Macquarie Infrastructure Holdings, LLC
Q4 2020 Earnings Call Transcript

Published: 17 Feb 2021

[Operator:]

Good morning, and welcome to the Macquarie Infrastructure Corporation's Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please note that this conference is being recorded. I will now turn the conference over to Jay Davis, Head of Investor Relations. Please, go ahead.

[Jay Davis:]

Thank you and welcome to Macquarie Infrastructure Corporation's earnings conference call, this covering the fourth quarter and full year 2020. Our call today is being webcast and is open to the media. In addition to discussing our financial performance on this call, we have published a press release summarizing the results and filed a financial report on Form 10-K with the Securities and Exchange Commission. These materials were released this morning and copies may be downloaded from our website at www.macquarie.com/mic.

[Christopher Frost:]

Thank you, Jay, and thanks to those of you joining our call this morning. Along with our financial results for the fourth quarter and full year 2020 published earlier this morning, we filed a registration statement with the SEC, whereby we propose to reorganize the company to be able to sell the Atlantic Aviation prior to selling MIC Hawaii without incurring corporate capital gains tax.

[Nick O'Neil:]

Thank you, Chris, and good morning, everyone. I trust you and your families are safe and well. As Chris mentioned at the outset of the call, today we launched a tender offer for any or all of our 2% convertible senior notes due 2023. The tender offer is at par plus accrued interest and will remain open until March 16, 2021. We encourage note holders to refer to the tender documents we have filed this morning for details on both the terms of the offer and how to accept it. Together with a special dividend of approximately $960 million that was paid on the 8th of January, a successful tender will see MIC deploy all the net proceeds from the sale of IMTT as foreshadowed announcement of the sale last November. Assuming all the convertible notes attended, we will have no debt at the MIC corporate level as we repaid the balance outstanding on our revolving credit facility prior to year-end. I would point out that following the sale of IMTT, our corporate revolver was canceled in accordance with the terms of that agreement. Leverage across our continuing operations was approximately 4 times net debt to 2020 adjusted EBITDA at year-end, after adjusting cash on hand for the special dividend and costs and taxes in relation to the sale of IMTT. Today with approximately $330 million of unrestricted cash across MIC after providing for both the tender offer and taxes and costs related to the sale of IMTT, our liquidity position is strong. Regarding our outlook for 2021. We assume a successful rollout and effectiveness of COVID vaccine programs in the US and internationally throughout the year. For Atlantic Aviation, we expect that with the rollout general aviation flight activity will recover from current levels beginning in the third quarter and will reach 2019 levels by the end of the year. Importantly, we also expect the industry to revert to pre-COVID flight activity patterns including a return of international event and business-oriented travel.

[Christopher Frost:]

Our highest priority remains unlocking shareholder value through the sale of MIC or separate sales of Atlantic Aviation and MIC Hawaii. The proposed reorganization of MIC provides us with additional flexibility in this process notably with respect to the timely and tax-efficient sale of Atlantic Aviation prior to the sale of MIC Hawaii.

[Operator:]

Our first question today comes from T.J. Schultz of RBC Capital Markets.

[T.J. Schultz:]

Good morning. Hey Jay.

[A – Jay Davis:]

Good morning.

[T.J. Schultz:]

Just first on the reorganization of the structure just so, I have it straight, so if you sell Aviation first and those proceeds are distributed do you still eventually get the tax impact when you sell Hawaii?

[Christopher Frost:]

Yes. A couple of things in that. You're right that under our current structure TJ if we were to sell the Atlantic Aviation from under MIC that would incur capital gains tax on that transaction. With the proposed restructure it will enable us to sell Atlantic Aviation before MIC Hawaii without incurring capital gains tax. The distribution up to the LLC of MIC Hawaii is a taxable event. So as I outlined in our prepared remarks if we were to sell MIC Hawaii first and then a takedown of the listed entity compared to restructuring, selling Atlantic and then a takedown of the LLC, all other things being equal the after-tax net proceeds would be unchanged.

[T.J. Schultz:]

Okay. Understood. And then just one question on the outlook for aviation, as you look for Aviation activity to get back to 2019 levels, looking into maybe next year do you expect the mix between business, international leisure and some of the larger events to be similar, or some activity levels potentially offsetting declines that we could see in some of the business travel? Thanks.

