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BRS - Bristow Group Senior Unsecured 6.25% 2022


rishig

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Very nice presentation indeed. Thank rishig!

Still looking at the helicopter market: HNZ looks pretty decent: Have you looked at it? No Debt and primarily small and medium helicopters (which as per previous comments seem to be more liquid / versatile / less reliant on oil and gas). The cherry on the cake: the CEO has a significant personal stake and added significantly to it in Dec15!

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  • 1 month later...

Competitor CHC Group's EC225 LP, also known as H225 helicopters, crash causes it to spiral into bankruptcy:

http://www.wsj.com/articles/helicopter-operator-chc-group-files-for-bankruptcy-protection-1462429695

 

In response to this accident, each of the Norwegian and U.K. Civil Aviation Authorities issued safety directives requiring operators to suspend public transport flights and commercial air transport operations of all H225s in those countries. The safety directives permit continued search and rescue flights. In addition, operators and customers in other countries have temporarily suspended H225 operations, pending further information regarding the cause of the accident.

 

H225 Count:

CHC Group: 42

Bristow: 27

ERA: 9

 

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From CHC's motion to reject leases

 

"Debtors expect to return, and reject, the leases and subleases related to over 90 unproductive leased aircraft during the first 60 days of these Chapter 11 Cases."

 

This is a substantial portion of CHC's fleet, which totals 230 aircraft.  The company is targeting 75 aircraft by 2017.  Many of the leases the company intends to reject are for heavy S-92s and EC225s. 

 

Also,

 

"On the production side, which accounts for approximately 70% of CHC’s revenue from the oil and gas industry, the sustained dip in oil prices has put the supply chains of oil and gas companies under intense pressure. As production revenue has dropped, oil and gas companies have been targeting operational inefficiencies in their supply chains to reduce costs.  Pricing on existing contracts and new tenders has declined as these customers have implemented cost reduction measures and have demanded significant prices concessions. Customers also have started utilizing less frequent worker rotations and service patterns to increase their productivity of assets and employees, resulting in a reduction in the number of aircraft required for each contract. These improvements in passenger utilization, coupled with the decrease in volume of offshore personnel, have significantly reduced demand for flying hours. Some customers have even started taking advantage of clauses in their contracts that permit termination for convenience as they seek out new contracts on the lowest-price principle from competitors.  CHC’s customers have been able to extract more and more concessions and favorable contract terms as the market for the remaining share of flight hours continues to shrink. Unlike exploration revenue that may come back as the oil price rebounds, these operational efficiencies on the production side are margin negative for helicopter operators and will likely remain in the supply chain even as market conditions improve."

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From CHC's motion to reject leases

 

"Debtors expect to return, and reject, the leases and subleases related to over 90 unproductive leased aircraft during the first 60 days of these Chapter 11 Cases."

 

This is a substantial portion of CHC's fleet, which totals 230 aircraft.  The company is targeting 75 aircraft by 2017.  Many of the leases the company intends to reject are for heavy S-92s and EC225s. 

 

Also,

 

"On the production side, which accounts for approximately 70% of CHC’s revenue from the oil and gas industry, the sustained dip in oil prices has put the supply chains of oil and gas companies under intense pressure. As production revenue has dropped, oil and gas companies have been targeting operational inefficiencies in their supply chains to reduce costs.  Pricing on existing contracts and new tenders has declined as these customers have implemented cost reduction measures and have demanded significant prices concessions. Customers also have started utilizing less frequent worker rotations and service patterns to increase their productivity of assets and employees, resulting in a reduction in the number of aircraft required for each contract. These improvements in passenger utilization, coupled with the decrease in volume of offshore personnel, have significantly reduced demand for flying hours. Some customers have even started taking advantage of clauses in their contracts that permit termination for convenience as they seek out new contracts on the lowest-price principle from competitors.  CHC’s customers have been able to extract more and more concessions and favorable contract terms as the market for the remaining share of flight hours continues to shrink. Unlike exploration revenue that may come back as the oil price rebounds, these operational efficiencies on the production side are margin negative for helicopter operators and will likely remain in the supply chain even as market conditions improve."

 

Yes, I read the first day motion.

 

For Bristow, LACE rate will remain under pressure for a long time. It has already dropped from a peak of $9.5M to mid $8. I expect it to be in low $8, with some support from ramping up UK SAR that operates at a higher LACE rate of $10M-$11M.

 

The factors I will be watching for:

- Continue to cut costs (EBITDAR margin in ~30%)

- Reject leases as they come up for renewal (about $80M in next 3 years).

