Global Eagle bought itself a few extra weeks. Literally. The company missed an $11 million interest payment on 9 July but negotiated an extension to the end of the month before it will be considered in default on the loan.
That deal did not come cheap, however. Global Eagle agreed to an additional 2% outlay on the loans, plus legal fees for the various lenders and the loan administrative agent. That brings on millions of dollars in increased liability and a limited timeframe to figure out how to more structurally address Global Eagle’s financial difficulties.
The additional time comes with minimal risk to the lenders. Global Eagle already isn’t paying the interest due but also is unlikely to burn enough cash in the intervening weeks to materially affect what funds might be recovered in the future. And the 2% upside isn’t so bad either.
Similarly, for Global Eagle the extra 2% does not really matter if it can’t pay back the underlying loans anyways. And maybe the extra time will enable the company to pull off the refinancing it so desperately needs. Or to negotiate in advance a pre-packaged Chapter 11 deal with the lenders.
At the end of Q1 the company held roughly $54.2 million in cash and cash equivalents. But it also had a rider in its primary debt requiring a $17.5 million balance. Dropping below that would bring default. By the end of June the coffers were down to just $30.7 million. Paying the interest would almost certainly have triggered the default. Even without that payment the burn rate suggests just 6 weeks before the company hits the default threshold. The new 1 August deadline truly appears a do-or-die date for Global Eagle.
The company pulled off similar miracles in the past, always with a turnaround horizon of a few years and some bold thoughts on what it would take to realize profitability. But things got in the way.
Not that the entirety of the troubles can be blamed on externalities. Some missteps in partnerships and investments cost Global Eagle dearly.
Separately, the company approved “incentives to be paid to certain key employees, including each of its named executive officers, in an effort to retain and motivate such employees in the face of unprecedented uncertainty and increased workload” caused by current market conditions. The deal specifically awarded the following bonuses (as a percentage of the applicable base compensation:
- Joshua Marks, Chief Executive Officer – 125%
- Christian Mezger, Chief Financial Officer – 100%
- Per Norén, President – 100%
These funds were paid out on 14 July and certainly will not help the cash burn rates.
Finally, the company;s shareholders approved (on an advisory basis) the appointment of KMPG LLP as its independent accounting firm for the 2020 calendar year as part of its annual meeting on 13 July 2020. The following day the Audit Committee chose to terminate the contract with KMPG. Unlikely anything nefarious there, though the timing is mildly bizarre.
More on Global Eagle’s recent financial impositions
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