PHI shareholders suggest selling PHI Air Medical to cover debt


Two PHI’s shareholders have sent a letter to the company’s board of directors proposing PHI sell its air medical business to help refinance debt.

The two shareholders, Christopher Olin from Alesia Asset Management and private investor Timothy Stabosz, own a combined 4.6% of the company’s non-voting stock. They filed a beneficial ownership (13D) report to the SEC on 6 September which is required when shareholders intend to acquire more than 5% of the company stock.

The investors congratulated the board on not accepting a proposed 11%+ interest-rate loan to cover PHI’s debt.

Estimates in the letter value the air-medical business at approximately $475 million – based on a recent sale of an unnamed competitor’s business which is thought to be Air Medical Holdings.

The two shareholders recommended selling the air-medical business rather than the oil-and-gas business due to the hopeful future for the global oil-and-gas market and more opportunities opening up for helicopter operators in the market.

The letter estimates the air-medical segment’s EBITDA for 2017 was $55 million. With an estimated value of $475 million, a potential buyer would have a 10.5% free-cash-flow yield on the investment.

“If the acquirer used 4.5x leverage, financed at a 6% interest rate, the transaction would require $230 million in equity and $15 million in annual interest payments. Levered FCF would therefore be $35 million, generating an even more attractive 15% levered return on equity.

“However, this calculation only provides a floor on the actual return earned by an acquirer, because there surely would be synergies and other efficiencies of scale that could be achieved if PHI’s air medical business were acquired by a larger competitor”

According to the letter, if the air medical business were to be sold, the remaining oil and gas business segment would be left with only $75 million of net debt and be easily refinanced.

PHI’s Debt

Over the past few months, PHI has extended the deadline of a $500 million tender offer to buy back the notes early four times and was looking to raise cash.

PHI issued the notes in 2014 at a 5.25% coupon rate and is scheduled to repay the full amount next year. The expiration date to buy-back was pushed for the fourth time recently from 24 August to 7 September 2018.

To buy back the notes, PHI was considering issuing a new $500 million offering maturing in 2023, but has yet to complete the offer. It announced it was exploring “several alternatives” to raise the cash to buy the notes back.

The tender offer for the 2019 notes was announced on 18 June. PHI had received tenders and consents from holders of 90.50% of the principal amount of the 2019 notes.