Bristow Group Inc (VTOL)

[mdimport]

Moody's downgrades $BRS

Rating Action: Moody's downgrades Bristow's CFR to Caa3

16 Apr 2019

Approximately $750 million of rated debt affected

New York, April 16, 2019 -- Moody's Investors Service, ("Moody's") downgraded Bristow Group Inc.'s (Bristow) Corporate Family Rating (CFR) to Caa3 from Caa2, Probability of Default Rating (PDR) to Caa3-PD from Caa2-PD, senior secured rating to Caa2 from Caa1, and senior unsecured notes to Ca from Caa3. The SGL-4 Speculative Grade Liquidity Rating was affirmed. The rating outlook remains negative.

"The downgrade follows Bristow's decision on April 15 to skip interest payment on its 6.25% senior unsecured notes due October 2022, as it evaluates various strategic alternatives to strengthen the capital structure and shore up liquidity," said Sajjad Alam, Moody's Senior Analyst. "The company has yet to file its financial statements for the quarter ending December 31, 2018, and is facing an elevated level of default risk over the near term."

Issuer: Bristow Group Inc.

.Downgraded:

.... Corporate Family Rating, Downgraded to Caa3 from Caa2

.... Probability of Default Rating, Downgraded to Caa3-PD from Caa2-PD

....Senior Secured Notes, Downgraded to Caa2 (LGD2) from Caa1 (LGD3)

....Senior Unsecured Notes, Downgraded to Ca (LGD5) from Caa3 (LGD5)

.Affirmed

....Speculative Grade Liquidity Rating, Affirmed SGL-4

.Outlook:

....Maintain Negative Outlook

RATINGS RATIONALE

Bristow's Caa3 CFR reflects its unsustainably high debt burden and the associated high debt service cost; elevated default risk due to voluntary non-payment of interest on April 15, 2019, delayed financial reporting, potential non-financial covenant violation, and the uncertainty around the company's ability to continue as a going concern; and projected negative free cash flow generation through fiscal 2020 that will further weaken liquidity. If the company does not make the $12.5 million interest payment on the 6.25% senior unsecured notes within the 30-day grace period, it will be an "Event of Default" under the notes indenture. Additionally, there's substantial risk that Bristow's independent auditor could include a "going concern" statement in the annual 10-K filing, which would also trigger an "Event of Default" under Bristow's certain secured equipment financings. The rating also considers the poor outlook for the offshore oil and gas industry, and Moody's expectation of persistent pricing pressure for helicopter services due to industry-wide overcapacity.

Bristow's leverage will remain very high at around 7x through fiscal 2020, and ongoing projected negative free cash flow will further erode liquidity. The company has not filed its fiscal third quarter 2019 financials on due date and management has concluded that there is "material weakness" in internal controls involving certain non-financial covenants of its secured financing and lease agreements. Moody's expects negative free cash flow generation to continue through fiscal 2020 leaving very limited cash cushion unless the company is able to execute assets sales or raise funding through other means.

The SGL-4 rating reflects weak liquidity. Bristow will generate $70-$80 million of negative free cash flow in fiscal 2020 reducing its cash balance. As of December 31, 2018, Bristow had $231 million of balance sheet cash and $6 million of availability under its ABL facility, but Moody's estimates total liquidity would be lower today following the $20 million breakup fee payment to Columbia Helicopters (unrated) and likely negative free cash flow generation since December 31. Bristow has been returning leased helicopters and selling unencumbered helicopters to boost liquidity, but it has been a slow process thus far.

Bristow's senior notes are rated Ca, one notch below the Caa3 CFR given the significant amount of secured debt in the capital structure. The secured term loan is rated one notch above the CFR at Caa2 because of their priority-claim to Bristow's assets in a potential default scenario.

The negative outlook reflects the high likelihood of a potential restructuring. The PDR could be downgraded if the company selectively defaults on a particular debt instrument or files under Chapter 11. An upgrade is unlikely in 2019 absent a significant reduction in refinancing and default risks.

The principal methodology used in these ratings was Global Oilfield Services Industry Rating Methodology published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Bristow Group Inc., headquartered in Houston, Texas, is a leading provider of helicopter transportation services to the oil and gas industry worldwide.

https://www.moodys.com/research/Moodys-downgrades-Bristows-CFR-to-Caa3--PR_399090?WT.mc_id=AM~WWFob29fRmluYW5jZV9TQl9SYXRpbmcgTmV3c19BbGxfRW5n~20190416_PR_399090&yptr=yahoo