agreed to make a loan of up to $1.14 billion to JetBlue Airways Corporation
(JetBlue Airways), one of the largest domestic airlines in the United States. JetBlue
Airways had approximately 23,000 U.S. employees in March 2020 and carried more
than 42 million passengers in 2019.
The loan is secured by JetBlue Airways’ TrueBlue loyalty program and certain aircraft.
The loan has an interest rate equal to LIBOR plus 2.75% and matures on September
29, 2025. JetBlue Airways elected to draw $115 million upon closing of the loan and
may draw the remaining loan funds in multiple draws through March 26, 2021. The
loan proceeds will be used to provide liquidity to continue JetBlue Airways’ operations.
The transaction agreement includes covenants by JetBlue Airways to comply with
certain restrictions on employee compensation, stock repurchases, dividends, and
reductions in employment levels, as required by the CARES Act. Treasury will receive
warrants to purchase common stock equal to 10% of the total loan amount drawn.
Treasury expects, subject to certain conditions and satisfactory documentation, to
increase the amount of the loan available to the JetBlue Airways to $1.948 billion.
SkyWest Airlines, Inc.
Treasury agreed to make a loan of up to $573 million to SkyWest Airlines, Inc.
(SkyWest Airlines), a wholly owned subsidiary of SkyWest, Inc., and one of the largest
domestic airlines in the United States. SkyWest Airlines had approximately 15,000
U.S. employees in March 2020 and carried more than 35 million passengers in 2019.
The loan is secured by certain engines, airframes, and rotable parts. The loan has an
interest rate equal to LIBOR plus 3.0% and matures on September 29, 2025. SkyWest
Airlines elected to draw $60 million upon closing of the loan and may draw the
remaining loan funds in multiple draws through March 26, 2021. The loan proceeds will
be used to provide liquidity to continue the SkyWest Airline’s operations. The
transaction agreement includes covenants by SkyWest Airlines to comply with certain
restrictions on employee compensation, stock repurchases, dividends, and reductions in
employment levels, as required by the CARES Act. Treasury will receive warrants to
purchase common stock equal to 10% of the total loan amount drawn. Treasury
expects, subject to certain conditions and satisfactory documentation, to increase the
amount of the loan available to the SkyWest Airlines.
United Airlines, Inc.
Treasury agreed to make a loan of up to $5.17 billion to United Airlines, Inc. (United
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Airlines), a wholly owned subsidiary of United Airlines Holdings, Inc., and one of the
largest domestic airlines in the United States. United Airlines had approximately
93,000 U.S. employees in March 2020 and carried more than 162 million passengers
in 2019.
The loan is secured by United Airlines’ European and South American routes and
certain aircraft. The loan has an interest rate equal to LIBOR plus 3.0% and matures
on September 26, 2025. United Airlines elected to draw $520 million upon closing of
the loan and may draw the remaining loan funds in multiple draws through March 26,
2021. The loan proceeds will be used to provide liquidity to continue United Airline’s
operations. The transaction agreement includes covenants by United Airlines to
comply with certain restrictions on employee compensation, stock repurchases,
dividends, and reductions in employment levels, as required by the CARES Act.
Treasury will receive warrants to purchase common stock equal to 10% of the total
loan amount drawn. Treasury expects, subject to certain conditions and satisfactory
documentation, to increase the amount of the loan available to United Airlines to $7.5
billion.
The loan agreements are available on Treasury’s website at
https://home.treasury.gov/policy-issues/cares/preserving-jobs-for-american-
industry/loans-to-air-carriers-eligible-businesses-and-national-security-businesses.
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Detailed Financial Statement ($ Thousands)
Total
Anticipated
Borrower Borrower Date of Loan Maturity Loan
Borrower Type1 City2 State2 Type1 Agreement Date Amount Disbursements3
Alaska Passenger Passenger
Seattle WA 09/28/20 06/30/25 $1,301,000 $135,000
Airlines, Inc. Air Carrier Air Carrier
American Passenger Passenger
Fort Worth TX 09/25/20 06/30/25 $5,477,000 $550,000
Airlines, Inc. Air Carrier Air Carrier
Frontier Passenger Passenger
Denver CO 09/28/20 09/26/25 $574,000 $150,000
Airlines, Inc. Air Carrier Air Carrier
Hawaiian Passenger Passenger
Honolulu HI 09/25/20 06/30/24 $420,000 $45,000
Airlines, Inc. Air Carrier Air Carrier
JetBlue
Passenger Long Passenger
Airways NY 09/29/20 09/29/25 $1,140,000 $115,000
Air Carrier Island City Air Carrier
Corporation
SkyWest Passenger Passenger
St. George UT 09/29/20 09/29/25 $573,000 $60,000
Airlines, Inc. Air Carrier Air Carrier
United Passenger Passenger
Chicago IL 09/28/20 09/26/25 $5,170,000 $520,000
Airlines, Inc. Air Carrier Air Carrier
1. Only certain categories of entities are eligible to receive loans under sections 4003(b)(1), (2), and (3) of the CARES Act. Under those
provisions, a borrower must be a passenger air carrier; a business that is certified under 14 CFR part 145 and approved to perform
inspection, repair, replace, or overhaul services; a ticket agent (as defined in 49 U.S.C. 40102); a cargo air carrier; or a business
critical to maintaining national security.
2. The location provided is the address included by borrowers in their applications and may not include all locations in which a borrower
operates.
3. Includes disbursements between September 25, 2020, and September 29, 2020. As noted elsewhere in this report, Treasury
expects, subject to certain conditions and satisfactory documentation, to increase the amount of available loans for certain borrowers.
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