On March 12, Southwest Airlines entered into a new $1bn 364-day term loan credit facility with a syndicate of lenders that was drawn in full on the closing date.
The loan is priced at either the LIBOR rate or the “alternate base rate” plus 1%. The alternate base rate is defined as the highest of (1) the Wall Street Journal prime rate, (2) one-month adjusted LIBOR (one-month LIBOR plus a statutory reserve rate) plus 1%, and (3) the New York Fed Bank Rate, plus 0.5%). The underlying LIBOR rate is subject to a floor of 0% per annum and the “alternate base rate” is subject to a floor of 1% per annum. The facility is unsecured by but requires Southwest to maintain a specified ratio of adjusted net income less cash dividends to interest and aircraft rental expense, and to maintain a separate unencumbered pool of aircraft with a defined value during the 364-day term.
JPMorgan acts as administrative agent on the facility and is joint lead arranger and joint bookrunner with Bank of America and Wells Fargo.
In an update, Southwest confirmed that in addition to drawing down on this new facility, the airline has drawn down the full $1bn under its revolving credit facility expiring in August 2022. Southwest confirmed that including these financing transactions, its current unrestricted cash balance is estimated to be approximately $6.2 billion and it has approximately 525 unencumbered aircraft valued at approximately $10bn.
Southwest has suspended its current share repurchase program. The airline stated that because of the difficulty in estimating the duration and severity of the impact from the COVID-19 pandemic, it is “actively pursuing additional opportunities to preserve cash, bolster liquidity, and improve its near-term working capital position to protect its business and restore long-term financial strength”.