Ms. Annick Guerard reports

TRANSAT A.T. INC. AND CEEFC ANNOUNCE AGREEMENT IN PRINCIPLE FOR THE RESTRUCTURING OF THE LEEFF DEBT

Transat AT Inc. has reached an agreement in principle with Canada Enterprise Emergency Funding Corp. for the restructuring of the indebtedness incurred by Transat under the large enterprise emergency funding facility program managed by CEEFC in the context of the COVID-19 pandemic. The transaction remains subject to the execution of definitive agreements and documentation giving effect to the transaction.

"We are pleased to have been able to reach this agreement, which will substantially deleverage our balance sheet and pave the way for Transat to further implement its long-term sustainable strategic plan and complete the implementation of its elevation program," said Annick Guerard, Transat's president and chief executive officer.

"CEEFC has worked closely with Transat to ensure it meets its obligations under the LEEFF program while supporting the company's continued commercial viability in a competitive market," said Elizabeth Wademan, president and chief executive officer of Canada Development Investment Corp., the parent company of CEEFC. "LEEFF has been a successful program by making emergency loans available to Canada's large employers to enable them to stay solvent and save jobs both during the pandemic and beyond."

Key transaction terms

The agreement deals with the entire indebtedness of the corporation with CEEFC and results in such indebtedness, currently in a principal amount of approximately $772-million in the aggregate as at March 31, 2025, being restructured as follows:

• Repayment of $41.4-million in cash to CEEFC;
• Credit facilities reduced to a single credit facility of $175-million;
• Issuance to CEEFC of a $158,735,045 debenture maturing in 10 years;
• Issuance to CEEFC of $16,264,955 of preferred shares convertible into Class B voting shares, representing 19.9 per cent of the issued and outstanding voting shares based on the five-day volume-weighted average price on the date hereof.

Credit facility

The $175-million credit facility will have a 10-year term with interest accruing at a rate of 1.22 per cent per annum for the first three years and 3 per cent per annum thereafter. The facility will be secured by a second lien on all the assets of Transat and its subsidiaries, which are borrowers under the facility, including Air Transat Inc.

Debenture

As part of the restructuring transaction, an amount of $158,735,045 of CEEFC indebtedness will be converted into a new debenture maturing in 10 years. The debenture shall not have any interest accruing in the first five years. Following the fifth anniversary date of its issuance, interest will accrue at a rate of 7 per cent per annum, increasing by 1.0 per cent per annum thereafter up to a maximum of 12 per cent per annum.

Upon the occurrence of a mandatory prepayment event (defined below), Transat shall, at the option of CEEFC, make a repayment of the principal amount of the debenture, plus accrued and unpaid interest thereon. Following the five-year anniversary of the transaction closing date, Transat will repay at least 10 per cent of the principal amount of the debenture annually, plus accrued and unpaid interest thereon. Any outstanding principal amount, plus all accrued and unpaid interest thereon, may be repaid at any time.

Preferred shares

As part of the restructuring transaction, an amount of $16,264,955 of CEEFC indebtedness will be converted into preferred shares of Transat at a price of $1.6372 per share, corresponding to the five-day volume-weighted average trading price for the shares of Transat on the Toronto Stock Exchange on the date prior to the announcement of the agreement in principle with CEEFC for the transaction, for a total of 9,934,617 preferred shares.

The preferred shares shall be non-voting and will have preference over Class A variable voting shares and Class B voting shares in the event of liquidation, dissolution or windup. The preferred shares will also have the following key terms:

• Dividends: no fixed dividend; entitled to the same dividend per share as any dividend declared on the common shares;
• Conversion: the preferred shares will be convertible into Transat Class B shares at any time after the second anniversary date of the transaction closing date on a one-for-one basis (with such Class B shares to be subject to CEEFC's registration rights under an amended and restated investor rights agreement);
• Redemption: redeemable upon the occurrence of a mandatory prepayment event (as defined below), in whole or in part, at the option of CEEFC, at a price per share equal to the greater of: (i) the initial redemption price; and (ii) the five-day VWAP of the common shares on the day prior to notice of redemption, in each case plus all declared and unpaid dividends;
• Change of control: upon a change of control, all outstanding preferred shares shall be redeemed at a price per share equal to the greater of: (i) the initial redemption price; and (ii) the value of the consideration paid per common share pursuant to the transaction giving rise to the change of control, in each case plus all declared and unpaid dividends.

