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Default: CHC Group Cut to D After Missed $46M Coupon Payment

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Default: CHC Group Cut to D After Missed $46M Coupon Payment

Helicopter flight and maintenance services provider CHC Group Ltd. and subsidiary CHC Helicopter S.A. elected to skip a $46 million interest payment due April 15 on the company’s 9.25% senior secured 2020 notes, according to a Form 8-K filed with the Securities and Exchange Commission.

Subsequently, Standard & Poor’s yesterday cut its corporate credit rating on CHC Group to D, from CCC, and at the same time lowered its issue-level rating on CHC Helicopter’s senior secured notes, unsecured notes, and senior revolving credit facility to D. The 1 recovery rating on the revolver is unchanged, indicating S&P’s expectation of very high (90–100%) recovery in a default scenario. The recovery rating on the senior secured notes remains at 4, indicating a recovery in the lower half of a 30–50% range, while the recovery rating of 5 on the unsecured notes indicates a recovery expectation in the lower half of the 10–30% range.

“We anticipate that the company will likely restructure its debt under bankruptcy protection or a similar scenario,” primary credit analyst Madhav Hari said in the S&P ratings report.

Meantime, Moody’s cut its corporate family rating on CHC Group and CHC Helicopter’s senior secured notes to Ca, from Caa3, and its rating on CHC Helicopter’s unsecured notes to C, from Ca. The Ca rating on the senior notes reflects Moody’s expectation that the company will file for creditor protection or restructure its debt in 2016.

The company has also fully drawn its revolver and will continue to have negative free cash flow in FY2017, leading to leverage of about 7.5x and EBITDA to interest under 2x, Moody’s notes in its report.

The 9.25% secured notes due 2020 were largely unchanged at 43.75 this morning. CHC issued the $1.1 billion of 2020 notes in October 2010, and followed up with a $200 million add-on in October 2012. The company in February 2014 redeemed $130 million of the notes at 103% through the use of a special call provision, and later repurchased a further $155.7 million in the open market, bringing the total outstanding to $1.014 billion. The company also has $94.7 million of senior unsecured notes due 2021 outstanding.

As of Jan. 31, CHC had total liquidity of approximately $377 million, which included $34.2 million in undrawn capacity under its now fully-drawn asset-based revolving credit facility.

Seabury Advisors, PJT Partners, and CDG Group are serving as financial advisors to the company and Weil, Gotshal & Manges LLP and Debevoise & Plimpton LLP are serving as its legal advisors. The company stated in its recent 10-Q that it is in the process of analyzing various strategic alternatives to address its capital structure, and warned that a filing under Chapter 11 of the U.S. Bankruptcy Code may be unavoidable.

Vancouver-based CHC is a provider of helicopter transportation services to the global offshore oil-and-gas industry. — Staff reports

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