RNS Number : 0797E

Esken Limited

02 July 2021



This announcement contains inside information for the purposes of article 7 of the Market Abuse Regulations (EU) 596/2014 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018.

2 July 2021


(Esken, the Group or the Company)


The Board of Esken Limited (Esken or the Company) announces that it has signed an agreement with CGIOF River S.à r.l. (the Lender and, following Conversion (as defined below), the CGI Shareholder), a special purpose vehicle which is controlled by Carlyle Global Infrastructure Opportunity Fund, L.P. (CGI), on the terms of a proposed investment by CGI through a GBP125 million senior loan facility (the Loan) to be provided by the Lender to, and which is convertible into 29.999 per cent. of the entire issued share capital of, London Southend Airport Company Limited (the Borrower) (which shall be increased to 30 per cent. following receipt of approval from the Office of Rail and Road), a wholly-owned subsidiary of the Company (the Transaction).

The Transaction constitutes a class 1 transaction for the purposes of the Listing Rules. Accordingly, completion of the Transaction is conditional on the approval of Shareholders at an extraordinary general meeting (the General Meeting). A circular to Shareholders (the Circular ) in respect of the Transaction, the notice of the General Meeting and matters related thereto is expected to be issued to Shareholders by the end of July 2021, with a view to convening the General Meeting to approve the Transaction in mid-August 2021.

The directors of Esken consider the Transaction to be in the best interests of Esken and its Shareholders as a whole and intend to include in the Circular a recommendation that Shareholders vote in favour of the Transaction at the General Meeting, as the directors intend to do in respect of their own individual holdings.

Key points

-- Signing of an agreement with CGI for a conditional investment of GBP125 million through a senior loan facility which is convertible into 29.999 per cent. stake in London Southend Airport ( LSA )

-- The Transaction provides funding for Esken of approximately GBP100 million (after GBP20 million of funding for LSA by way of the Pari Passu Loan, as further detailed below).

-- This funding together with the expected net proceeds of the Proposed Equity Raise and Proposed New Facility (each as defined below), will enable the Company to repay the outstanding amounts payable under the Existing Facility (as defined below), which totalled GBP95 million as at 30 June.

-- As a result, following the Draw-Down Date, this would reduce Esken's overall bank debt, allow it to meet certain of its residual legacy obligations and underpin the business plan for the Group.

-- GBP20 million of funding is ring fenced by the Borrower Group to provide support to LSA for a forecast period of three years. Any additional capital investment required in the medium to long term by the Borrower is expected to be raised as debt funding by the Borrower Group, ring fenced from the rest of Esken.

-- In addition to the funding being provided, CGI brings significant expertise in investing in and developing airports around the world. This, together with the experienced operational team at LSA will enhance Esken's offering for existing and prospective airline and logistics partners.

-- A combination of Esken's proven operational ability at LSA and a strong strategic financial partner in

CGI will position LSA for a recovery in passenger demand and activity levels.

David Shearer - Executive Chairman, Esken said

"CGI represents a true strategic development partner that will enable us to realise the full potential of LSA. Carlyle is a global investment firm with $260 billion under management.

The combination of the proven operational capability of the LSA management along with the airport development experience of CGI and its financial strength will provide a strong platform as we rebuild our commercial relationships with our airline and other partners into the recovery.

We aim to work closely together to develop a truly exciting London airport proposition. This transaction is structured to release GBP20 million of funding into LSA to support its recovery and development while providing GBP100 million of liquidity to the rest of Esken.

We also intend to finalise a new GBP20 million working capital facility and undertake a documented equity raise of around GBP40 million. When complete these actions will allow us to emerge from the pandemic positioned strongly for recovery."

Richard Hoskins - Managing Director, Carlyle Global Infrastructure said

"We are delighted to partner with Esken Limited to support their vision for London Southend Airport. As one of London's favourite airports, London Southend is attractive for airlines due to its cost-efficient operations base as well as to passengers for the experience and convenience. We look forward to working with Esken and the team at London Southend to realise the airport's full potential."

Background to and reasons for the Transaction

A combination of factors has accelerated the need for a refinancing and additional liquidity is required both to fund Esken's short-term requirements and to enable it to build a strong foundation from which it can return the business to growth and deliver on its longer-term strategic ambitions for Esken's core operations: Energy and Aviation. Following the liquidation of Stobart Air announced on 12 June 2021, Esken now owns and operates two core businesses, being Stobart Energy and its aviation business comprising London Southend Airport as well as Stobart Aviation Services. Whilst the Board believes that these operations have the potential to generate significant value for Shareholders in a post-COVID environment, the recovery will need time and therefore require funding to underpin the business plans through the recovery period. The Board has concluded that while it was originally intended to monetise the Stobart Energy business within the two-year period following the 2020 Capital Raise, this is not the right answer from a shareholder value perspective.

