Helicopter Bondholders Cry Foul Before Bankruptcy Court Showdown

(Bloomberg) -- Lenders to PHI Inc. are crying foul over the helicopter company’s conduct prior to bankruptcy, saying a pair of last-ditch loans may help the firm disadvantage its unsecured bondholders.

In a Dallas courtroom on April 29, lawyers for PHI noteholders are set to argue for more time to look into a $130 million loan to the company from its own chief executive officer. They also want to examine a last-minute $70 million financing arrangement they say will help push through a bankruptcy plan that is “highly coercive and contains numerous death traps.”

Lawyers for Lafayette, Louisiana-based PHI said in an objection that the bondholders’ claims are “baseless” and that the unsecured creditors committee is simply trying to delay the bankruptcy in order to seize control of the process.

“The sequence of unusual actions by the debtors suggests that something other than a valiant rescue was afoot,” lawyers for the noteholders from Milbank LLP and Haynes & Boone LLP said in a motion filed April 16. “The official committee’s advisors are not aware of any commercial lender ever agreeing to lend millions of dollars to a company on the eve of a significant unsecured debt maturity and inevitable bankruptcy filing,” they said of the last-minute loan.

Helicopter Bondholders Cry Foul Before Bankruptcy Court Showdown

The showdown comes as a number of other helicopter companies have faced financial difficulties including bankruptcy, sparked in large part by a downturn in the oil and gas industry.

In September, about six months before seeking Chapter 11 protection, PHI CEO and largest shareholder Al Gonsoulin lent $130 million to the company to refinance an asset-backed loan it had defaulted on. Then, two days before filing for bankruptcy in March, the company secured a $70 million loan from Blue Torch Capital that created a separate class of debt.

The transactions could allow PHI to preserve a meaningful “portion of the current equity ownership structure at the expense of the unsecured creditors,” according to the motion.

Avoiding Messiness

PHI’s $500 million of defaulted notes were trading at about 70.7 cents on the dollar Friday, according to Trace data.

The bondholders argue that PHI should have filed for bankruptcy as early as late 2018 in order to protect the value of the estate. PHI didn’t do so in part because it thought it could make good on the securities through some sort of M&A transaction, according to court documents.

Additionally, the bondholders say that PHI should have sought debtor-in-possession financing instead of the last-minute loan. Because DIP loans are approved by the courts, they’re theoretically less risky and could result in cheaper financing for a bankrupt company. PHI’s lawyers, in part, argue they wanted to avoid the messiness that comes with getting the court involved in financing.

“Just because something is unusual doesn’t mean it’s improper,” said Tom Califano, partner at DLA Piper and attorney for PHI. “The record will show that this board did everything the way they were supposed to do it and fulfilled all their legal obligations.” A spokeswoman for PHI declined to comment.

The hearing is set for April 29 at 10 a.m. New York time.

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