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Press Release $AC.B.TO Air Canada

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Air Canada Announces Proposed Refinancing Transaction; Launches Tender Offers and Consent Solicitations for its 9.250% Senior Secured Notes due 2015, 10.125% Senior Secured Notes due 2015, and 12.000% Senior Second Lien Notes due 2016

MONTREAL, Sept. 5, 2013 /PRNewswire/ - Air Canada today announced that it intends to refinance approximately C$1.1 billion principal amount of its outstanding senior notes and, as part of the refinancing, has launched cash tender offers for any and all of its 9.250% Senior Secured Notes due 2015 (the "USD Senior Secured Notes"), 10.125% Senior Secured Notes due 2015 (the "CAD Senior Secured Notes" and together with the USD Senior Secured Notes, the "Senior Secured Notes"), and 12.000% Senior Second Lien Notes due 2016 (the "USD Second Lien Notes") (collectively, the "Existing Notes"). The refinancing transaction, if completed as currently proposed, will extend the maturity of Air Canada's long-term debt and lower its costs of financing.

Proposed Refinancing Transaction

Subject to market and other conditions, Air Canada plans to enter into a new senior secured term loan and revolving credit facility governing U.S.$800 million of indebtedness (the "New Credit Facility") and commence private offerings of C$300 million aggregate principal amount of senior secured notes (the "New Senior Secured Notes") and U.S.$300 million aggregate principal amount of senior second lien notes (the "New Senior Second Lien Notes" and, together with the New Senior Secured Notes, the "New Senior Notes").  The New Credit Facility is currently expected to include a US$100 million revolving credit facility and a US$700 million term loan.  Proceeds from this refinancing transaction will be used to purchase any and all of the Existing Notes that are validly tendered in connection with the cash tender offers and related consent solicitations described below for its Existing Notes and to redeem or repurchase any Existing Notes not purchased in the tender offers. Air Canada intends to use the remaining proceeds, if any, for working capital and general corporate purposes.

The New Credit Facility and the New Senior Notes will be senior secured obligations of Air Canada, to be guaranteed on a senior secured basis by one or more of Air Canada's subsidiaries, and secured (on a first lien basis with respect to the New Credit Facility and the New Senior Secured Notes and on a second lien basis with respect to the New Senior Second Lien Notes), subject to certain permitted liens and exclusions, by accounts receivable, certain real estate interests, certain spare engines, ground service equipment, certain airport slots and gate leaseholds, and certain Pacific routes and the airport slots and gate leaseholds utilized in connection with these Pacific routes.

It is anticipated that the New Senior Notes will be offered and sold on a private placement basis to accredited investors in certain provinces of Canada. In the United States, the New Senior Notes will be offered and sold only to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and to certain non-U.S. persons in transactions outside the United States in reliance on Regulation S under the Securities Act. The New Senior Notes will be offered only through a preliminary and final offering memorandum and this press release is not intended to serve as the basis for any investment decision.

Tender Offers for the Existing Notes

In connection with its proposed refinancing transaction, Air Canada has launched cash tender offers for any and all of its Existing Notes for the cash consideration per US$1,000 or C$1,000 principal amount, as applicable, set forth next to the corresponding series of Existing Notes in the table below.  These offers consist of three separate offers, one for each series of Existing Notes listed below (each, a "Tender Offer," and collectively, the "Tender Offers").  In connection with the Tender Offers, Air Canada is also soliciting consents (the "Consent Solicitations") to amend the Existing Notes and the respective indentures that govern them to eliminate most of the restrictive covenants and certain events of default contained in the indentures (the "Proposed Indenture Amendments") and to release all of the collateral securing the Existing Notes (the "Proposed Collateral Release Amendments" and, together with the Proposed Indenture Amendments, the "Proposed Amendments").  The Tender Offers and the Consent Solicitations are being made pursuant to an Offers to Purchase and Consent Solicitations Statement dated September 5, 2013 (the "Statement") and related Letters of Transmittal and Consent, each dated September 5, 2013 (the "Letters of Transmittal" and, collectively with the Statement, the "Offer Materials").