London Southend Airport remains a key strategic asset in the globally important London airport market. That market is expected to recover over the next two to three years and capacity constraints will again become an issue for airlines. It has also developed a strong logistics operation which contributed meaningful revenues throughout the pandemic and this offers scope for further development and value creation. The airport will take longer to fulfil its full potential and will need further investment to capitalise on the long-term opportunity. Discussions with strategic aviation partners have taken place over the last two years, but the uncertainty created by the pandemic meant that Esken had been unable to structure a transaction until now.

Over the last nine months Esken has been in discussions with CGI in relation to the development of LSA as aviation recovers from the pandemic. These discussions were first announced on 14 June 2021.

Information on the Borrower Group

The Borrower Group comprises London Southend Airport Company Limited and each of Thames Gateway Airport Limited, Stobart Solar Limited and Stobart Jet Centre Limited.

-- The Borrower operates the award-winning London Southend Airport serving London and the South East, and includes its own rail station. The airport has become renowned for its exceptional customer service, the close proximity of the terminal to the car parks and rail station and the resulting low transit time from aircraft to car and train. The airport is currently served by Ryanair and Wizz Air, amongst others, and in 2020 served up to 40 destinations across Europe and the United Kingdom with passenger numbers of 2.14 million in the year ending 29 February 2020.

-- Stobart Jet Centre Limited (the Jet Centre) provides handling services to the private aviation market through its first-class lounge reception and complementary aircraft hangarage facilities. The Jet Centre offers a 24-hour operation with exceptional customer service and has developed a global network of operators since its launch in 2018.

-- Since 2016, Stobart Solar Limited has operated a 3.2 hectare solar farm at London Southend Airport providing the airport with renewable electricity and helping to reduce its carbon footprint.

-- Thames Gateway Airport Limited operates one of the UK's highest rated Holiday Inn Hotels. The hotel has consistently outperformed its competitors through its modern bedrooms, exceptional event function facilities and its award-winning rooftop restaurant with views over London Southend Airport.

London Southend Airport has a strong and differentiated commercial passenger proposition and allows airlines to generate similar yields to other London airports but at a lower cost per passenger. The Company believes that this low-cost proposition will appeal to cost conscious airlines as the aviation sector recovers from the pandemic.

Lockdown restrictions curtailed much of the commercial passenger operations at London Southend Airport during 2020 and 2021 as evolving quarantine arrangements and late changes to travel corridors eroded passenger confidence when restrictions were lifted. As a result, 147,000 passengers flew through London Southend Airport in the financial year ending 28 February 2021 compared to 2.1 million in the prior year. Of those 147,000 passengers, 68,000 flew in March 2020 before travel restrictions really took hold. Though some flying resumed in June 2021, we do not envisage this to restart in earnest until much later in 2021.

In response to this trading environment, management took a range of decisive actions to greatly reduce London Southend Airport's cash burn, including extensive use of the UK Government's furlough scheme. London Southend Airport benefitted from continued operations and income from its global logistics operation throughout the year. However, movements reduced during January and February 2021 due to Brexit uncertainty and seasonal variances. While the logistics operations involved five daily rotations pre-Brexit, it returned to three daily rotations in March 2021.

The Borrower Group is included in the Company's consolidated accounts. The gross assets of the Borrower Group at the financial year ending 28 February 2021 is GBP162,240,000, and the Borrower Group has a loss before tax for the financial year ending 28 February 2021, of GBP14,161,000 in each case excluding consolidation and fair value adjustments.

Background to Carlyle

Carlyle is a global investment firm with deep industry expertise that deploys private capital across three business segments: Global Private Equity, Global Credit and Investment Solutions. With $260 billion of assets under management as of 31 March 2021, Carlyle's purpose is to invest wisely and create value on behalf of its investors, portfolio companies and the communities in which they live and invest. Carlyle employs more than 1,800 people in 29 offices across five continents.

CGI is managed and advised by members of Carlyle, and is investing in the Borrower in collaboration with CAG Holdings LLC (CAG), a portfolio company of Carlyle which is a U.S. based investment platform for airport infrastructure investment opportunities globally. CAG has extensive experience in the aviation sector and is led by an experienced management team with a deep, localised understanding of the U.S. airport market. CAG's operating expertise helps create value for Carlyle investments, such as what is intended with LSA.

