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Long-Term Debt, Finance Leases, and Other Borrowings | 9 Months Ended
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Jun. 30, 2022
Debt Disclosure [Abstract] |
Long-Term Debt, Finance Leases and Other Borrowings |
9. | Long-Term Debt, Finance Leases, and Other Borrowings
Long-term debt as of June 30, 2022 and September 30, 2021, consisted of the following (in thousands):
|  | June 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |
Senior and subordinated notes payable to secured parties, collateralized |  |  |  |  |  |  |  |
by the underlying aircraft, due 2027(1) |  | $ | 77,058 |  |  | $ | 86,551 |
Notes payable to secured parties, collateralized by the underlying |  |  |  |  |  |  |  |
aircraft, due 2028(2) |  |  | 141,690 |  |  |  | 152,100 |
Senior and subordinated notes payable to secured parties, collateralized |  |  |  |  |  |  |  |
by the underlying aircraft, due 2028(3) |  |  | 110,892 |  |  |  | 122,762 |
Other obligations due to financial institutions, collateralized by the underlying |  |  |  |  |  |  |  |
equipment, due 2023 and 2024(4) |  |  | 18,481 |  |  |  | 4,581 |
Notes payable to financial institution, collateralized by the underlying |  |  |  |  |  |  |  |
equipment, due 2024(5) |  |  | 31,557 |  |  |  | 45,559 |
Notes payable to financial institution, collateralized by the underlying |  |  |  |  |  |  |  |
aircraft, due 2023(6) |  |  | 17,500 |  |  |  | 30,625 |
Notes payable to financial institution due 2023(7) |  |  | 2,500 |  |  |  | 4,000 |
Revolving credit facility(8) |  |  | 15,630 |  |  |  | 22,930 |
Notes payable to U.S. Treasury due 2025(9) |  |  | 204,947 |  |  |  | 201,227 |
Notes payable to financial institution, collateralized by the underlying |  |  |  |  |  |  |  |
equipment, due 2027(10) |  |  | 33,141 |  |  |  | — |
Gross long-term debt, including current maturities |  |  | 653,396 |  |  |  | 670,335 |
Less unamortized debt issuance costs |  |  | (9,522 | ) |  |  | (9,295 | )
Less notes payable warrants |  |  | (7,867 | ) |  |  | (9,630 | )
Net long-term debt, including current maturities |  |  | 636,007 |  |  |  | 651,410 |
Less current portion, net of unamortized debt issuance costs |  |  | (112,776 | ) |  |  | (111,710 | )
Net long-term debt |  | $ | 523,231 |  |  | $ | 539,700 |
(1) | In fiscal 2015, we financed seven CRJ-900 aircraft with $170.2 million in debt. The senior notes payable of $154.7 million bear interest at monthly LIBOR plus 2.71% and require monthly principal and interest payments. The subordinated notes payable are noninterest-bearing and become payable in full on the last day of the term of the notes. We imputed an interest rate of 6.25% on the subordinated notes payable and recorded a related discount of $8.1 million, which is being accreted to interest expense over the term of the notes.
(2) | In fiscal 2016, we financed ten E-175 aircraft with $246.0 million in debt under an EETC financing arrangement (see discussion below). The debt bears interest ranging from 4.75% to 6.25% and requires semi-annual principal and interest payments.
(3) | In fiscal 2016, we financed eight E-175 aircraft with $195.3 million in debt. The senior notes payable of $172.0 million bear interest at the three-month LIBOR plus a spread ranging from 2.20% to 2.32% and require quarterly principal and interest payments. The subordinated notes payable bear interest at 4.50% and require quarterly principal and interest payments.
(4) | In February 2018, we leased two spare engines. The leases were determined to be finance leases as the leases contain a bargain purchase option at the end of the term. Imputed interest is 9.13% and the leases require monthly payments. In April 2022, we leased a spare engine which was determined to be a finance lease. The lease requires monthly payments. In July 2022, we extended our existing two aircraft under operating leases, which were determined to be finance leases upon classification assessment.
(5) | In January 2019, we financed certain flight equipment with $91.2 million in debt. The debt bears interest at the monthly LIBOR plus 3.10% and requires monthly principal and interest payments.
(6) | In June 2019, we financed ten CRJ-700 aircraft with $70.0 million in debt, which were previously leased. The debt bears interest at the monthly LIBOR plus 5.00% and requires monthly principal and interest payments.
(7) | In September 2019, we financed certain flight equipment for $8.0 million. The debt bears interest at the monthly LIBOR plus 5.00% and requires monthly principal and interest payments.
(8) | In September 2019, we extended the term on our $35.0 million working capital draw loan by three years, which now terminates in December 2022. Interest is assessed on drawn amounts at one-month LIBOR plus 3.75%.
