Bankruptcy News

PHI, Inc. – Helicopter Services Company Files Chapter 11 to Avoid Looming Maturity of $500mn in Notes, Cites Downturn in Energy and Medical Markets as Contributing Factors

March 14, 2019 − At 11:45pm (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 “Company”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Northern District of Texas, lead case number 19-30923. The Company, one of the world’s leading helicopter services companies, is represented by Daniel Prieto of DLA Piper LLP. Further board-authorized engagements include (i) Jones Walker LLP as counsel, (ii) Houlihan Lokey Capital, Inc. as financial advisor, (iii) FTI Consulting, Inc. as financial advisor and (iv) Prime clerk as claims agent. The Company’s petition notes between 1,000 and 5,000 creditors; estimated assets between $1bn and $10bn; and estimated liabilities between $500mn and $1bn. Documents filed with the Court list the Company's three largest unsecured creditors as (i) Delaware Trust Company ($500.0mn noteholder claim), (ii) Helicopter Support Inc. ($1.8mn trade debt) and (iii) GE Aircraft Engines ($1.7mn trade debt).

In a press release announcing the filing, PHI advised that "After working closely with our advisors since the spring of 2018, interacting with our various stakeholders, and carefully evaluating all possible options, the Board concluded that pursuing Chapter 11 protection is the most appropriate course of action to address our matured debt and strengthen our balance sheet. We are confident this will position the entire company for continued leadership in the industry and provide a platform for PHI’s long-term success. We remain fully committed to all of our stakeholders and to operating with the highest standards of safety and quality as we navigate this process, which we believe is the best option for a timely and efficient resolution to our financial situation.” 

The press release continued, “PHI remains in discussions with the holders of its $500 million in unsecured notes and their advisors to consider alternatives to address PHI’s outstanding debt obligations. The Company is also engaged in ongoing discussions with its various lessors to address certain of its above-market lease obligations. Importantly, the Company believes that its creditors and lessors will be supportive of PHI and its prospective business strategy and, to that end, anticipates filing a plan of reorganization in the early stages of the Chapter 11 process.”

Goals of the Restructuring

In a declaration in support of the Chapter 11 filing (the “Del Genio Declaration”), Robert A. Del Genio, PHI’s Chief Restructuring Officer, stated "The Company and its advisors continue to explore and pursue several of the strategic alternatives described above, including ongoing negotiations with the Noteholders and the Ad Hoc Committee regarding the formulation of a chapter 11 plan of reorganization. Ultimately, however, given the looming March 15, 2019 maturity date of the Notes, the Company, in consultation with its advisors, determined that it was in the best interests of the Company and all of its stakeholders—in an effort to preserve and maximize the value of the Company and its assets—to commence these Chapter 11 Cases. With the benefit of a 'breathing spell' and additional time to implement a restructuring strategy, the Debtors believe that the aforementioned restructuring efforts will lead to a strategic path forward that benefits all estate constituents in an efficient manner."

Events Leading to the Chapter 11 Filing

The Del Genio Declaration 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.

The Media's Most Trusted Source for Bankruptcy Information