In a widely anticipated move, helicopter offshore services company PHI filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Northern District of Texas yesterday. PHI’s move was triggered by its failure to repay $500 million worth of unsecured 5.25 percent senior notes due this month. PHI telegraphed a likely bankruptcy filing as early as last October when it terminated a previously announced cash tender offer for the repurchase of those notes and had been under pressure from creditors and investors to sell off its profitable air medical division to satisfy that obligation.
PHI said it would continue to operate normally during bankruptcy restructuring with its existing cash and $70 million from a new Wall Street investment firm, Blue Torch Capital. Blue Torch operates a $750 million “Capital Credit Opportunities Fund” that specializes in making high-interest loans to “companies in transition.” PHI said the bankruptcy filing includes only its principal U.S. entities and excludes foreign entities in Mexico, Canada, Trinidad & Tobago, Cyprus, Ghana, Israel, Saudi Arabia, the Philippines, Australia, and New Zealand. PHI said it remained in discussion with the holders of its $500 million worth of unsecured notes “to consider alternatives to address PHI’s outstanding debt obligations.” PHI also is in discussions with various helicopter lessors “to address certain of its above-market lease obligations.” The company said it is working on a reorganization plan and hopes to emerge from bankruptcy this summer. PHI operates a fleet of 240 aircraft from 70 locations and employs 2,200 worldwide.
PHI’s bankruptcy is the third among major helicopter service companies in recent years. CHC Helicopters and Erickson both filed bankruptcy in 2016. Helicopter leasing company Waypoint, which had a large exposure to offshore helicopter services companies, filed bankruptcy last November. Waypoint’s assets were later acquired by Australia’s Macquarie Group at a steep discount, for $650 million, in a deal announced late last year and that closed this month.
In a widely anticipated move, on March 14 helicopter offshore services company PHI filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Northern District of Texas. PHI’s move was triggered by its failure to repay $500 million worth of unsecured 5.25 percent senior notes due March 15 and held by the Delaware Trust Company. PHI telegraphed a likely bankruptcy filing as early as last October when it terminated a previously announced cash tender offer for the repurchase of those notes and had been under pressure from creditors and investors to sell off its profitable air medical division to satisfy that obligation.
In its preliminary bankruptcy filing with the Court, PHI listed total indebtedness of approximately $700 million, which includes the $500 million and unsecured notes and $130 million in a senior secured loan that matures in September 2020 and is underwritten by an entity controlled by PHI CEO Al A. Gonsoulin. Gonsoulin received total compensation of $4.89 million from PHI in 2017. Other major creditors listing in the bankruptcy filing include Sikorsky unit Helicopter Support, Inc., GE Aircraft Engines, and Airbus Helicopters.
PHI said it will continue to operate normally during bankruptcy restructuring with its existing cash and $70 million from a new Wall Street investment firm, Blue Torch Capital. The Blue Torch loan was obtained on March 13 and is secured by aircraft. Blue Torch operates a $750 million “Capital Credit Opportunities Fund” that specializes in making high-interest loans to “companies in transition.” The Blue Torch loan is part of PHI’s $700 million overall indebtedness.
PHI said the bankruptcy filing includes only its principal U.S. entities and excludes foreign entities in Mexico, Canada, Trinidad & Tobago, Cyprus, Ghana, Israel, Saudi Arabia, the Philippines, Australia, and New Zealand. PHI said it remains in discussion with the holders of its $500 million worth of unsecured notes “to consider alternatives to address PHI’s outstanding debt obligations.” PHI also said that it is in discussions with various helicopter lessors “to address certain of its above-market lease obligations.” The savings from the latter could be minimal as of last year PHI reported leasing just 17 helicopters. Most of the leased aircraft are Sikorsky S-92As.
The company said it is working on a reorganization plan and hoped to emerge from bankruptcy this summer. That reorganization plan could still include the sale of PHI Air Medical as the company noted in its bankruptcy filing that “an asset or equity sale to improve PHI’s liquidity or to facilitate a restructuring of its indebtedness” remains an option under consideration. PHI operates a fleet of 240 aircraft from 70 locations and employs 2,200 worldwide. Most of PHI’s aircraft are light helicopters. As of last year the company operated 148 light helicopters, 55 medium helicopters, and 35 heavies—all Sikorsky S-92As. The company also operates seven fixed-wing aircraft.
Growth then Downsizing
PHI was founded in 1949 with $100,000 and three Bell 47s in Lafayette, Louisiana. During a period in the 1980s it operated the third-largest helicopter fleet in the world behind the militaries of the U.S. and then-USSR and had become the world’s largest helicopter company servicing the offshore oil and gas market. By the time controlling interest was sold to Gonsoulin in 2001 for $30.5 million, the company had gone through a series of downsizings. In early 2018, PHI acquired HNZ’s operations in Australia, New Zealand, Papua New Guinea, and the Philippines in an attempt to boost revenues. Of late, PHI’s fortunes had waned considerably. For the first nine months of 2018, the company lost $35.6 million on revenues of $498.4 million; for 2017 the company made a small gain of $7.5 million on revenues of $579 million; however, its oil-and-gas segment lost $28.77 million that year; in 2016, PHI lost $26.68 million on revenues of $634 million; and its 2015 revenues were $804.2 million with a $26.9 million profit.
Without the profits from its Air Medical division, PHI’s overall financial results in recent years would have been much worse. However, both revenues and profits from Air Medical have been steadily declining as the reimbursement climate in that sector becomes increasingly difficult. Air Medical revenues in 2015 were $312.77 million with net profit of $55.83 million; in 2016, revenues were $281.87 million with a net profit of $43.02 million; in 2017 revenues were $257.77 with a net profit of $35.84 million; and for the first nine months of 2018 revenues were $194.3 million with a net profit of $13.27 million.
PHI’s bankruptcy is the third amongst major helicopter service companies in recent years. Both CHC Helicopters and Erickson filed bankruptcy in 2016. Helicopter leasing company Waypoint, which had a large exposure to offshore helicopter services companies, filed bankruptcy last November. Waypoint’s assets were later acquired by Australia’s Macquarie Group at a steep discount, for $650 million, in a deal announced late last year and that closed in March.