- Working capital management.

- Delay capital expenditures in 2017-2019. (I expect capital expenditures in last q of 2016 that will soon be reported to be high).

- Maintain liquidity and control leverage.

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  • 5 months later...

Lots of talk on the FY Q2 earnings call about unencumbered assets. Any worry that management is going to refinance the $200M term loan due next November and in the process encumber more helicopters?

 

These 6.25% bonds seem money good to me as long as the asset base remains available to bondholders in the event of default. If some semi-predatory lender like Cerberus comes along and gets management to increase debt and pledge everything as collateral, then I'm not so sure.

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Lots of talk on the FY Q2 earnings call about unencumbered assets. Any worry that management is going to refinance the $200M term loan due next November and in the process encumber more helicopters?

 

These 6.25% bonds seem money good to me as long as the asset base remains available to bondholders in the event of default. If some semi-predatory lender like Cerberus comes along and gets management to increase debt and pledge everything as collateral, then I'm not so sure.

 

I sold mine close to $80 (bought at $69 just a short while ago), plus got an interest payment. Too dicey to me with their market going comatose for a long time potential. Every time, management talks too much about how heir liquidity and unencumbered assets, I get scared.

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I sold mine at ~$80 too. My average cost was in low 50s (adjusting for coupon(s) received). After listening to a few calls, the management seemed not very sharp, the easy money was made, and the upside/downside wasn't attractive.

 

Congrats on a good trade.

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I have done a few bond trades, mostly buys at the beginning of this year in the midstream sector for higher quality junk (BB+) that worked out very well. I also bought some ATW bonds at the same time (which were much higher yielding) and those tanked considerably more before going higher. If never really had a good feeling about these bonds, despite on what looked like great asset coverage on paper. I think some of these assets are probably worth no more than 25c on the dollar, based on some distressed buys that companies like DO have been doing.

BRS is the same story, except they have better fundamentals and the bids trade higher accordingly. I bought them this summer when crude was going to $40/BRK and in retrospect it was no more than a derivative way of trading crude. Despite the higher crude prices, the fundamentals for the service sector have gone worse no this will continue to stay that way, since there is a considerable time lag (years) between a recovery in new crude and the fundamentals in the service sector.

 

Overall, bonds re the right way to trade this at this point, since I think equity in this sector will go through dilution hell first.

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  • 6 months later...

Anyone interested in these again at $65? There is some indication that the environment for these helicopter companies is improving, but it's no sure thing.

 

Depending on BRS's cash burn over the next few years and how much you haircut the FMV of the helicopters, it looks like these bonds will be fine at these prices. IMO, you have to assume a pretty big large haircut to the helicopters for the bonds to be in out of the money at these prices. Plus you'll probably get some coupon payments along the way to BK (if it happens), making your cost basis even lower.

 

The big unknown is what their cash burn will be until the sector recovers or they file for BK. As leases roll off, they will likely stop burning cash, but we need to wait 2-3 years to get a big drop in lease expense. I think a sale-leaseback is likely with the four new UK SAR helicopters they are purchasing, which will help significantly with this year's cash outlay. They claim they have some other levers to pull to cut costs, but I'm not sure I believe them.

 

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Anyone interested in these again at $65? There is some indication that the environment for these helicopter companies is improving, but it's no sure thing.

 

Depending on BRS's cash burn over the next few years and how much you haircut the FMV of the helicopters, it looks like these bonds will be fine at these prices. IMO, you have to assume a pretty big large haircut to the helicopters for the bonds to be in out of the money at these prices. Plus you'll probably get some coupon payments along the way to BK (if it happens), making your cost basis even lower.

 

The big unknown is what their cash burn will be until the sector recovers or they file for BK. As leases roll off, they will likely stop burning cash, but we need to wait 2-3 years to get a big drop in lease expense. I think a sale-leaseback is likely with the four new UK SAR helicopters they are purchasing, which will help significantly with this year's cash outlay. They claim they have some other levers to pull to cut costs, but I'm not sure I believe them.

Will their new financings layer the unsecured notes? It seems that their strategy is to lien up unencumbered assets to raise as much cash as they need to extend the runway.

 

I know the smaller helicopters are being traded, but from what I've read the big ones (H225s and S92s) aren't really being traded. Not sure what kind of recoveries you'd get on them. I haven't dug into BRS, but when I looked at PHI a lot of their book value was in the big helicopters. I've read that a good percentage of helicopter parts can be interchanged with other helicopters, so potentially the value of the helicopter is always a fairly high % of book value because it can be parted out and used elsewhere.