Principal terms and conditions of the Transaction

Under the terms of the Transaction, which is subject to certain additional conditions and terms, the Borrower and Stobart Aviation Limited (a wholly-owned subsidiary of the Company and the direct shareholder of the Borrower) (the Esken Shareholder) will enter into the Loan Agreement for the Borrower to borrow the Loan to be made available to it by the Lender. The principal amount of the Loan (being GBP125 million) will be advanced, net of the Lender's transaction costs, to the Borrower on the draw-down date for the Loan (Draw-Down Date). The Loan will entitle the Lender to convert, at any time following the Draw-Down Date, its interest in the Loan (including all outstanding principal and any accrued but unpaid interest) into ordinary shares issued by the Borrower representing 29.999 per cent. of the entire issued share capital of the Borrower (which shall be increased to 30 per cent. of such share capital following receipt of approval from the Office of Rail and Road) at any time before the Loan matures (Conversion). The Borrower is obliged to repay the Loan in full seven years from the Draw-Down Date unless Conversion occurs prior to the Draw-Down Date.

The net proceeds of the Loan will be applied in repayment of existing intercompany loans owed by the Borrower to the Company and the Esken Shareholder. The Esken Shareholder (acting as Pari Passu Lender) will then advance a GBP20 million loan (the Pari Passu Loan) to the Borrower under an intercompany loan agreement which will rank pari passu with the Loan (the Pari Passu Loan Agreement).

The Borrower will grant first ranking fixed and floating security over substantially all of its assets in support of its obligations under the Loan and the Pari Passu Loan. In addition, the Borrower and, each of Thames Gateway Airport Limited, Stobart Solar Limited and Stobart Jet Centre Limited (the Borrower Group) will give a guarantee in respect of the Borrower's obligations under the Loan and the Pari Passu Loan and will grant fixed and floating security over all or substantially all of their respective assets in support of such guarantees. Interest shall accrue on the outstanding principal amount of the Loan at a rate of 2 per cent. per annum to be paid in kind (the PIK Interest) and 8 per cent. per annum to be paid in cash (the Cash Interest), but on the basis that such Cash Interest is only payable if the Borrower has generated sufficient revenues during the previous year so as to pay such Cash Interest and meet a liquidity headroom test following payment of such amount, otherwise it is to be paid in kind as well. Interest payment dates will be the fifth Business Day following the end of each interest period, which shall be the last day of February of each year (following the Draw-Down Date).

In connection with the Transaction, each member of the Borrower Group, the Lender, the Pari Passu Lender and a security agent, amongst others, shall enter into an intercreditor agreement (the Intercreditor Agreement) which shall set out, amongst other things, the relative ranking of debt incurred by the Borrower Group and when enforcement action can be taken in respect of the security granted by the Borrower Group.

In the event that the Lender does not exercise its rights of Conversion prior to the maturity date of the Loan, and in certain other circumstances (including following the occurrence of an event of default and on the final maturity date of the Loan), the Loan shall be repayable at the greater of: (i) an amount that achieves a 10 per cent. Internal Rate of Return for the Lender for the period from the Draw-Down Date to such repayment date (taking into account any Cash Interest paid during such period) and (ii) GBP193,750,000 less any Cash Interest paid during such period.

The Transaction remains subject to the conditions set out in the Loan Agreement and a separate implementation agreement which governs the terms of certain commitments made by the Company, the Borrower, the Esken Shareholder and the Lender in connection with Closing under the Loan Agreement (the Implementation Agreement), including, amongst other things: the Proposed Equity Raise having completed and the net proceeds of the Proposed Equity Raise (being a minimum of GBP40 million) having been received, the Proposed New Facility having been entered into and all conditions precedent to the Proposed New Facility having been satisfied, delivery of an initial business plan and annual budget for the Borrower Group agreed between the Esken Shareholder and the Lender, Shareholder approval of the Transaction, and completion of a corporate reorganisation to create the Borrower Group in accordance with a reorganisation steps plan agreed between the Company and CGI (the Reorganisation). The Implementation Agreement will also require the payment of certain fees for CGI's ongoing commitment between the signing of the Loan Agreement and the Draw-Down Date and in the event that the Transaction is not concluded in certain circumstances.

The Company will also be giving certain indemnities in a separate deed of indemnity (the Indemnity Deed) in favour of the Borrower Group and, in some instances, the Lender and certain of its affiliates. These indemnities include obligations of the Company to indemnify the Borrower Group and/or the Lender (as applicable) against losses resulting from the Reorganisation, losses arising from secondary tax liabilities or "secondary" pension liabilities arising in connection with the Wider Group (being Esken and its subsidiary undertakings, excluding the Borrower Group), losses arising from certain noise litigation proceedings and certain other matters.