(9) | In October 2020, we entered into a loan and guarantee agreement with the U.S. Department of the Treasury for a secured loan facility of up to $200.0 million that matures on October 30, 2025. On October 30, 2020, we borrowed $43.0 million and on November 13, 2020, we borrowed an additional $152.0 million. These amounts bear interest at the three-month LIBOR plus 3.50%. No further borrowings are available under the loan and guarantee agreement.
(10) | In December 2021 and June 2022, we financed the purchase of spare engines with $35.3 million in debt. The debt bears interest at monthly LIBOR plus 4.25% and requires monthly principal and interest payments over a term of six years. The financing arrangement allows for additional borrowings to finance future engine purchases.
Principal maturities of long-term debt as of June 30, 2022, and for each of the next five years are as follows (in thousands):
Periods Ending September 30, |  | Total Principal |
2022 (remainder of) |  | $ | 29,822 |
2023 |  |  | 111,432 |
2024 |  |  | 72,400 |
2025 |  |  | 63,751 |
2026 |  |  | 271,065 |
Thereafter |  |  | 104,926 |
|  | $ | 653,396 |
The carrying value of collateralized aircraft and equipment as of June 30, 2022 was approximately $1,014.2 million. Enhanced Equipment Trust Certificate ("EETC") In December 2015, an Enhanced Equipment Trust Certificate ("EETC") pass-through trust was created to issue pass-through certificates to obtain financing for new E-175 aircraft. As of June 30, 2022, we had $141.7 million of equipment notes outstanding issued under the EETC financing included in long-term debt in the condensed consolidated balance sheets. The structure of the EETC financing consists of a pass-through trust created by Mesa to issue pass-through certificates, which represent fractional undivided interests in the pass-through trust and are not obligations of Mesa. The proceeds of the issuance of the pass-through certificates were used to purchase equipment notes which were issued by Mesa and secured by its aircraft. The payment obligations under the equipment notes are those of Mesa. Proceeds received from the sale of pass-through certificates were initially held by a depositary in escrow for the benefit of the certificate holders until Mesa issued equipment notes to the trust, which purchased such notes with a portion of the escrowed funds. We evaluated whether the pass-through trust formed for the EETC financing is a Variable Interest Entity ("VIE") and required to be consolidated. We have determined we do not have a variable interest in the pass-through trust, and therefore, we have not consolidated the pass-through trust with our financial statements. CIT Revolving Credit Facility On September 25, 2019, we extended the term on our $35.0 million working capital draw loan by three years, which now terminates in September 2022. Interest is assessed on drawn amounts at one-month LIBOR plus 3.75%. As of June 30, 2022, the amount outstanding on the working capital draw loan was $15.6 million. Our CIT revolving credit facility includes a minimum interest and rental coverage ratio covenant. In March and April 2022, we entered into amendments to the CIT revolving credit facility which lowered the minimum interest and rental coverage ratio covenant for the December 2021, March 2022, and June 2022 quarters. As a result, we are in compliance with this covenant. On June 30, 2022, we entered into the Second Amended and Restated Credit and Guaranty Agreement by and among Mesa Airlines and Mesa Air Group Airline Inventory Management, L.L.C., as borrowers, Mesa Air Group, as a Guarantor, the other guarantors party thereto from time to time, CIT Bank, as Administrative Agent, and the other lenders party thereto, which was effective as of June 30, 2022 and extended the maturity date of the facility by three (3) months to December 31, 2022 L oan A greement with the United States Department of the Treasury On October 30, 2020, we entered into a loan and guarantee agreement with the U.S. Department of the Treasury (the “U.S. Treasury”) for a secured loan facility of up to $200.0 million that matures in October 2025 (“the Treasury Loan”). During the first quarter of fiscal 2021, we borrowed an aggregate of $195.0 million. No further borrowings are available under the Treasury Loan. The Treasury Loan bears interest at a variable rate equal to (a)(i) the LIBOR rate divided by (ii) one minus the Eurodollar Reserve Percentage plus (b) 3.50%. Accrued interest on the loans is payable in arrears, or paid-in-kind by increasing the principal balance of the loan by such interest payment, on the first business day following the 14th day of each March, June, September, and December. All principal amounts outstanding under the Treasury Loan are due and payable in a single installment on October 30, 2025. Through June 30, 2022, interest on the Treasury Loan has been paid-in-kind by increasing the principal amount of the loan by the amount of such interest due on the interest payment date. Commencing in June 2022, we initiated the payment of interest in lieu of increasing the principal amount of the loan. Our obligations under the Treasury Loan are secured by certain aircraft, aircraft engines, accounts receivable, ground service equipment, flight simulators, and tooling (collectively, the “Collateral”). The obligations under the Treasury Loan are guaranteed by the Company and Mesa Air Group Inventory Management. The proceeds were used for general corporate purposes and operating expenses, to the extent permitted by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Voluntary prepayments of the Treasury Loan may be made, in whole or in part, without premium or penalty, at any time and from time to time. Amounts prepaid may not be reborrowed. Mandatory prepayments of the Treasury Loan are required, without premium or penalty, to the extent necessary to comply with the