Information related to the Existing Notes, the Tender Offers and the Consent Solicitations is listed in the table below. The Offer Materials more fully set forth the terms and conditions of the Tender Offers and the Consent Solicitations.

Description of Notes CUSIP
(144A/Reg S)
ISIN
(144A/Reg S)
Outstanding
Principal
Amount
Tender Offer
Consideration(1)
Early
Tender
Premium(1)
Total
Consideration(1)(2)
9.250% Senior Secured Notes due 2015 008911AK5/
C01026AV2
USC01026AV28/
US008911AK56
US$600,000,000 US$1,014.63 US$30.00 US$1,044.63
10.125% Senior Secured Notes due 2015 008911AM1/
008911AN9
CA008911AM15/
CA008911AN97
C$300,000,000 C$1,018.57 C$30.00 C$1,048.57
12.000% Senior Second Lien Notes due 2016 008911AP4/
C01026AW0
USC01026AW01/
US008911AP44
US$200,000,000 US$1,067.50 US$30.00 US$1,097.50

(1)    Per US$1,000 principal amount of USD Senior Secured Notes and USD Second Lien Notes or C$1,000 principal amount of CAD Senior Secured Notes, as applicable.
(2)    Includes the Early Tender Premium.

Holders who validly tender (and do not validly withdraw) their Existing Notes and validly deliver (and do not validly revoke) their consents on or prior to 5:00 p.m., New York City time, on September 18, 2013, unless extended or earlier terminated (the "Early Tender Deadline"), will be eligible to receive US$1,044.63, C$1,048.57 and US$1,097.50 per US$1,000 or C$1,000 principal amount, as applicable, of USD Senior Secured Notes, CAD Senior Secured Notes and USD Second Lien Notes, respectively (the "Total Consideration"), if such Existing Notes are accepted for purchase.  The Total Consideration includes an early tender payment of US$30.00 or C$30.00 per US$1,000 or C$1,000 principal amount, as applicable, of Existing Notes.

As described more fully in the Statement, the Total Consideration with respect to the Senior Secured Notes was determined with consideration given to Air Canada's right to redeem 10% of the original principal balance of each series of such Existing Notes at 103% of the principal amount thereof (a "10% Redemption") and Air Canada's right to redeem the balance of such Existing Notes at a redemption price of 104.625% of the principal amount thereof in the case of the USD Senior Secured Notes and 105.063% of the principal amount thereof in the case of the CAD Senior Secured Notes (a "Senior Secured Notes Early Redemption").

Air Canada currently intends to redeem any Senior Secured Notes that remain outstanding following the consummation of the Tender Offers as part of an exercise of its satisfaction and discharge rights under the indenture governing the Senior Secured Notes pursuant to a 10% Redemption, with any remaining outstanding balance of such Existing Notes to be redeemed pursuant to a Senior Secured Notes Early Redemption.  Similarly, Air Canada intends to redeem any USD Second Lien Notes that remain outstanding following the consummation of the Tender Offers as part of an exercise of its satisfaction and discharge rights under the indenture governing the USD Second Lien Notes pursuant to Air Canada's right to redeem the USD Second Lien Notes at a redemption price of 109% of the principal amount thereof.

The Tender Offers and Consent Solicitations will expire at 11:59 p.m., New York City time, on October 2, 2013, unless extended or earlier terminated (as extended or earlier terminated, the "Expiration Time").

Holders who validly tender (and do not validly withdraw) their Existing Notes and deliver (and do not validly revoke) their consents after the Early Tender Deadline but on or before the Expiration Time will receive US$1,014.63, C$1,018.57 and US$1,067.50 per US$1,000 or C$1,000 principal amount, as applicable, of USD Senior Secured Notes, CAD Senior Secured Notes and USD Second Lien Notes, respectively (the "Tender Offer Consideration"), if such Existing Notes are accepted for purchase.