Following Closing, the Borrower Group will be subject to certain customary restrictive covenants such that if the Borrower Group needs or wishes to undertake certain actions, it would be required to seek approval from the Lender. In addition, there are certain performance related triggers such that, in the event of underperformance in terms of passenger numbers using London Southend Airport and/or the Borrower Group's profitability which are not cured within prescribed timeframes, it will be subject to certain tighter restrictions and the Lender will have certain enhanced rights and powers, including restricting incurrence of further indebtedness by the Borrower Group or the payment of dividends to the Wider Group. In addition, with effect from the Draw-Down Date, the Lender will have certain rights to participate in the management of the Borrower Group.

On and from Conversion, the CGI Shareholder will be provided, pursuant to a shareholders' agreement (the Shareholders' Agreement) to be entered into on the Draw-Down Date between the Esken Shareholder and the Lender, with certain additional rights representative of a 30 per cent. minority interest in the Borrower, including the right to appoint two out of seven directors to the board of the Borrower and representation on its operating committee, and certain reserved matters such that the Borrower Group would need to seek consent from the CGI Shareholder or its representatives on the board of directors of the Borrower if it intended to take any action which is a reserved matter under the Shareholders' Agreement (such as entering into certain material contracts or contracts with the Wider Group). In the event of a takeover of Esken , the Lender will receive an effective veto right over the Borrower's business plan and budget following that takeover.

Under the terms of the Transaction, the Company has committed to a "no-shop" undertaking from it and its connected persons prohibiting the Company from soliciting an offer from, or participating in discussions with, another party to acquire or create security over the Borrower Group or issuing any debt which is convertible into shares in the Borrower or any other arrangements which would preclude or frustrate the implementation of the Transaction or would be an alternative to the financing provided pursuant to the Loan Agreement, in each case until (and including) the earlier of (i) utilisation of the Loan by the Borrower on the Draw-Down Date; (ii) the date of the General Meeting if the Transaction is not approved at the General Meeting, and (iii) termination of the Implementation Agreement.

The full details of the Transaction, including a summary of the key documents relating to the Transaction and the rights available to the Lender and the CGI Shareholder under the Loan Agreement and Shareholders' Agreement prior to and following any Conversion will be set out in the Circular.

Further Financing

As announced by the Company on 30 June, the Company is targeting an equity raise of around GBP40 million by way of a documented prospectus offering (the Proposed Equity Raise ). The terms of the Proposed Equity Raise will be set out in a prospectus which is expected to be published together with the Circular towards the end of July.

The Company also announced on 30 June that it expects to conclude discussions on a new 18 month GBP20 million working capital facility to support treasury management in the coming weeks (the Proposed New Facility ).

The strategic funding in relation to the Borrower together with a successful completion of the Proposed New Facility and the Proposed Equity Raise, would enable Esken to repay all outstanding bank debt, meet its ongoing working capital requirements, underpin its business plan going forward and meet certain of its legacy obligations.

Esken nevertheless cautions that no guarantees can be given at this stage that the discussions with its banks or in respect of an equity raise will result in agreement or a transaction being concluded.

Use of proceeds

The Transaction is expected to raise GBP125 million in gross proceeds and approximately GBP120 million net of lender costs. After other Transaction costs, the net proceeds will be available for Esken, with GBP20 million of the net proceeds providing funding for London Southend Airport to cover all anticipated expenditure of the Borrower Group for the period through to the end of February 2024, other than amounts funded from operating cash flows, which will be made available to the Borrower by loan from the Esken Shareholder under the Pari Passu Loan.

Esken has in place an GBP80 million revolving credit facility (Facility A) and a GBP40 million revolving credit facility (Facility B) until 31 January 2022 (together the Existing Facility), which are drawn down to GBP80 million and GBP15 million, respectively, as at 30 June 2021. The balance of the net proceeds after the funds are advanced under the Pari Passu Loan totalling GBP100 million will be used to repay the amounts drawn down under Facility A and Facility B. Following repayment of outstanding drawings under the Existing Facility and release of all associated security, Esken intends to use the net proceeds of the Proposed Equity Raise and the Proposed New Facility together with the anticipated Esken cash balance of GBP7.5 million as at the date of this announcement, subject to meeting certain drawdown conditions, for its working capital requirements, including to meet certain of the residual legacy obligations under Stobart Air (and its liquidation) and Propius and underpin the business plan for the Group, with LSA receiving GBP20m via a ringfenced Pari Passu Loan. Esken intends to draw down such funds under the Proposed New Facility as and when they are needed for its working capital requirements.

