Clayton, Dubilier & Rice To Invest $500 Mln In CHC Group

(RTTNews) - Private equity firm Clayton, Dubilier & Rice will invest $500 million in commercial helicopter services provider CHC Group Ltd. (HELI) through the purchase of convertible preferred shares to be issued in a private placement, the two companies said late Thursday. CHC Group noted that the deal will enable it to substantially strengthen its balance sheet.

As part of the transaction, CHC Group plans to pursue a $100 million rights offering of the convertible preferred shares to existing shareholders. Clayton, Dubilier & Rice or CD&R has agreed to buy the convertible preferred shares that are not purchased in the rights offering, which could raise its total investment in CHC Group to $600 million.

Based on its $500 million investment and prior to the rights offering, CD&R will have a 45 percent stake in CHC Group on an as-converted, pro-forma basis. However, this percentage could decrease or increase, depending on participation of existing shareholders in the rights offering.

First Reserve Corp. and its affiliates, which acquired CHC in 2008, would retain a 29 percent stake in CHC Group, on a pro-forma basis.

Founded in 1978, private equity firm CD&R manages about $21 billion on behalf of its investors. Since its inception, it has acquired 62 businesses with an aggregate transaction value of more than $90 billion.

William Amelio, President and CEO of CHC Group, said, "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. Based on CD&R's strong track record of being a supportive strategic partner, we look forward to working closely with the firm to capitalize on market opportunities and drive enhanced shareholder value."

Upon closing of the transaction, CD&R Operating Partner John Krenicki, a former vice chairman of General Electric Co. (GE) as well as president and CEO of GE Energy, will become chairman of the board of CHC. CD&R will also appoint three additional members to CHC's board.

CHC Helicopter is a provider of offshore flying services to the global oil-and-gas industry. The company also flies search-and-rescue and emergency-medical missions for oil and gas companies, government agencies and other customers.

CHC plans to use proceeds from the investment primarily to reduce its debt and other fixed charges. The company also expects to use a part of the proceeds to redeem $105 million of senior unsecured notes and $130 million of senior secured notes, plus associated premiums.

CHC will use the remaining proceeds to optimize the mix of owned versus leased aircraft, further reduce debt, and for other general corporate purposes. Once the full investment of $600 million is deployed, CHC expects to generate annualized incremental free cash flow of about $50 million to $60 million, on a pro-forma basis beyond previous estimates.

The preferred shares will initially be convertible into CHC ordinary shares at $7.50 per share, subject to accretion of 25 basis points per quarter, until the eighth anniversary of the closing date.

The transaction is expected to close by the end of calendar 2014 and is subject to approval by CHC shareholders, regulatory approvals and other conditions.

CHC engaged Morgan Stanley as placement agent for the transaction and Evercore Partners as financial advisor. For CD&R, Debevoise & Plimpton LLP acted as legal advisor, while Simpson Thacher & Bartlett LLP represented CHC.

Looking ahead, CHC reiterated its guidance - first provided in early July - for fiscal 2015 gross revenue to increase at a mid to high single-digit rate, and for EBITDAR to rise at a high single- to low double-digit rate.

The company forecast fiscal 2015 first quarter gross revenue to increase in the high single to low double-digit range year over year, and for EBITDAR to be roughly flat. The company will provide any updates to guidance after the transaction closes.

HELI closed Thursday's trading at $6.19, up $0.02 or 0.32 percent on a volume of 85,006 shares.