Upon the terms and conditions described in the Offer Materials, payment for Existing Notes accepted for purchase will be made (a) if the Company so elects (at its sole option), with respect to Existing Notes validly tendered and not validly withdrawn at or prior to the Early Tender Deadline, on any date between the Early Tender Deadline and the Expiration Time (an "Early Settlement Date"), and (b) if the Company does not elect to have an Early Settlement Date and with respect to Existing Notes validly tendered after the Early Tender Deadline but at or prior the Expiration Time, promptly after the Expiration Time.  Holders whose tendered Existing Notes are accepted for purchase also will receive accrued and unpaid interest from the most recent interest payment date for the Existing Notes, to, but not including, the applicable payment date for the Existing Notes in the Tender Offers.

The Tender Offers and Consent Solicitations are part of the proposed refinancing of Air Canada's outstanding indebtedness and are subject to the satisfaction or waiver of certain conditions, including a financing condition and general conditions.  The Tender Offers are not conditioned upon receipt of the requisite consents with respect to the Proposed Amendments. With respect to each Tender Offer and Consent Solicitation, if any conditions to such Offer and Consent Solicitation are not satisfied, Air Canada is not obligated to accept for payment, purchase or pay for, and may delay the acceptance for payment of, any tendered Existing Notes in respect of such Offer and Consent Solicitation and may even terminate or withdraw the Offer and Consent Solicitation.

Consents in respect of at least a majority in aggregate principal amount of the outstanding USD Senior Secured Notes and CAD Senior Secured Notes (voting together as a single class) are required to approve the Proposed Indenture Amendments under the indenture governing the Senior Secured Notes, and consents in respect of at least a majority in aggregate principal amount of the outstanding USD Second Lien Notes are required to approve the Proposed Indenture Amendments under the indenture governing the USD Second Lien Notes.  Consents in respect of at least 75% in aggregate principal amount of the outstanding USD Senior Secured Notes and CAD Senior Secured Notes (voting together as a single class) are required to approve the Proposed Collateral Release Amendments under the indenture governing the Senior Secured Notes, and consents in respect of at least 75% in aggregate principal amount of the outstanding USD Second Lien Notes are required to approve the Proposed Collateral Release Amendments under the indenture governing the USD Second Lien Notes.

Holders may not tender their Existing Notes without delivering their consents pursuant to the Consent Solicitations and may not deliver consents without tendering their Existing Notes pursuant to the Tender Offers; and holders are not permitted to validly revoke a consent without validly withdrawing the previously tendered Existing Notes to which the consent relates.  Existing Notes tendered can only be withdrawn, and related consents revoked, before 5:00 p.m., New York City time, on September 18, 2013, unless extended or earlier terminated, except in certain limited circumstances where additional withdrawal rights are required by law.

The complete terms and conditions of the Tender Offers and Consent Solicitations are described in the Offer Materials, copies of which may be obtained by contacting Global Bondholder Services Corporation, the Information Agent for the Tender Offers and related Consent Solicitations with respect to the USD Senior Secured Notes and USD Second Lien Notes, at (866) 470-3800 (U.S. toll-free) or (212) 430-3774, or by contacting CST Phoenix Advisors, the Information Agent for the Offer and related Consent Solicitation with respect to the CAD Senior Secured Notes, at (800) 332-6309 (North America toll-free) or 201-806-2222 (collect calls).  Air Canada has engaged Citigroup Global Markets Inc. to serve as dealer manager and solicitation agent for the Tender Offers and Consent Solicitations.  Questions concerning the Tender Offers and Consent Solicitations should be directed to Citigroup Global Markets Inc. at (800) 558-3745 (toll-free) or (212) 723-6106.

This press release shall not constitute an offer to sell the New Senior Notes or the solicitation of an offer to buy the New Senior Notes, nor shall there be any sale of the New Senior Notes, in any state or jurisdiction where such offer, solicitation or sale is not permitted.  The New Senior Notes will not be qualified for sale to the public under applicable Canadian securities laws and, accordingly, any offer and sale of the New Senior Notes in Canada will be made on a basis that is exempt from the prospectus requirement of such securities laws. The New Senior Notes will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and state securities laws.

This press release is not an offer to purchase, a solicitation of an offer to sell or a solicitation of consents with respect to the Existing Notes or any other securities.  The Tender Offers and Consent Solicitations are made solely by means of the Offer Materials.  The Tender Offers and Consent Solicitations are not being made in any jurisdiction in which the making or acceptance thereof would not be in compliance with the securities, "blue sky" or other laws of such jurisdiction.  None of Air Canada, the dealer manager, the information agents, the depositaries, the trustee and the collateral trustees under the indentures governing the Existing Notes or any of their respective affiliates is making any recommendation as to whether or not holders should tender all or any portion of their Existing Notes in the Tender Offers or deliver their consents to the Proposed Amendments and, if so, as to the amount of Existing Notes to tender.

About Air Canada

Air Canada is Canada's largest domestic and international airline serving more than 175 destinations on five continents.  Canada's flag carrier is among the 20 largest airlines in the world and in 2012 served close to 35 million customers.  Air Canada provides scheduled passenger service directly to 60 Canadian cities, 49 destinations in the United States and 67 cities in Europe, the Middle East, Asia, Australia, the Caribbean, Mexico and South America. Air Canada is a founding member of Star Alliance, the world's most comprehensive air transportation network serving 1,328 destinations in 195 countries.  Air Canada is the only international network carrier in North America to receive a Four-Star ranking according to independent U.K. research firm Skytrax that ranked Air Canada in a worldwide survey of more than 18 million airline passengers as Best Airline in North America in 2013 for the fourth consecutive year.  For more information, please visit: www.aircanada.com.

Caution Regarding Forward-Looking Information

This press release includes forward-looking statements within the meaning of applicable securities laws. Forward-looking statements in this press release may involve, but are not limited to, statements regarding the payment of the Total Consideration and the Tender Offer Consideration, anticipated amendments to the indentures governing the Existing Notes and the release of collateral securing the Existing Notes, Air Canada's intention to redeem any untendered Existing Notes, proposed refinancing plans and related matters.  Forward-looking statements are identified by the use of terms and phrases such as "preliminary", "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will", "would" and similar terms and phrases, including references to assumptions.  Risks, uncertainties and assumptions that could cause actual results to differ materially from the results indicated in the forward-looking statements include, among other things, the successful completion and composition of any refinancing transaction, the completion of the Tender Offers and the receipt of consents sufficient to approve the Proposed Indenture Amendments and Proposed Collateral Release Amendments.

Forward-looking statements, by their nature, are based on assumptions, including those described herein and are subject to important risks and uncertainties.  Forward-looking statements cannot be relied upon due to, amongst other things, changing external events and general uncertainties of the business and the capital markets.  Actual results may differ materially from results indicated in forward-looking statements due to a number of factors, including without limitation, industry, market, credit and economic conditions, the ability to reduce operating costs and secure financing, pension issues, energy prices, employee and labour relations, currency exchange and interest rates, competition, war, terrorist acts, epidemic diseases, environmental factors (including weather systems and other natural phenomena and factors arising from man-made sources), insurance issues and costs, changes in demand due to the seasonal nature of the business, supply issues, changes in laws, regulatory developments or proceedings, pending and future litigation and actions by third parties as well as the factors identified throughout this news release and those identified throughout Air Canada's public disclosure file available at www.sedar.com.  In particular, the proposed New Credit Facility, the proposed offerings of New Senior Notes and the Tender Offers and Consent Solicitations are subject to general market and other conditions and there are no assurances that the proposed New Credit Facility, the proposed offerings of New Senior Notes and the Tender Offers and Consent Solicitations will be completed or that the terms of the proposed New Credit Facility, the proposed offerings of New Senior Notes and the Tender Offers and Consent Solicitations will not be modified.  The forward-looking statements contained in this news release represent Air Canada's expectations as of the date of this news release (or as of the date they are otherwise stated to be made), and are subject to change after such date.  However, Air Canada disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.

SOURCE Air Canada

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