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Rating Action:

Moody's rates CHC's proposed sr. unsecured notes Caa1; affirms B2 CFR

Global Credit Research - 08 May 2013

Approximately $1.9 billion of debt affected

Toronto, May 08, 2013 -- Moody's Investors Service assigned a Caa1 rating to CHC Helicopter S.A.'s proposed US$250 million senior unsecured notes due 2021. CHC Helicopter S.A. is a subsidiary of 6922767 Holding S.a.r.l. (collectively CHC). Moody's upgraded the US$1,300 million senior secured first lien notes due 2020 to B1 from B2. The US$375 million super-senior secured revolving credit facility rating of Ba2 was affirmed. The Corporate Family Rating of B2, Probability of Default Rating of B2-PD, and Speculative Grade Liquidity rating of SGL-3 were also affirmed. The rating outlook remains stable.

The proceeds of the notes will be used to reduce borrowings under the company's revolving credit facility and for general corporate purposes.

RATINGS RATIONALE

The B2 CFR reflects CHC's high leverage, a complex portfolio of aircraft operating lease agreements, a complex corporate structure and inherent cyclicality in the oil and gas services sector. The rating also favorably reflects CHC's longstanding customer relationships and average four to five year contracts with highly rated oil and gas companies in its offshore oil & gas flying business, which comprises about 80% of revenue, and the government contracts in the search and rescue (SAR) and emergency medical services businesses. CHC also has a large fleet of high quality medium and heavy aircraft, geographic diversity, and a high proportion (70%) of flying revenue that is derived from fixed monthly fees.

The senior secured revolving credit facilities are rated Ba2, three notches higher than the CFR of B2 under Moody's Loss Given Default (LGD) Methodology. The secured credit facilities benefit from their prior ranking to the US$1,300 million senior secured notes and US$250 million senior unsecured notes, which are rated B1 and Caa1 respectively. The US$1,300 million senior secured notes are rated one notch above the CFR due to the cushion provided by the senior unsecured notes.

The SGL-3 rating reflects adequate liquidity. Pro forma for the US$250 million May 2013 notes issuance, the company will have approximately $180 million of cash and $314 million available, after $61 million of letters of credit, under its $375 million revolving credit facility, which matures in October 2015. We estimate negative free cash flow of about $180 million through to fiscal year end 2014, which will be funded with cash and the proceeds of aircraft disposals. The revolver has one financial covenant (maximum super senior debt/EBITDA of 2.5x), with which the company should be comfortably in compliance through fiscal 2014. However, the company has restrictive covenants on its aircraft leases, with which we also expect compliance through fiscal 2014, but at much narrower margins than on the sole financial covenant. CHC's liquidity is enhanced by its ability to sell certain aircraft for value in excess of the lease buyout payments as the leases for these aircraft expire.

The stable outlook reflects CHC's longstanding customer relationships and average four to five year contracts with highly rated oil and gas companies, and leadership position in the helicopter transportation industry. A rating upgrade would be dependent on leverage trending toward the 5.5x range and continued expectations that the company will be able to satisfy its sizeable lease funding arrangements. The rating could be downgraded if leverage appears to be headed above 7x or if the company again finds itself requiring multiple covenant amendments and waivers, or if liquidity is strained.

The principal methodology used in this rating was Global Oilfield Services published in December 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

CHC, headquartered in Vancouver, British Columbia, is a significant provider of helicopter services to the global offshore exploration and production industry with operations in approximately 30 countries.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Darren M. Kirk
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
(416) 214-1635

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Moody's rates CHC's proposed sr. unsecured notes Caa1; affirms B2 CFR
No Related Data.

 

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