covenants discussed below, certain dispositions of the Collateral, certain debt issuances secured by liens on the Collateral, and certain insurance payments related to the Collateral. In addition, if a “change of control” (as defined in the Treasury Loan) occurs with respect to Mesa Airlines, we will be required to repay the loans outstanding under the Treasury Loan. The Treasury Loan requires us, under certain circumstances, including within ten (10) business days prior to the last business day of March and September of each year beginning March 2021, to appraise the value of the Collateral and recalculate the collateral coverage ratio. If the calculated collateral coverage ratio is less than 1.6 to 1.0, we are required either to provide additional Collateral (which may include cash collateral) to secure the obligations under the Treasury Loan or repay the term loans under the Treasury Loan, in such amounts that the recalculated collateral coverage ratio, after giving effect to any such additional Collateral or repayment, is at least 1.6 to 1.0. The Treasury Loan contains two financial covenants, a minimum collateral coverage ratio and a minimum liquidity level. The Treasury Loan also contains customary negative and affirmative covenants for credit facilities of this type, including, among others: (a) limitations on dividends and distributions; (b) limitations on the creation of certain liens; (c) restrictions on certain dispositions, investments, and acquisitions; (d) limitations on transactions with affiliates; (e) restrictions on fundamental changes to the business, and (f) restrictions on lobbying activities. Additionally, we are required to comply with the relevant provisions of the CARES Act, including limits on employment level reductions after September 30, 2020, restrictions on dividends and stock buybacks, limitations on executive compensation, and requirements to maintain certain levels of scheduled service. In connection with the Treasury Loan and as partial compensation to the U.S. Treasury for the provision of financial assistance under the Treasury Loan, we issued to the U.S. Treasury warrants to purchase an aggregate of 4,899,497 shares of our common stock at an exercise price of $3.98 per share, which was the closing price of the common stock on April 9, 2020. The exercise price and number of shares of common stock issuable under the warrants are subject to adjustment as a result of anti-dilution provisions contained in the warrants for certain stock issuances, dividends, and other corporate actions. The warrants expire on the fifth anniversary of the date of issuance and are exercisable either through net share settlement or net cash settlement, at our option. The fair value of the warrants was estimated using a Black-Scholes option pricing model and recorded in stockholders' equity with an offsetting debt discount to the Treasury Loan in the condensed consolidated balance sheets. In April 2022, we entered into an agreement with the U.S. Treasury to lower the minimum collateral coverage ratio covenant to 1.5 to 1.0 through September 30, 2022. As a result, we are in compliance with this covenant as of June 30, 2022. Spare Engine Financing In December 2021, we entered into a loan agreement with a financing institution to finance certain purchases of spare engines via a newly formed limited liability company (“LLC”). The loan agreement provides for aggregate borrowings of up to $54.0 million through November 2022. In December 2021, we borrowed an aggregate of $35.3 million under the loan agreement, which matures in December 2027. The borrowed amounts are collateralized by the underlying engines and require monthly principal and interest payments until maturity. Borrowings under the loan agreement bear interest at the monthly LIBOR plus 4.25%. The borrowings are the obligation of the newly formed LLC and are guaranteed by Mesa Airlines, Inc. The newly formed LLC, which is wholly owned by Mesa, was determined to be a VIE for which we are the primary beneficiary because we have the power to direct the activities of the LLC that most significantly impact the LLC’s economic performance and the obligation to absorb losses and right to receive benefits from the LLC in our capacity as sole member of the LLC and guarantor of the borrowings. Therefore, the LLC is consolidated in our financial statements and the borrowings are reflected as long-term debt in our condensed consolidated balance sheets. The loan agreement contains a loan-to-value (“LTV”) financial covenant pursuant to which we are required to prepay certain amounts of the loan if the aggregate outstanding principal balance of the loan exceeds a specified percentage of the appraised value of the engines beginning in the 12th full month after closing and each June 1 and December 1 thereafter. As of June 30, 2022, we were in compliance with all debt covenants.

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- Definition The entire disclosure for debt and capital lease obligations can be reported. Information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. Also includes descriptions and amounts of capital leasing arrangements that consist of direct financing, sales type and leveraged leases. Disclosure may include the effect on the balance sheet and the income statement resulting from a change in lease classification for leases that at inception would have been classified differently had guidance been in effect at the inception of the original lease. + References Reference 1: http://fasb.org/us-gaap/role/ref/otherTransitionRef -Publisher FASB -Name Accounting Standards Codification -Topic 840 -URI https://asc.fasb.org/topic&trid=2208923 Reference 2: http://fasb.org/us-gaap/role/ref/otherTransitionRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI https://asc.fasb.org/topic&trid=2208564 + Details
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