Transat AT Inc. shares soared Thursday after the travel company announced major restructuring of pandemic-era debt in a deal that forgives hundreds of millions of dollars owed.
Its stock price jumped 27 cents or 16 per cent to close at $1.92 on the Toronto Stock Exchange.
The Montreal-based company, which owns Air Transat, said it had cut its total debt with a federal Crown corporation by more than half to $334 million from $772 million.
Most of that reduction is due to about $380 million of debt forgiven under the agreement in principle.
Under the deal, Transat will put $41.4 million in cash toward its debt. It will also consolidate part of its credit into a single $175-million 10-year facility and issue a $158.7-million 10-year debenture to the Canada Enterprise Emergency Funding Corp.
Finally, Transat will issue the federal entity $16.3 million in shares for a 19.9 per cent stake in the company under a debt-for-equity swap.
The restructure comes on “highly favourable terms” — including no interest for the first five years of the debenture — for Transat given the red ink on its balance sheet, said ATB Capital Markets analyst Chris Murray.
Transat was one of several airline outfits to take advantage of federal aid packages during the COVID-19 pandemic, which saw border closures and health restrictions wreak havoc on carrier earnings.
“It feels like a bad memory or a hangover or something we’d just all rather forget. But at the time, it was pretty dire,” said Murray in an interview.
With demand down sharply for its typical U.S. sun destinations amid a broader mood of economic uncertainty, the 39-year-old airline is not in the clear just yet.
“Although we view the deal as a clear positive for Transat, the company still has work to do to improve its leverage and profitability,” said National Bank analyst Cameron Doerksen in a note to investors.
The company will still carry a net debt topping $1.5 billion at the end of its fiscal year versus $1.9 billion as of Jan. 31, according to Doerksen.
Its ratio of net debt to adjusted earnings is set to fall by nearly half to 5.4 by the end of October, and to 4.3 a year later. A healthy ratio is typically considered to sit between one and three.
“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,” said CEO Annick Guérard in a release.
The deal remains subject to definitive agreements being carried out and documents putting the transaction into effect, the company said.
This report by The Canadian Press was first published June 5, 2025.
Companies in this story: (TSX:TRZ)
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