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Clayton, Dubilier & Rice (CD&R) managed funds are to invest USD500 million in CHC Group through the purchase of convertible preferred shares to be issued in a private placement.
As part of the transaction, CHC also intends to pursue a USD100 million rights offering of the convertible preferred shares to existing shareholders.
CD&R has agreed to purchase convertible preferred shares, if any are not purchased in the rights offering, which could bring CD&R’s total investment amount up to an aggregate of USD600 million.
According to William Amelio, CHC’s president and chief executive officer, the CD&R investment enables CHC to substantially strengthen its balance sheet, one of CHC’s financial priorities.
“The additional equity from issuing preferred stock will give us the financial flexibility to reduce leverage, enhance long-term operating and free cash flow, and deliver even greater value to customers,” says Amelio. “Based on CD&R’s strong track record of being a supportive strategic partner, we look forward to working closely with the firm to capitalise on market opportunities and drive enhanced shareholder value.”
CHC Helicopter is a provider of offshore flying services to the global oil and gas industry, using one of the industry’s largest fleets of heavy and medium commercial helicopters from approximately 70 bases on six continents. The company also flies search-and-rescue and emergency-medical missions for oil and gas companies, government agencies and other customers. CHC’s Heli-One segment is a commercial provider of helicopter maintenance, repair and overhaul services, to CHC’s own fleet as well as for third-party customers.
CHC, which has approximately 4,500 full-time employees, reported USD1.8 billion in total revenue and EBITDAR of USD471 million for its fiscal year 2014, which ended April 30.
“We are pleased to be investing in an industry leader and playing a constructive role to make sure CHC can capitalise fully on the favourable trends in the energy services sector, including oil-and-gas exploration and production continuing to move farther into deepwater and ultra-deepwater locations,” says Nathan Sleeper, a CD&R partner. “CHC’s proven capabilities line up extremely well with this.”
Upon closing of the transaction, CD&R operating partner John Krenicki, a former vice chairman of General Electric and president and chief executive officer of GE Energy, will become chairman of the board of CHC. CD&R will also appoint three additional members to CHC’s board.
CHC plans to use proceeds from the investment primarily to reduce debt and other fixed charges. A portion of the proceeds is expected to be used to redeem USD105 million of senior unsecured notes and USD130 million of senior secured notes, plus associated premiums.
Remaining proceeds will be used to optimise the mix of owned versus leased aircraft, to further reduce debt opportunistically and for other general corporate purposes. Once the full investment of USD600 million is deployed, CHC projects it will generate approximately USD50 million to USD60 million in annualised incremental free cash flow, on a pro-forma basis beyond previous estimates.
CD&R will have a 45 per cent ownership position in CHC Group on an as-converted, pro-forma basis, based on a USD500 million investment and prior to the rights offering.
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