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Rating Action:

Moody's assigns B1 rating to CHC Helicopter's senior notes

15 Sep 2010

Approximately $1.4 billion debt affected

Toronto, September 15, 2010 -- Moody's Investors Service assigned CHC Helicopter S.A.'s proposed $1.1 billion senior secured first lien notes a B1 rating and its $300 million super-senior secured revolving facility a Ba1 rating. CHC Helicopter S.A. is a subsidiary of 6922767 Holding S.a.r.l. (collectively CHC). Moody's assigned 6922767 Holding S.a.r.l. a B1 Corporate Family Rating (CFR). The rating outlook is stable.

Assignments:

Issuer: 6922767 Holding S.a.r.l.

Corporate Family Rating, Assigned B1

Issuer: CHC Helicopter S.A.

Senior Secured Bank Credit Facility, Assigned a range of 05 - LGD1 to Ba1

Senior Secured Regular Bond/Debenture, Assigned a range of 47 - LGD3 to B1

Reinstatements:

Issuer: 6922767 Holding S.a.r.l.

Probability of Default Rating, Reinstated to B1

Outlook Actions:

Issuer: 6922767 Holding S.a.r.l.

Outlook, Changed To Stable From Rating Withdrawn

RATINGS RATIONALE

"The B1 CFR reflects CHC's high leverage, weak debt service coverage and complex corporate structure," said Terry Marshall, Moody's analyst. "However the rating also considers CHC's large globally diversified fleet of heavy and medium helicopters, its longstanding customer relationships and solid contract position."

CHC's B1 CFR also incorporates the inherent cyclicality in the oil and gas services sector; the relative concentration in the North Sea; and the fact that the company's long-term contracts contain cancellation clauses, although CHC has rarely experienced customer cancellations.

The B1 CFR favorably reflects the three to five year contracts that CHC holds with high rated oil and gas companies in its offshore oil and gas support business, which comprises about 75% of revenue. CHC's smaller search and rescue (SAR) and emergency medical services businesses have contracts predominately with government entities. Additionally, 57% of CHC's flying revenue was derived from fixed monthly fees in the 2010 fiscal year (ending April 30), a favorable level that significantly covers CHC's fixed costs.

CHC finances 65% of its fleet of 275 aircraft with off- balance sheet operating leases and associated asset value guarantees. Moody's considers this debt, adding $1.1 billion to its reported 2010 fiscal year debt . In combination with an unfunded pension obligation of $164 million, CHC's adjusted debt, pro forma for the rated financings, totals approximately $2.4 billion, and debt to adjusted EBITDA a very high 6.3x. We expect leverage to increase slightly this fiscal year as the company acquires new aircraft under operating leases. CHC's pro forma interest coverage as measured by EBIT to interest is a commensurately weak 1.3x.

CHC has a complex ownership structure due to the regulatory licensing requirements of certain foreign jurisdictions, primarily in Europe. In these countries, CHC typically holds a minority ownership of the voting share of the local company, with a local partner holding the balance. The local company holds the Air Operator Certificate, but CHC controls the aircraft, which it leases to these entities at market rates. CHC also performs all of the associated aircraft maintenance through its Heli-One Group repair and maintenance operation.

Most of the company's revenues are tied to oil and gas production activities and 71% of CHC's revenues in its most recent fiscal quarter were generated under long-term contracts, factors that provide a level of stability and predictability to the company's earnings and cash flows. The outlook for helicopter services demand is currently strong, with major and national oil companies requiring additional medium and heavy helicopters to support their increasing deepwater oil and gas activities. CHC has also recently won a significant Irish SAR contract that will bolster earnings and cash flow over the eight year life of the contract.

CHC should have good liquidity in 2010 and 2011. Internally generated cash flow and cash in hand should cover cash taxes and interest, working capital requirements, and planned capex for aircraft purchases over the next 12-15 months (the majority of new aircraft purchases will be made under operating leases). Following the notes issue, the company will have approximately $60 million of cash and full availability under the $300 million revolving facility, which matures in 2015. The revolver has one financial covenant (maximum super senior debt/EBITDA of 2.5x), with which the company should be comfortably in compliance in 2010 and 2011.

Using Moody's Loss Given Default (LGD) methodology, the $300 million revolving facility is rated Ba1, three notches above the CFR due to the significant loss absorption cushion afforded by the $1.1 billion senior secured notes, which are rated B1 and subordinated to the bank lenders though an inter-creditor agreement. The notes mature in 2020.

The rating would be considered for upgrade if CHC's Debt to EBITDA and EBIT to Interest improved to the 4 to 4.5x and 2 to 2.5x ranges, respectively, and were considered sustainable at these levels. If CHC's continued fleet expansion results in further increases in leverage the ratings could be downgraded. The ratings could also be downgraded if market conditions weaken while the company has these elevated leverage levels.

CHC Helicopter S.A. is registered in Luxemburg and headquartered in Vancouver, British Columbia. It is a significant provider of helicopter services to the offshore exploration and production industry, with operations in over 26 countries.

The principal methodologies used in rating CHC were Global Oilfield Services Rating Methodology published in December 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

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Information sources used to prepare the credit rating are the following: parties involved in the ratings, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

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Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Toronto
Terry Marshall
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635

New York
Steven Wood
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada

Moody's assigns B1 rating to CHC Helicopter's senior notes
No Related Data.
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