Gogo gets better terms on debt through two-part refinancing effort

By Devika Patel

Knoxville, Tenn., May 9 – Gogo Inc. extended the maturities and lowered the interest rate of the majority of its debt through a refinancing of $200 million of 3.75% senior convertible notes due 2020 through the sale of new 9 7/8% senior secured notes due 2024.

“We recently closed $925 million of debt issuances that defer the bulk of our maturities until 2024 and lower the interest rate of our senior secured notes while creating no dilution for shareholders,” president and chief executive officer Oakleigh Thorne said on the company’s first quarter ended March 31 earnings conference call on Thursday.

“The enthusiastic response to our notes offering allowed us to extend maturities and lower the interest rate on the bulk of our debt,” Thorne said.

The refinancing was completed in two steps, initially refinancing $200 million of convertibles then selling $925 million of senior secured notes.

“We’ve now completely refinanced our balance sheet,” executive vice president and chief financial officer Barry Rowan said on the call.

“Late last year, we embarked on a two-step process to refinance our balance sheet, beginning with refinancing $200 million of our convertible notes.

“Gogo’s improving performance and great support from our debt investors enabled us to successfully complete the senior secured notes financing we recently announced.

“After initially closing on $905 million, we had the opportunity to place an additional $20 million, priced above par with no consent fees, bringing the total amount of the senior secured notes to $925 million.

“We also launched the tender offer for the $162 million in convertible notes due in March 2020,” Rowan said.

The financings helped extend the maturity of the company’s debt.

“These financings achieve several objectives for the company,” Rowan said.

“First, we extended the maturities on our debt.

“The previous earliest due date was March 2020.

“Excluding the 2020 convertible notes, which are the subject of the tender offer, 80% of our debt is now due in 2024.

“The recently issued 6% convertible notes are due in May of 2022, with a conversion price of $6.00 per share.

“While we have the option to extend the maturity of the senior secured notes even further, we opted for a five-year term as the two-year non-call period puts us in a position to continue refinancing our balance sheet on better terms based on the accelerating financial performance we are projecting.

“It’s worth noting that both the recently issued senior secured notes and the 6% convertible notes have been trading above par since closing the transaction,” Rowan said.

The company also reduced the coupon of the debt, retained the option of redeeming the senior secured notes in the next year at 103 and launched a $30 million expandable revolver to provide an additional liquidity buffer.

“The second key objective we achieved through these financings was that we reduced the interest rate on our senior secured debt from 12½% to 9 7/8%,” Rowan said.

“Third, we retained the flexibility to redeem a portion of our senior secured notes with proceeds of up to $150 million in strategic investments at a price of 103 any time within the next 12 months.

“Finally, we have provided for an additional liquidity buffer with an initial $30 million revolving line of credit facility and a provision to double this amount over time based on meeting certain financial ratios.

“With these financings now completed, and based on our current plans and projected cash flow trajectory, we do not anticipate requiring additional capital except as needed to refinance our debt maturing in 2022 and 2024,” Rowan said.

Adjusted EBITDA was $38 million in the first quarter, an increase of nearly 220% as compared to $11.9 million in prior-year quarter.

Cash, cash equivalents and short-term investments were $189 million as of March 31, 2019, compared to $223 million as of Dec. 31, 2018.

Long-term debt was $1,030,359,000 as of March 31, 2019, compared to $1,024,893,000 as of Dec. 31, 2018.

On April 17, Gogo priced a $905 million issue of 9 7/8% five-year senior secured notes (B3/CCC+) at 99.512 to yield 10%.

The yield printed at the wide end of the 9¾% to 10% yield talk. Initial guidance was in the high 9% to 10% area.

Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC were the joint bookrunners.

Proceeds were earmarked to fully redeem the company’s 12½% senior secured notes and for general corporate purposes, including the full or partial redemption of its 3.75% convertible notes.

On April 18, the company tendered for any and all of its $162 million of outstanding 3.75% convertible senior notes due 2022.

The company offered to purchase the notes at par plus accrued interest.

The offer will expire at 11:59 p.m. ET on May 15.

The tender offer is subject to the satisfaction or waiver of some conditions, including consummation of the offering of senior secured notes by Gogo Intermediate Holdings LLC and Gogo Finance Co. Inc.

There is no minimum tender condition.

Settlement is expected to occur promptly after the expiration date.

On May 3, Gogo priced a $20 million add-on to the Gogo Intermediate Holdings LLC 9 7/8% senior secured notes (B3/CCC+) due May 1, 2024 at 100.5 to yield 9.743%.

Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC were the joint bookrunners.

The Chicago-based provider of inflight internet services plans to use the proceeds for general corporate purposes.

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