Treasury's Fourth 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 fourth such report and reflects five transactions. Treasury entered into the five loan transactions for a total of $2.27 billion, of which $46 million has been disbursed. Treasury increased the maximum loan to American Airlines from $5.477 billion to $7.5 billion, and on October 23, 2020 raised the Hawaiian Airlines loan from $420 million to $622 million. New loans went to Aero Hydraulics Inc., a repair station ($450,000), Bristin Travel, a ticket agent ($549,651), and Sun Country, Inc., a passenger air carrier ($45 million, secured by the Sun Country Rewards loyalty program). The Aero Hydraulics, Bristin and Sun Country loans carry 3% payment-in-kind annual interest under section 4003(d).
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“Treasury's Fourth 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-10-30-2020-e9ee36c8ce/
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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 fourth report under section 4026(b)(1) of the CARES Act and reflects
five transactions: one transaction on October 22, 2020; two on October 23, 2020; and two
on October 26, 2020.
Treasury entered into these five loan transactions under section 4003(b)(1), (2), or (3) of
the CARES Act for a total of $2.27 billion, of which $46 million has been disbursed.
American Airlines
On September 25, 2020, Treasury agreed to make a loan of up to $5.477 billion to
American Airlines, Inc. (American Airlines). On October 21, 2020, Treasury increased
the maximum loan amount to $7.5 billion. American Airlines is a wholly owned
subsidiary of American Airlines Group, Inc. and one of the largest domestic airlines in
the United States. American Airlines had 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 on September 25, 2020,
and it 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 Airlines’
operations. The transaction agreement includes covenants by the company 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 with an aggregate value equal to 10% of the total
loan amount drawn.
Aero Hydraulics
Treasury agreed to make a loan totaling $450,000 to Aero Hydraulics Inc. (Aero
Hydraulics), a repair station with approximately 2 U.S. employees in March 2020.
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The loan is unsecured. It has an annual interest rate equal to LIBOR plus 5.5% and
matures on October 23, 2025. Treasury funded the full loan amount at close. The
loan proceeds will be used to provide liquidity to continue Aero Hydraulics’ operations.
The transaction agreement includes covenants by Aero Hydraulics to comply with
certain restrictions on employee compensation, stock repurchases, dividends, and
reductions in employment levels, as required by the CARES Act. The loan constitutes
senior indebtedness of Aero Hydraulics, and Treasury will receive 3% payment-in-kind
annual interest on the loan in accordance with section 4003(d) of the CARES Act.
Bristin Travel Services, LLC
Treasury agreed to make a loan totaling $549,651 to Bristin Travel, LLC (Bristin), a
ticket agent with approximately 12 U.S. employees in March 2020.
The loan is secured by Bristin’s accounts receivable. The loan has an interest rate
equal to LIBOR plus 3.5% and matures on October 26, 2025. Treasury funded the full
loan amount at close. The loan proceeds will be used to provide liquidity to continue
Bristin’s operations. The transaction agreement includes covenants by Bristin to
comply with certain restrictions on employee compensation, stock repurchases,
dividends, and reductions in employment levels, as required by the CARES Act. The
loan constitutes senior indebtedness of Bristin, and Treasury will also receive 3%
payment-in-kind annual interest on the loan in accordance with section 4003(d) of the
CARES Act.
Hawaiian Airlines
On September 28, 2020, Treasury agreed to make a loan of up to $420 million to
Hawaiian Airlines, Inc. (Hawaiian Airlines). On October 23, 2020, Treasury increased
the maximum loan amount to $622 million. Hawaiian Airlines is 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 as well as
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
on September 28, 2020, and it 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 Airlines’ operations. The 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 with an
aggregate value equal to 10% of the total loan amount drawn.
Sun Country, Inc.
Treasury agreed to make a loan totaling $45 million to Sun Country, Inc. (Sun
Country), a wholly owned subsidiary of Sun Country Holdings, Inc. Sun Country is a
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passenger air carrier with approximately 1,630 U.S. employees in March 2020.
The loan is secured by Sun Country’s Sun Country Rewards loyalty program. The
loan has an annual interest rate equal to LIBOR plus 3.5% and matures on October
26, 2025. Treasury funded the full loan amount at close. The loan proceeds will be
used to provide liquidity to continue Sun Country’s operations. The transaction
agreement includes covenants by Sun Country to comply with certain restrictions on
employee compensation, stock repurchases, dividends, and reductions in employment
levels, as required by the CARES Act. The loan constitutes senior indebtedness of
Sun Country, and Treasury will also receive 3% payment-in-kind annual interest on the
loan in accordance with section 4003(d) of the CARES Act.
The loan agreements are available on Treasury’s website at
https://home.treasury.gov/policy-issues/cares/preserving-jobs-for-american-
industry/loans-to-air-carriers-eligible-businesses-and-national-security-businesses.
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Detailed Financial Statement ($ Thousands)
Date of
Borrower Loan Maturity Total Anticipated
Borrower Type1 City2 State2 Agreement Date Loan Amount Disbursements3
Aero
Repair
Hydraulics, Fayetteville GA 10/23/20 10/23/25 $450,000 $450,000
Station
Inc.
09/25/20
American
Passenger (amended
Airlines, Fort Worth TX 06/30/25 $7,500,000,000 $550,000,000
Air Carrier Oct. 22,
Inc.4
2020)
Bristin
Ticket Agent Fayetteville AR 10/26/20 10/26/25 $549,651 $549,651
Travel, LLC
09/28/20
Hawaiian
Passenger (amended
Airlines, Honolulu HI 06/30/24 $622,000,000 $45,000,000
Air Carrier Oct. 23,
Inc.5
2020)
Sun
Passenger
Country, Minneapolis MN 10/26/20 10/26/25 $45,000,000 $45,000.000
Air Carrier
Inc.
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 to Aero Hydraulics, Bristin, and Sun Country between October 23 and October 26; to American Airlines on
September 25, 2020; and to Hawaiian Airlines on September 28, 2020.
4. American Airlines entered into a loan agreement for up to $5.477 billion on September 25, 2020 and an amendment on October 22,
2020 increasing the maximum loan amount by $2.023 billion.
5. Hawaiian Airlines entered into a loan agreement for up to $420 million on September 28, 2020 and an amendment on October 23,
2020 increasing the maximum loan amount by $202 million.
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