Western Global Airlines (KD, Fort Myers Southwest Florida) has proposed senior unsecured notes due in 2025, the proceeds of which will fund the purchase of part of the shareholdings from its existing shareholders on behalf of an employee share ownership trust.

The cargo specialist is looking to raise USD410 million through its first ever junk-bond offering as part of a plan to sell a minority stake to employees, Bloomberg News reported on August 4. Its founder and chief executive Jim Neff and other shareholders will sell up to 49% of the company to an employee stock ownership plan (ESOP).

The move will give the company a significant tax break, provide the founders with a large payout, and possibly also keep its workforce union-free, the report explained.

“We believe that our employees are the best strategic partners and view the ESOP as a win-win for both the employees and the company,” a representative told Bloomberg, adding that the airline has experienced substantially higher operating costs in the Covid-19 environment.

The airline will lend funds from the bond offering to the newly formed ESOP, which will use the cash to buy the stake. Annual contributions received from the company will repay the debt over time. The tax benefits will arise as it deducts interest on the debt and contributions made to the plan, according to investors with knowledge of the matter.

The five-year bonds were initially mooted to have a yield of 8.25% to 8.5%, but this was revised on August 4 to 8.75% to 9%.

Moody's Investors Service assigned first-time ratings to Western Global on July 30 giving it a stable outlook, a B2 Corporate Family Rating (CFR), which measures a company's ability to honour all of its financial obligations, and a B3 long-term rating.

“Western Global has recently benefitted from the increased demand for its global air cargo services, as a large portion of passenger aircraft, which have capacity for air cargo, has been grounded because of the coronavirus pandemic,” Inna Bodeck, a vice president at Moody's, explained.

“However, the company has yet to demonstrate consistent operating results and the ability to operate with financial leverage, albeit relatively low, at a time when the company is experiencing a shift in ownership with associated changes to its corporate governance arrangements,” she added.

Also in late July, S&P Global Ratings said they expected Western Global’s revenues to almost double this year due to higher demand for cargo transport and reduced cargo capacity at passenger carriers.

Western Global’s biggest customer is currently United Parcel Service, which accounted for 24% of revenues in the first six months of 2020, the airline told potential investors. Amazon.com, which became a customer this year, and the US Department of Defense accounted 16% and 14%, respectively.

The airline operates fourteen MD-11(F)s, two B747-400(BCF)s, and one B747-400FSCD, according to the ch-aviation fleets module.