[Christopher Frost:]

No look I think as we sort of said in the prepared remarks T.J., our expectation is that once there's been a successful rollout of vaccine programs that we are likely to see an acceleration in the recovery of demand for GA, particularly around international event-driven and corporate travel. And based on our conversations with customers I suspect that there is significant pent-up demand for travel. And that when government restrictions and the fact that there is widespread vaccine rollout, we're likely to sort of see that recovering to normalized levels in -- as I said by end of 2021 and returning to normal patterns of activity by 2022.

[T.J. Schultz:]

Okay. Thank you.

[Operator:]

Our next question is from Josh Kolevzon of BAM. Please proceed with your question.

[Josh Kolevzon:]

Hi, guys. Just to flesh out the timing a little bit. You said you would hold like if you were to sell Atlantic Aviation then you would file for shareholder approval. I'm just a little confused on -- if you could just sort of, I mean, if you could just sort of walk through the time line of how all of that would have like -- is that like letting Aviation deal announced and then we go through the shareholder process, or I mean just how does that work exactly?

[Christopher Frost:]

Yes. So what I noted in my prepared remarks is that we require shareholders approval to affect the merger, and based on our current time line that we would anticipate seeking shareholder approval for the merger potentially in late May. I also made the point that we do not intend at this stage to implement the merger until such time as we have entered into an agreement to sell Atlantic Aviation and just prior to the close. And the reason for that reflects our objective that we acknowledge the fact that an LLC may give rise to index eligibility issues and that may cause a potential rotation of the register. Therefore, our objective is to minimize to the extent possible the period of time that the LLC will own Atlantic Aviation. And to the extent that the LLC owns Atlantic Aviation, we've already entered into an agreement to sell it and completion is imminent, as well as the proposed use of proceeds and any special distribution coming out of that. So the first step of the process is to seek shareholder approval for the reorganization, but not to put it into place until such time as we've entered into an agreement to sell Atlantic but just prior to close.

[Josh Kolevzon:]

Yes, so then, I mean, it's -- when you say that it seems to me like you would like to have a deal to sell Atlantic Aviation before the end of May?

[Christopher Frost:]

No, I think, I sort of separate out the approvals that we need to go through in order to implement the restructure and that the sort of seeking shareholder approval to implement the restructure may or may not be the same timetable as the sort of the sale of Atlantic. What I would say with respect to the -- our objectives for the sale of Atlantic is that -- certainly my objective that we complete the sale of Atlantic this year.

[Josh Kolevzon:]

But you could announce it I mean theoretically tomorrow and then go through the shareholder reorg part and then close it. It's only a period of time between when the actual reorg happens and the sale closes that you're concerned about?

[Christopher Frost:]

I'm sorry not sure of the question.

[Josh Kolevzon:]

I'm saying from the -- when you were talking about the – sorry, the turnover in the shareholder register and the possible index implication the concern is from the time the reorganization is actually implemented to the time Atlantic Aviation closes.

[Christopher Frost:]

Correct. And so what we're saying is...

[Josh Kolevzon:]

So you could announce Atlantic Aviation tomorrow in theory, right? It takes a few months for a deal to get done have the reorg sometime in between there and then close Atlantic Aviation after that?

[Christopher Frost:]

Yes, that is a possibility. I think what the point we were making was the shareholder approval process for the reorganization we will be looking to seek potentially in late May. We're just simply making a point that once we have obtained shareholder approval we would only implement the reorganization following having entered into an agreement and prior to the close for the reasons that I outlined.

[Josh Kolevzon:]

I Got. Right. Okay. Great. Thank you so much, Chris.

[Christopher Frost:]

Yes. Sure.

[Operator:]

We have reached the end of the question-and-answer session. And I would now like to turn the call over to Christopher Frost for closing remarks.

[Christopher Frost:]

Thank you for participating in our conference call today. I hope you and your families continue to remain safe and well. We look forward to engaging with you over the coming months and updating you on our progress at our next quarterly call or prior to that as circumstances warrant. Thank you.

[Nick O'Neil:]

Thanks everyone. Cheers.

[Operator:]

This concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation.