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September 4, 2019 – The Debtors notified the Court [Docket No. 959] that their Chapter 11 Plan of Reorganization had become effective as of September 4, 2019. The Court had previously approved the Debtors' Plan on August 2, 2019 [Docket No. 880].
At 11:45 pm on March 14, 2019, moments before a March 15, 2019 maturity date in respect of $500mn in unsecured senior notes, PGI, Inc. and four affiliated Debtors (“PHI” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Northern District of Texas, lead case number 19-30923. In its lead Petition, the Debtors, one of the world’s leading helicopter services companies, noted between 1,000 and 5,000 creditors; estimated assets between $1bn and $10bn; and estimated liabilities between $500mn and $1bn. Six months later, the holders of those 5.25% Senior Notes, who the Debtors had accused of chasing them into bankruptcy (see "Events Leading to the Chapter 11 Filing," below), own the emerged company.
In a press release announcing PHI's emergence from bankruptcy, the former Debtors stated, "the Company and its principal U.S. subsidiaries, including PHI Air Medical, have emerged from Chapter 11 bankruptcy protection, successfully completing the Company's debt restructuring process and implementing the Chapter 11 reorganization plan confirmed by the U.S. Bankruptcy Court for the Northern District of Texas on July 30, 2019. PHI now believes that it has one of the industry's leading debt structures and a strengthened balance sheet that positions it for long-term success.
As a result of completing the bankruptcy process, the Company reduced its debt by approximately $500 million, with PHI's former unsecured creditors now owning 100% of the Company's equity, subject to dilution in connection with future stock issuances including issuances of incentive equity grants to key personnel and potential issuances of stock to the holders of certain warrants issued to former equity holders. In connection with this process, the Company also closed a $225 million new five-year term loan and received new equity capital from certain of its former unsecured creditors."
The Disclosure Statement provided the following Plan overview: “The Plan represents a comprehensive financial restructuring of the Debtors (the 'Restructuring') and provides much needed balance-sheet relief from an unsustainable debt load, with the goal of ensuring the Debtors’ continued existence as a successful and profitable global helicopter transportation services provider. The Plan is also value-maximizing for the Debtors’ stakeholders. Among other things, the Plan:
- substantially de-levers PHI, Inc.’s balance sheet;
- provides for the issuance of New Common Stock to Holders of certain unsecured Claims; and
- provides a Minimum Cash Commitment equity raise of $75 million from the Commitment Parties;
- provides for the Debtors’ ability to secure funded debt on or before the Effective Date in an aggregate amount (inclusive of any Reinstated debt) not to exceed $225 million.”
The following is a summary of classes, claims, voting rights, and expected recoveries (defined terms are as defined in the Plan):
- Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected recovery is 100%.
- Class 2 (“Thirty Two Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $132.2mn and projected recovery is 97.8% in the form of Cash.
- Class 3 (“Blue Torch Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated projected recovery is 100%.
- Class 4 (“Aircraft Lessor Claims”) is impaired and entitled to vote on the Plan. The projected recovery is 50-55% in the form of New Common Stock or New Warrants.
- Class 5 (“General Unsecured Claims Claims”) is impaired and entitled to vote on the Plan. The projected recovery is 50-55% in the form of New Common Stock or New Warrants.
- Class 6 (“Convenience Claims”) is impaired and entitled to vote on the Plan. The projected recovery is 50% in the form of Cash. Each Holder of a Convenience Claim shall receive, in full and final satisfaction, settlement, release, and discharge of such Holder’s rights with respect to and under such Allowed Convenience Claim, the Convenience Class Distribution. For the avoidance of doubt, Holders of Allowed General Unsecured Claims with a Face Amount greater than $25,000 may elect to reduce the Face Amount of their Allowed General Unsecured Claim to $25,000 by notifying the Voting and Claims Agent of such election on or prior to the Voting Deadline and receive the treatment specified in this section for Class 6 Convenience Claims.
- Class 7 (“Intercompany Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The projected recovery is 0%.
- Class 8 (“Subordinated Claims”) is impaired and entitled to vote on the Plan. The projected recovery is undetermined. Holders will receive the same treatment as Class 10.
- Class 9 (“Intercompany Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected recovery is 100%.
- Class 10 (“Existing PHI Interests”) is impaired and entitled to vote on the Plan. The projected recovery is undetermined. Each holder of an Allowed Class 10 Interest (other than Mr. Al A. Gonsoulin and his Affiliates, who shall be deemed to have waived any entitlement or distribution on account of any and all Existing PHI Interests held or owned as of the Effective Date) shall receive (i) if Classes 4 and 5 vote in favor of the Plan its Pro Rata share of Old Equity Settlement Warrants, as more fully described in Article IV.D.6 of the Plan; or (ii) if Classes 4 and 5 vote to reject the Plan, no distribution.
Creditors Committee Settlement
On June 6, 2019, and further to Court ordered mediation efforts led by Judge David R. Jones, the Debtors announced a settlement with their Official Committee of Unsecured Creditors (“the UCC”) and lender Thirty Two, LLC (the "Settlement" and the "Settling Parties," respectively) that “resolves all pending UCC objections and motions and will provide the basis for a consensual Plan of Reorganization.” A term sheet, summarized below, in respect of the Settlement has been filed with the Court [Docket No. 624].
In a press release announcing the settlement, the Debtors stated, “A hearing to approve the Disclosure Statement for PHI’s proposed amended Plan of Reorganization (‘the Plan’), which will allow PHI to solicit votes on a consensual plan, has been set for June 18, 2019. PHI expects that it will jointly file an amended and consensual Plan with the UCC prior to this hearing. The Company anticipates that, with the support of the UCC, it will be able to proceed expeditiously towards approval of the Plan. Accordingly, a hearing to confirm the proposed Plan is expected to be scheduled on July 30, 2019. Following that confirmation hearing, if the Court approves the Plan, PHI will consummate the transactions and emerge from Chapter 11.
The Agreement outlines that, if the Plan becomes effective, Al Gonsoulin will retire as the Chief Executive Officer and Chairman of the Board of PHI, and Lance Bospflug will become PHI’s Chief Executive Officer and will be named to the Company’s Board of Directors upon emergence. These management changes are pending the aforementioned approvals of the Company’s Disclosure Statement and Plan of Reorganization.
The Company expects to complete its Chapter 11 process within the previously announced timeline, aiming to emerge in late summer 2019. PHI remains confident that it will emerge with a significantly reduced and more sustainable debt structure, as well as sufficient liquidity, that will position the business for long-term success.”
Equity Committee Settlement
On June 18, 2019, the Debtors executed a settlement agreement [stipulation at Docket No. 686] with the UCC and the Debtors' Equity Committee that resolves pending objections filed by the Equity Committee, including through the issuance of warrants (the "Old Equity Settlement Warrants"). The Debtors final/amended Disclosure Statement now includes disclosure that reads:
"Pursuant to the Equity Committee Settlement Stipulation, the Equity Committee and its members so long as the Plan has not (without the Equity Committee’s consent, which shall not be unreasonably withheld) been amended, modified or supplemented in a manner inconsistent with this the Equity Committee Settlement Stipulation (i) shall support the Plan, and (ii) shall not (a) object to, delay, impede, or take any other action to interfere with, delay, or postpone acceptance, consummation, or implementation of the Plan, (b) propose, file, support, or vote for any restructuring for the Debtors other than the Plan, (c) take any action to encourage any other person or entity to take any action, directly or indirectly, that would reasonably be expected to, breach or be inconsistent with the Settlement Stipulation, or (d) take any other action, directly or indirectly, that would reasonably be expected to interfere with the acceptance, consummation, or implementation of the Plan and the mutual releases and exculpation provisions contained in Article IX of the Plan, in exchange for the Old Equity Settlement Warrants as further described in Article IV.D.6 of the Plan. In addition, any compensation sought in a final fee application filed by Imperial Capital, LLC, as financial advisor to the Equity Committee, shall be limited to a maximum cap of $750,000, inclusive of all monthly and transaction fees and expenses. Neither the Debtors nor the Creditors Committee shall object to any professional fee application filed by Imperial Capital, LLC that conforms to the prior sentence provided that the Equity Committee Settlement Stipulation remains in full force and effect.
The Amended Plan voting results were as follows:
- Class 2 (“Thirty Two Claim”) – 1 claim holder, representing $132,250,000.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
- Class 4 (“Aircraft Lessor Claim”) – 3 claim holders, representing $13,095,316.03 in amount (or 100%) and 100% in number, voted in favor of the Plan.
- Class 5 (“General Unsecured Claims”) – 487 claims holders, representing $409,920,077.41 (or 95.71%) in amount and 91.37% in number, accepted the Plan. 46 claims holders, representing $18,389,814.59 (or 4.29%) in amount and 8.63% in number, rejected the Plan.
- Class 6 (“Convenience Claims”) – 44 claims holders, representing $166,431.36 (or 84.27%) in amount and 89.80% in number, accepted the Plan. 5 claims holders, representing $31,069.15 (or 15.73%) in amount and 10.20% in number, rejected the Plan.
- Class 8 (“Subordinated Claims”) – Vacant Class deemed eliminated from Plan.
- Class 10 (“Existing PHI Interests”) – 2,403,297 shares (or 75.14%) in amount accepted the Plan. 795,219 shares (or 24.86%) in amount rejected the Plan.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Del Genio Declaration”), Robert A. Del Genio, PHI’s Chief Restructuring Officer detailed the events leading to the Company’s Chapter 11 filing, stating “PHI did not arrive in chapter 11 due to operational failures, and the Company’s business model remains strong. What necessitated the commencement of these Chapter 11 Cases is the looming maturity date—March 15, 2019—of those certain unsecured 5.25% Senior Notes…in the aggregate principal amount of $500 million.
