RE:RE:No WARRANTS for the FedsRouge10 asked:
"Does this mean that outstanding shares used for calculation of cash flow per share will decrease? Thus increasing the cash flow per share and reduction in future liabilities."
I tried to think of what the answer is to that question. My best anwer is the answer to the question...What does this really mean for the financial well being of Air Canada? I will try to outline what I see happening from my area of knowledge. And this is all good news.
Getting rid of these lines of credit is a huge balance sheet positive. One reason is that these lines, even if they are not used are considered a debt for AC. They are secured against assets that were previously consider wholly owned by AC. So by getting rid of this commitment, these assets are once again wholly owned by AC.
It has the benefit of assuring present stakeholders that going forward some new board with some new scheme might try and borrow this money for some hair brained politically motivated scheme. It also has the benefit of improving AC's net worth in a positive way even if at this point it is only on paper.
There is still $1.2 billion out on another line of credit that has been used to refund ticket holders. On the positive side, forward bookings are refilling the cash reserve fund that is in place in times of normal operations. Going forward, as people travel it allows funds to be dispersed to another operations account. Then it is replaced by money being put back in cash accounts that will be used to pay for operations when the folks use their tickets to travel. It just goes around and around. We will see how and when they wrap up this account. Till then it is a cycle grasshopper. It will continue even after this LOC is also shut down. Just without the LOC.
It is important to note that this is not secured as in there is no lien on AC assets. This is a balance sheet thing again. It is like getting rid of a credit card out of your wallet.
These loans were very important for AC to negotiate better terms for their long term debt. They borrowed $7.1 billion at 4% for 10 years. Done deal...its like signing a locked in rate mortgage.
This is important because this money had already been borrowed at a significantly higher rate. Because AC didn't really need the money they got a loan at a lower rate. Why is this important?
It allowed AC to borrow with these terms. 4% interest on $7.1 billion is $280 million per year. In the last quarter AC had $2 billion in revenue so annualized that is $8 billion per year. 280million divided by 8,000 million works out to a scenrio where 3.5% of revenue goes to pay interest on these loans. Expand this to 2019 revenue of $19 billion, 280 million is 1.5% of revenue when this financial threshold is acheived. The amount of interest is the same but the amount of each dollar in revenue is halved. This is the I in EBITA. I noted before that AC will not pay tax for a long time due to the losses incurred over the last 2 years. Earnings after interest and taxes are paid will be much closer in numbers to earnings before interest and taxes are paid.
The warrants are another liability that is gone. Because it represents a possible increase in the number of shares, this is a good thing. I don't know that it will decrease the number of shares but I do know that will not increase the number of shares. MR stated that AC will not be going to the market with a share offering for the foreseeable future. To me that means that worst case scenario is that the number of shares stays the same.
If AC is cleared to buy back shares once again I can't imagine that anything other than the 21million shares owned by the Feds will be first in the shopping cart. That would result in 6% fewer shares. So at the very least there is to be the same number of shares and hopefully at least 6% fewer ASAP.
In the meantime bookings are looking much better. The breakout scenario is that AC will fly to wherever it is safe to fly and still make money. I have not been in an airport lately but I do know they are busy. Also I have mention that India will be a jewel for Air Canada going forward. I just added it up. The 10 largest cities in India have an urban popualtion of over 54 million people. Also Australia (20 million) is about to try and spool up again. Those are very rich targets on a very long and profitable routes. And AC has the hubs with the most direct non stop flights with the shortest flight times.
All of this is working very quickly to produce financial reports that will support a huge rebound in the share price. And who knows exactly when that will happen?