Analysis: PHI files for Chapter 11 – what have we learnt? 

Anyone with a passing interest in the large oil and gas helicopter operator market would not have been surprised that PHI has filed for Chapter 11. 

Primarily, PHI had been expected to file due to $500 million worth of senior notes maturing on 15 March 2019. The operator had not announced any details of how it planned to repay this debt, and as such speculation about Chapter 11 mounted until conjecture became fact on 14 March. 

The voluntary filing occurred at around 23.45 in the US on 14 March, according to a document filed with the United States Bankruptcy Court, Northern Texas District. 

Details in the court documents, when compared to some recent events concerning PHI, shed some more light on where the operator finds itself. 

The debts 

The filing, seen by Helicopter Investor, shows that PHI has approximately $700 million worth of debt,including the  $500 million worth of 2019 notes.  

Additional debts include a $130 million senior secured term loan maturing 28 September, held by ThirtyTwo LLC., a financing affiliate of PHI’s chief executive officer Al Gonsoulin and a $70 million secured term loan held by Blue Torch Capital LP as agent. 

The filing states that PHI has constrained liquidity and does not currently have the ability to repay the principal balance on the $500 million of notes. 

However, Fitch Ratings, in a 14 March note downgrading PHI’s issuer default rating to CC contains some interesting remarks regarding PHI’s debt. 

“The $130 million senior secured term loan has priority over the $500 million senior unsecured notes in the capital structure. After deducting 10% for administrative claims and senior secured claims and a full recovery on the term loan, Fitch estimates that the senior unsecured notes would have recovery prospects between 71%-90% or ‘RR2’,” the rating agency states in the note, released before PHI filed for Chapter 11. 

Furthermore, Fitch says that the $130 million loan, provided by PHI’s chief Gonsoulin’s affiliate Thirty Two LLC, is “covenant light, has no amortization until the maturity date, and has a 6% interest rate.”  

The loan will mature 28 September 2020. 

Fitch’s note gave PHI an enterprise value of $548 million. In the event of liquidation, the agency noted a fresh enterprise value would be slightly less than that and “would also provide an above average recovery for unsecured creditors.” 

 “The liquidation analysis considered liquidation rates for inventory, spare parts, and aircraft from the hypothetical Chapter 7 liquidation alternative valuation estimate in the CHC bankruptcy filings,” the rating agency added. 

The letter 

PHI’s filing for Chapter 11 is not its most recent brush with bad publicity. 

 A very public spat between the operator and Timothy Stabosz, who owns roughly 11% of the company’s non-voting shares, occurred on 19 February.  

Stabosz wrote an open letter to PHI management  to raise concerns over Debtwire articles that left him” feeling completely heartsick”, as well alleging that PHI had at least one buyer available. 

Calling on PHI to publicly refute the Debtwire articles, Stabosz then made the following statement. 

“Importantly, it is widely known that there is at least one buyer for the company, who currently possess the financial wherewithal to readily REFINANCE the debt, and would be willing to pay a handsome PREMIUM to stockholders, as well.  I remind you that your fiduciary duty REQUIRES you to pursue such options…even if it is not what Mr. Gonsoulin should want.  I will also say that I have received indications from at least half a dozen former and current executives in the space you operate in and, without exception, each and every one asserts that your Air Medical division is worth at least $400 million.” 

PHI released a statement responding on 19 February, stating that it was evaluating a wide range of various options. 

The court documents state that on 13 February PHI formed a Special Restructuring Committee (SRC) considering various solutions, including Chapter 11 and asset or equity sales. The same day PHI also formed a Restructuring Working Committee (RWC), according to the court filing. 

The filing also notes that PHI had been engaged in discussions with various holders of the 2019 Notes as well as holders of the Thirty Two LLC loan, in an effort to restructure its indebtedness and recapitalize PHI. 

PHI’s Creditors 

The court documents reveal that of non-insider creditors, Delaware Trust Company is owed the most due to the $500 million worth of 2019 note. 

Helicopter Support Inc, GE Aircraft Engines and Cahill Gordon and Reindel LLP are owed amounts between $1.39 million to $1.8 million. All other debts are below $1 million. 

List of Creditors Who Have the 20 Largest Unsecured Claims and Are Not Insiders 

 PHI’s future  

Regarding its share price, as of 15.45 GMT, PHI’s stock was still trading and priced at $2.77 a share. 

On 14 March, prior to filing for Chapter 11, PHI stock closed at $4.11. 

The firm has stated that it will continue to operate and it is working to emerge from bankruptcy in the summer of 2019. 

However, the large oil and gas helicopter operator market is still recovering from its 2016 downturn, with opinion split among market sources if the industry cycle is about to swing up or if the market is still bouncing along the bottom. 

“The danger point in any cycle is not when you’re at the top or the bottom, but when you’re just at the inflection point,” Clark McGinn principal at Uplifting Advice and formerly head of sales at Waypoint told Helicopter Investor in February. 

Indeed, projections for the large helicopter oil and gas operator market  reported by Helicopter Investor last month were for multiple Chapter 11s, a tough funding environment and potentially M&A activity analogous to the North American airline market at the turn of the decade. 

A Chapter 11 has now occurred.