As announced by the Company on 30 June, Toscafund, the Company's largest shareholder with 28.66 per cent. of the Company's issued share capital, has communicated to the Company that it sees significant value in the equity of Esken and intends to support the Proposed Equity Raise pro rata with its shareholding. All directors of Esken have also indicated their intention to participate in the Proposed Equity Raise.

Recommendations to Shareholders

The directors of Esken consider the Transaction to be in the best interests of Esken and its S hareholders as a whole. Accordingly, the directors intend to include in the Circular a recommendation that Shareholders vote in favour of the Transaction to be proposed at the General Meeting, as all directors who hold Shares intend to do in respect of their own interests.


Esken Limited C/o Tulchan

Charlie Geller, Communications Director


Olivia Peters T: +44 (0)20 7353 4200

E: opeters@tulchangoup.com

David Allchurch T: +44 (0)20 7353 4200

E : dallchurch@tulchangroup.com


This announcement is for informational purposes only and does not constitute or form part of any invitation or inducement to engage in investment activity, nor does it constitute an offer or invitation to buy any securities, in any jurisdiction including the United States, or a recommendation in respect of buying, holding or selling any securities.

Neither this announcement nor any copy of it may be taken or transmitted directly or indirectly into or from any jurisdiction where to do so would constitute a violation of the relevant laws or regulations of such jurisdiction. Any failure to comply with this restriction may constitute a violation of such laws or regulations. Persons into whose possession this announcement or other information referred to herein should inform themselves about, and observe, any restrictions in such laws or regulations.

The release, publication or distribution of this announcement in jurisdictions other than the United Kingdom

may be restricted by law and therefore any persons who are subject to the laws of any jurisdiction other than the United Kingdom should inform themselves about, and observe, any applicable requirements. This announcement has been prepared for the purposes of complying with the Listing Rules and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with laws and regulations of any jurisdiction outside of England.

Forward Looking Statements

This announcement includes certain forward looking statements, forecasts, estimates, projections and opinions (Forward Looking Statements). When used in this announcement, the words "anticipate", "believe", "estimate", "forecast", "expect", "intend", "plan", "project", "may", will" or "should" or, in each case, their negative or other variations or similar expressions, as they relate to the Company, its management or third parties, may identify Forward Looking Statements. Forward Looking Statements include statements regarding the Company's business strategy, objectives, financial condition, results of operations and market data, as well as any other statements that are not historical facts. These statements reflect beliefs of the Company's directors (including based on their expectations arising from pursuit of the Company's strategy), as well as assumptions made by the directors and information currently available to the Company.

Although the Company considers that these beliefs and assumptions are reasonable, by their nature, Forward Looking Statements involve known and unknown risks, uncertainties, assumptions and other factors because they relate to events and depend on circumstances that will occur in the future whether or not outside the control of the Company. These factors, risks, uncertainties and assumptions could cause actual outcomes and results to be materially different from those projected. Past performance cannot be relied upon as a guide to future performance and should not be taken as a representation that trends or activities underlying past performance will continue in the future. No representation is made or will be made that any Forward Looking Statements will be achieved or will prove to be correct. These factors, risks, assumptions and uncertainties expressly qualify all subsequent oral and written Forward Looking Statements attributable to the Company or persons acting on its behalf.

Neither the Company, the directors nor the Company's advisers assume any obligation to update any Forward Looking Statement and disclaims any obligation to update its view of any risks or uncertainties described herein or to publicly announce the result of any revisions to the Forward Looking Statements made in this announcement, except as required by law (including, for the avoidance of doubt, the Prospectus Regulation Rules, the Listing Rules and the Disclosure Guidance and Transparency Rules).

In addition, this announcement contains information concerning the Company's industry and its market and business segments generally, which is forward looking in nature and is based on a variety of assumptions regarding the ways in which the industry, and the Company's market and business segments, will develop. These assumptions are based on information currently available to the Company. If any one or more of these assumptions turn out to be incorrect, actual market results may differ from those predicted. While the Company does not know what effect any such differences may have on its business, if there are such differences, they could have a material adverse effect on its future results of operations and financial condition.

No profit forecasts or estimates

No statement in this announcement is intended as a profit forecast or a profit estimate and no statement in this announcement should be interpreted to mean that earnings per Esken share for the current or future financial years will necessarily match or exceed the historical published earnings per Esken share.

Publication on website

A copy of this announcement will be available for inspection on the Company's website at: www.esken.com . For the avoidance of doubt, the contents of this website are not incorporated into and do not form part of this announcement.

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(END) Dow Jones Newswires

July 02, 2021 13:01 ET (17:01 GMT)

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