Sunwing has turned to one of the federal government’s pandemic programs, a $375 million emergency loan, days after flights to the Caribbean and Mexico were suspended through April 30.
The government said Monday that Sunwing Vacations and Sunwing Airlines will now have access to $375 million in liquidity. The loan is through the government’s Large Employer Emergency Financing Facility (LEEFF), a program aimed at providing large companies that have been affected by the coronavirus pandemic with bridge financing.
Under the terms of the loan, Sunwing has agreed to maintain an account with the money it received from customers for travel that was cancelled due to the pandemic. The federal government has stressed that it will provide financial aid for the battered aviation industry only if airlines provide refunds to passengers whose flights were cancelled as a result of COVID-19.
“This account will be maintained until the government's broader discussions with the airline industry conclude and a policy is established for the treatment of these prepaid amounts,” read a statement from the Canada Enterprise Emergency Funding Corporation, which operates the LEEFF program.
LEEFF, which was first introduced last May, offers loans of $60 million or more to large businesses facing cash problems as a result of the pandemic. But the program has proven unpopular among big businesses, as it comes with an interest rate that is above typical private-sector lending rates.
Most of the loan – 80 per cent – will be an unsecured facility and the remaining 20 per cent will be secured. The unsecured loan will be for five years, with a 5 per cent interest rate that will increase to 8 per cent after one year, and another 2 per cent in subsequent years. The secured loan will be the same as the borrower’s existing secured debt.
The loan also comes with several restrictions, including a ban on providing shareholder dividends and share repurchases, and on certain executive compensation options. Other government programs, including the popular Canada Emergency Wage Subsidy (CEWS), do not include such restrictions.
Sunwing Airlines, Sunwing Vacations and Sunwing Travel Group are all listed as having received CEWS. It is unclear how much the company segments have already received through that program.
Sunwing is just the third company to turn to LEEFF in the pandemic. Gateway Casinos and Entertainment Ltd. has been approved for a $200 million loan, and Conuma Resources Ltd. has been approved for $120 million. Sunwing, which employs approximately 3,000 people, has so far drawn $50 million of the $375 million it was approved for.
Sunwing Travel Group and its two subsidie
Sunwing was among the four airlines that agreed to suspend all air service to Mexico and the Caribbean starting last week through April 30. The move was part of the federal government’s latest set of travel restrictions, announced Friday, aimed at stemming the spread of new variants of COVID-19. International travellers will also have to quarantine for up to three days at approved hotels as they await their test results taken upon arrival.
Canada’s airline industry has called on the federal government to provide a financial relief package for the battered sector since the pandemic struck in March.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.