Existing warrants

All 13 million outstanding share purchase warrants held by CEEFC and issued in connection with the LEEFF facilities in April, 2021, will be maintained, and their expiry extended from April 29, 2031, to 2035, and more specifically the date falling on the 10th anniversary of the transaction closing date. These warrants entitle CEEFC to purchase an equivalent number of Class B voting shares of Transat at a price of $4.50 per share, subject to a maximum number of shares not exceeding the lesser of: (i) 9,436,772 Class B voting shares; and (ii) that number of Class B voting shares which, when aggregated with the number of shares owned or controlled by CEEFC at the time of exercise, equals 19.9 per cent of the issued and outstanding common shares after giving effect to the exercise. The terms of the warrants contemplate that any portion exercised in excess of such threshold is payable in cash on the basis of the difference between the market price of Transat's shares on the Toronto Stock Exchange and the exercise price. As part of the transaction, the parties agree that the deemed cash settlement option under the warrants shall be limited to a maximum of 3,563,228 warrants and subject to the prior exercise of 9,436,772 warrants for an equivalent number of Class B voting shares. The other terms of the warrants remain unchanged.

Between the warrants and preferred shares, CEEFC will hold securities exercisable or convertible for an aggregate of 19,371,389 Class B voting shares, representing approximately 32.6 per cent of the outstanding common shares after giving effect to such exercise or conversion, provided that at no time will the exercise of warrants or conversion of preferred shares result in CEEFC beneficially owning or controlling in excess of 19.9 per cent of the common shares.

CEEFC intends to hold the preferred shares for investment purposes. Depending on market conditions and other factors, including Transat's business and financial condition, CEEFC may dispose of some or all of the securities of Transat that it owns. CEEFC and its affiliates do not intend to acquire additional equity securities of Transat except through the possible exercise of the warrants and conversion of the preferred shares.

Existing revolving credit facilities

Transat's existing $50-million senior revolving credit facility and $74-million revolving credit facility for letters of credit are not part of the restructuring and will remain in place and available to Transat.

As part of the restructuring, Transat has agreed with CEEFC to repay 50 per cent of the senior revolving credit facility by no later than Nov. 1, 2026. Transat also agreed that a portion of the cash generated from certain occurrences, including the monetization and sale of certain assets in excess of certain thresholds and cash flow exceeding certain thresholds, will be repaid to CEEFC and will be made available to Transat in the form of working capital advances, in an amount of up to $50-million until the senior revolving credit facility is reduced and $75-million thereafter, with interest accruing at a rate of 7 per cent per annum for the first year (being the equivalent of three-month-term Canadian overnight repo rate average plus 4.50 per cent), resetting each year thereafter at a rate per annum equal to the three-month-term CORRA plus 4.50 per cent.

Pro forma consolidated capitalization

The table below serves to illustrate the impact of the restructuring under the transaction, presenting on an actual and pro forma basis as at Jan. 31, 2025, the consolidated capitalization of the corporation. This table should be read in conjunction with the interim financial statements and related management's discussion and analysis for the quarter ended on Jan. 31, 2025.

Additional details about the transaction

The transaction is subject to the finalization of definitive agreements. The transaction is also subject to the approval of the Toronto Stock Exchange with respect to the issuance of the preferred shares.

Assuming that the parties are able to finalize definitive agreements and secure the necessary approvals within the contemplated timeline, closing of the transaction is expected to take place in the third quarter of calendar year 2025.

Given that CEEFC holds warrants entitling it to acquire up to 19.9 per cent of the company's common shares, it may constitute a related party for the purposes of Regulation 61-101 respecting protection of minority security holders in special transactions. The corporation relied on the formal valuation and minority approval exemptions contained in sections 5.5(g) and 5.7(1)(e) of Regulation 61-101 given that the transaction improves the financial position of the corporation, which was becoming extremely precarious due to the size of its debt.

The announced transaction is the result of discussions initiated by the corporation over 18 months ago with CEEFC and the review of a range of alternatives with the assistance of a special advisory committee of the board of directors made up entirely of independent directors with a view to establishing an optimal capital structure over the long term. The transaction received the unanimous approval of the board of directors on the unanimous recommendation of the special committee, which completed its work with the assistance of external financial and legal advisers.

About Transat AT Inc.

Founded in Montreal 37 years ago, Transat has achieved worldwide recognition as a provider of leisure travel particularly as an airline under the Air Transat brand. Voted world's best leisure airline by passengers at the 2024 Skytrax world airline awards, it flies to international destinations. It renews its fleet with the most energy-efficient aircraft in its category, which is essential to ensure the energy efficiency of its operations. Based in Montreal, Transat has 5,000 employees with a common purpose to bring people closer together.

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