Notwithstanding the insistence as to operational health (and a glossing over of the normally obvious connection between operational health and the ability to make or roll-over principal payments as they fall due), the Del Genio Declaration quickly turns to the Company’s operational climate, stating “Service companies to the energy sector have been hit especially hard since the dramatic decline and continued volatility in the sector beginning in mid-2014 due to, among other things, oversupply of oil in the U.S. coupled with weakening demand in Europe and emerging markets. These market dynamics have led to scores of oil-and-gas-related bankruptcies, impacting exploration and production companies as well as an array of services providers and vendors. Indeed, many customers have significantly reduced the number of helicopters used for their operations and have utilized this time instead to drive major changes in their offshore businesses, which have in turn drastically reduced revenues to PHI’s O&G business segment in the Gulf of Mexico….The effect of the downturn in the oil and gas industry has been felt by nearly all companies in the helicopter service industry. The downturn created an oversaturation of helicopters in the market, significantly impacting service companies’ utilization and yields. Indeed, this domino effect on the industry has required helicopter operators, like their customers, to initiate their own cost-cutting measures, including reducing fleet size and requesting rental reductions on leased aircraft.
Like the O&G business segment, the Company also suffered a significant decrease in revenue from Air Medical in 2018 as compared to 2017. Several factors contributed to this decrease, including weather-related issues and delays, changes in labor costs, and an increase in patients covered by Medicare and Medicaid (as opposed to commercial insurers), which resulted in slower and reduced collections, given that reimbursement rates from public insurance are significantly lower than those from commercial insurers or self-pay….In addition to these patient-mix issues, the Company also encountered certain weather-related issues in 2018—more so than in years past—that led to the cancellation of numerous flights, thereby impacting the segment’s bottom line.
The Debtors have significant Prepetition Debt Obligations, including $500 million in Notes, which mature on March 15, 2019. Given the looming maturity date of the Notes, the Company embarked on a number of restructuring initiatives, including the refinancing of its Notes. For the reasons described in greater detail below, this refinancing effort ultimately proved unsuccessful.
Alongside these mounting debt obligations culminating in the looming maturity of the Notes, the Company has also faced additional liquidity constraints since the end of 2017. As described in greater detail above, the Company closed its acquisition of HNZ on December 29, 2017 for a net purchase price of approximately $126.6 million, which the Company paid in cash from the proceeds of maturing or liquidated short-term investments. This acquisition represented a significant step in its global diversification strategy, further solidifying PHI’s reputation as a premier helicopter company with a larger global presence and broad global operating capabilities.
Given these considerations, although the Company has met its ongoing debt service and trade obligations over the last several years while facing revenue declines, the Company—facing maturity of the Notes—is now at an inflection point: it simply will be unable to meet its principal payment obligations that will become due when the Notes mature."
About the Company
PHI is a publicly held global helicopter services company (The Nasdaq Select Global Market: PHII (voting); PHIIK (non-voting)), providing transportation services in the United States and abroad. Founded just over 70 years ago in 1949 in Lafayette, Louisiana as “Petroleum Helicopters, Inc.” and now known simply as PHI, the Company has gradually expanded its business model from a local oil and gas transportation service provider with three Bell 47 helicopters to an international industry leader, now operating in over 45 countries.
PHI operates primarily through two business segments: (a) Oil and Gas (“O&G”), which facilitates crew change operations for offshore oil companies in the Gulf of Mexico, Australia, and other international locations, as well as helicopter repair, maintenance and overhaul services for customer-owned aircraft; and (b) Air Medical (“Air Medical”), which provides air medical transportation and related services for hospitals and emergency service agencies throughout the continental United States. As of the Petition Date, PHI owns or operates approximately 238 aircraft worldwide (approximately 17 of which are leased, eight of which are owned by the customer and operated by PHI, and the remaining 213 owned by PHI). Of these, 119 aircraft are dedicated to O&G operations, 111 are dedicated to Air Medical, six are dedicated to Technical Services, and two are used for general corporate purposes. PHI employs approximately 2,218 employees, including pilots, mechanics, medical and administrative staff. PHI employees conduct routine maintenance and repair work, completely overhaul engines and airframes, operate a state-of-the- art painting facility, research and develop leading-edge safety-related technology and programs, research new aviation procedures, develop new products and techniques, and maintain a multimillion dollar inventory.
The aggregate 2018 revenue of PHI (including both Debtor and non-Debtor entities) was approximately $675 million, of which approximately 56.5% was generated in O&G, 38% in Air Medical, and the remaining 5.5% in Technical Services.
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