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The H225s are still grounded (now a year) after the accidents at now bankrupt CHC last year but there is a chance UK and Norwegian authorities will re-allow them soon. Investigation has been finished end of April which was a condition and Airbus has some working remedies. European authorities have already re-allowed last year but BRS depends on the former two. That should help somewhat. There might also be some OEM recoveries.  The secured financing provides runway but ultimately an oil price story.

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The H225s are still grounded (now a year) after the accidents at now bankrupt CHC last year but there is a chance UK and Norwegian authorities will re-allow them soon. Investigation has been finished end of April which was a condition and Airbus has some working remedies. European authorities have already re-allowed last year but BRS depends on the former two. That should help somewhat. There might also be some OEM recoveries.  The secured financing provides runway but ultimately an oil price story.

 

I haven't spoken to anyone in the industry who believes that Western clients are ever going to want to risk flying in the H225s again. There may be some places in Asia (I believe they may already be flying there) or Africa that will fly them, but I would venture that they do not fly, for O&G purposes at least, in the Americas or Europe again.

 

IMO, I'm not so sure having them fly in the West would be so good for Bristow and others in the industry. Not having the H225s has made the market for S92s/AW189s and larger mediums (like the AW139s) pretty tight. I wouldn't really want a bunch of new heavy supply coming online from the H225s if I were running these companies at this point in the cycle. There will almost definitely be significant OEM recoveries, so these birds will not be total losses.

 

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  • 1 year later...

Bristow Group To Combine With Columbia Helicopters In A $560 Million Transaction, Creating A Leading Global Diversified Industrial Aviation Solutions Company

Download PDF Download PDF

- Complementary businesses with shared focus on world-class safety, reliability and client service and solutions;

- Strengthens Bristow's operational and consolidated financial profile, is accretive to adjusted EBITDA and cash flow, significantly reduces consolidated net leverage and adds substantial contracted revenue;

- Expands and diversifies fleet and addressable market, broadens utilization of combined fleet and AOCs; and drives maintenance repair and overhaul (MRO) savings;

- Conference call November 9, 2018 at 8:00 am Eastern Time

 

http://ir.bristowgroup.com/phoenix.zhtml?c=91226&p=irol-newsArticle&ID=2376473

 

 

 

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  • 3 weeks later...

Thanks arcube for posting the acquisition announcement.

This has crashed a lot after announcement:

 

http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?symbol=BRS3910429&ticker=C608588

 

I sold and probably won't get back into. Just bumping FYI if someone wants to do DD for potential 2X% yield.

 

 

Thanks rishig for original idea and work.  8)

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  • 4 months later...

From brief search it looks like they could not file 10Q, which would have caused default. They got waiver from lenders to file by April 15th, but still have not filed. They may get another extension or just default.

 

There are also resignations, exec/director changes and all that jazz.

 

IMO at this time this is for deeply knowledgeable distressed debt investors only.

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Thanks for the response.  I'm not a bond guy so hopefully this isn't too stupid of a question:  What's the worst case scenario?

 

Even if the company goes bankrupt, the bonds won't be worth zero (I don't think) and if you can get 20 cents on the dollar you'll still come out ahead. 

 

How long does the bankruptcy process usually take?

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You could get less than 20 cents on the dollar.  :)

 

Seriously.

 

There was a good post couple months ago which had a "test" if you should invest in distressed bonds. It listed a bunch of acronyms and terms that if you don't know, then you should not. I tried to search for it, but by CoBF-search-fu is not good enough.

 

Seriously, you will get screwed by all the debt holders that are senior (ahead) of you. And you may be screwed by debt and equity holders that are junior to you just because they are institutions and they are allowed inside BK process and you are not.

 

It's possible that you will be in the right debt class and will get good return. It's even possible they won't default. You probably would have to do a deep DD about the probabilities of these ... as well as who's in front of you. I'd guess that most of BRS fleet are either leased or are pledged as collateral for secured notes, so there might not be a lot left. But I don't really know... there's all these talk upthread about unencumbered aircraft, but you'd have to dig for the latest numbers, which is complicated by the missing 10Q and 6 months since last info... and the possibility that the previous 10Q is fubared by whatever issues they found with current 10Q filing.  ::)

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Got it.  A better question would have been 'what's worst case scenario and the probability it will come to fruition? and then what's the probability that the best case scenario will occur?'

 

The reason I asked the question is I could have sworn I read somewhere that when high yield debt defaults the recovery rate averages out to be ~40%.

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