It’s hard to overstate the damage of the COVID-19 pandemic to the airline industry. As travel demand around the world has plummeted, the resulting crisis for airlines has been unprecedented — far worse than what they experienced in the wake of the September 11 terrorist attacks.
In the face of this seismic challenge, Southwest Airlines raised billions of dollars to boost its balance sheet and keep its more than 60,000 employees on the payroll.
“They’ve been available, they’ve been responsive, and they were there for us in a time of crisis, which is something that we really appreciate. They worked around the clock with the internal Southwest legal team to get all that critical work done and in a very, very tight time frame.”
Few are more familiar with this accomplishment than V&E Mergers & Acquisitions and Capital Markets partner Robert Kimball. Kimball served as the lead counsel on seven fundraising transactions for the airline — including funding received from the Payroll Support Program under the newly adopted CARES Act — that collectively raised a total of $15.1 billion for Southwest since February 2020.
“These funds will help Southwest survive the crisis with its workforce and its balance sheet intact and strong, and they position Southwest to compete very effectively as the travel market returns,” Kimball said.
Southwest’s recent fundraising not only marks a critical achievement for the airline, it is also a milestone for V&E. Three of the airline’s recent funding transactions were capital markets offerings in one week totaling $6.6 billion. Together, they amount to one of the largest capital markets raises for a single client in V&E history.
A half-century-old relationship
V&E’s work on behalf of Southwest is the latest chapter in the firm’s long-standing relationship with the airline.
Southwest first hired the firm in 1970 to advise on the airline’s 1971 initial public offering. At the time, Southwest had just three airplanes serving three cities. As Southwest grew into the nation’s largest domestic air carrier — and one of the most honored airlines in the world — the company continued to tap V&E to handle its legal work.
Today, Southwest stands as the oldest, continuous client of V&E’s capital markets practice. Kimball has personally represented Southwest since 2008, advising on capital markets, corporate governance, and M&A matters, including Southwest’s acquisition of AirTran Airways.
Mark Shaw, executive vice president and chief legal and regulatory officer at Southwest, called V&E a “valuable partner.”
“They’ve been able to maintain a core group of lawyers over the years who have just been outstanding partners for Southwest,” Shaw said. “I think it’s been beneficial for both of us.”
“It’s really unusual to have this kind of relationship for so long,” Kimball added. “We’ve had to earn our place at the table as lawyers retired from the firm and we brought other people into the team. And we had to earn our place at the table as the client had changes in its executive ranks and in its legal department. We’ve earned our place at the table for 50 years.”
Rising to the challenge in the midst of the COVID-19 crisis
V&E was put to the test once again this past April, as the COVID-19 pandemic pounded the airline industry. Over the course of an intense three weeks, V&E advised on CARES Act financings as well as three registered securities offerings. Handling them all successfully, while ensuring that tight deadlines were met, required long hours, a deep bench of experienced lawyers, and a high level of organization.
“The entire team, led by Robert, has been outstanding,” Shaw said. “They’ve been available, they’ve been responsive, and they were there for us in a time of crisis, which is something that we really appreciate. They worked around the clock with the internal Southwest legal team to get all that critical work done and in a very, very tight time frame.”
“They had an in-depth knowledge of the company, of our history, of our corporate governance, and of the transactions we have done over decades,” Shaw added. “That deep expertise makes things go quicker.”
V&E’s first matter of business was advising Southwest on obtaining $3.3 billion in Payroll Support Program funds under the CARES Act. The U.S. Department of Treasury offered the funding in the form of a grant and a loan, with the Treasury Department receiving warrants valued at 10% of the loan amount.
Mergers & Acquisitions and Capital Markets partner Brenda Lenahan took the lead in the CARES Act financing and faced multiple challenges along the way. The V&E team would have to digest, negotiate and finalize several complex agreements in the matter of one week.
Lenahan mobilized a cross-departmental team, including government contracts, finance, employment and tax lawyers. While the Treasury Department took a hard line, ultimately V&E secured some concessions. On April 20, 2020, Southwest and the government reached a final agreement.
“It was a super-intense seven days,” Lenahan said. “This was very much a bespoke process, including one-of-a-kind agreements and considerations not typically a factor in corporate financings. Despite the unfortunate circumstances, it was a privilege to be a part of something so important.”
One week. Three securities offerings. One loan deadline.
The V&E lawyers then pivoted to focusing on the three registered offerings — a common stock offering, a convertible notes offering, and a senior notes offering. But that wasn’t the only task at hand. The airline also faced a fast-approaching deadline to apply for $2.8 billion in additional loans available under the CARES Act.
Advising Southwest on its disclosures for its first quarter and bringing the three securities offerings to the market in a timely fashion was critical.
“Southwest wanted to get into the market before too many other companies got there,” Kimball said. “Southwest didn’t want to get lost in the noise of other activity, and Southwest wanted to get to the capital sources before they already committed their capital somewhere else.”
The V&E team delivered. In the course of a single week, all three capital markets transactions launched, priced and closed, raising an aggregate of $6.6 billion in gross proceeds for Southwest. That same week, Southwest filed its loan application under the CARES Act.
“We had excellent organization and communication,” said V&E senior associate Katherine Frank, who was tasked with managing the three capital markets deals. “Everyone on the team took ownership, regardless of the project or the attorney’s role.”
Kimball, Lenahan, and Frank also credit Southwest for easing the path to successful outcomes.
“The company has really high-quality people in its finance and treasury group and in their in-house legal department,” Kimball said. “That made a huge difference.”
Southwest turned to V&E again for a $1.8 billion registered senior notes offering that priced on June 3, 2020, which refinanced short-term loans Southwest had put in place in early April.
Overall, Kimball said he was proud of what his team was able to accomplish for Southwest — and for its employees. Throughout its history, the airline has never had layoffs and furloughs. Raising billions will help Southwest maintain that track record.
“I realize that ultimately the long-term outcomes are out of everyone’s hands,” Kimball said. “But for now, I’m very pleased. We helped fund a tremendous number of jobs. I feel like we did something very helpful for a lot of people.”