July 31, 2019 – The Court hearing the Waypoint Leasing Holdings cases issued an order confirming the Debtors’ Chapter 11 Plan of Liquidation [Docket No. 893].
On November 25, 2018, Waypoint Leasing Holdings Ltd. and approximately 140 affiliated Debtors (collectively, “Waypoint” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 18-13648. The Company, a global helicopter leasing company that provides operating lease and financing solutions to helicopter operators worldwide, was represented by Gary T. Holtzer of Weil, Gotshal & Manges. Further board-authorized engagements include Houlihan Lokey as investment banker, FTI Consulting as financial advisor, Accenture LLP as Chapter 11 advisor and Kurtzman Carson Consultants as claims agent.
At filing, the Debtors' lead Petition noted between 200 and 1,000 creditors; estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn billion and $10.0bn.
Plan Overview
In a memorandum in support of Plan confirmation, the Debtors provide the following post mortem, with a focus on the Plan-critical sale of assets in four transactions, the WAC9, WAC12, WAC2 and Macquarie sales detailed below:
"Only eight months after the Debtors commenced these Chapter 11 Cases with minimal liquidity and an urgent need to sell their assets to preserve their value, the Debtors now seek to conclude their Chapter 11 Cases pursuant to the Plan, which has received overwhelming support from the Debtors’ creditors.
As outlined below, the Court approved the sale of substantially all of the Debtors’ assets through several simultaneous sale transactions following rigorous marketing efforts and extensive, contentious, and difficult arm’s-length negotiations with several groups of parties who are continuing to operate the Debtors’ business on a going-concern basis, thereby preserving the jobs of the large majority of the Debtors’ employees and the value of the Debtors’ business platform. A substantial portion of the proceeds resulting from the sale of the Debtors’ helicopter leasing platform was paid to the WAC Lenders immediately following the sale closings, and a portion was set aside to fund the winddown of the Debtors’ Estates and their non-Debtor subsidiaries worldwide (the ‘Winddown ‘ and the ‘Winddown Account ‘), in accordance with a budget approved by the WAC Lenders (the ‘Winddown Budget ‘)….The Plan reflects a negotiated solution that maximizes the value of the Debtors’ assets while minimizing the Claims against the Debtors, thereby allowing the Debtors and the Plan Administrator to effectuate the Winddown in a cost-efficient manner. The Plan has been accepted by 97.86% in amount and 94.66% in number of the holders of Claims who were entitled to vote to accept or reject the Plan and who actually voted across the Plan’s voting Classes.
Because of the liquidity crisis that the Debtors experienced at the time of the commencement of the Chapter 11 Cases and the sensitive, highly degradable nature of the Debtors’ assets, the all-encompassing theme underlying the Debtors’ marketing and sale process was the need to negotiate a sale of their helicopter fleet as expeditiously as possible. Indeed, the Macquarie Purchase Agreement contained a provision providing for a ‘Closing Delay Payment, ‘ such that the purchase price that Macquarie Rotorcraft Leasing Holdings Limited ( ‘Macquarie ‘) would pay to the Debtors for substantially all of their assets would decrease by $200,000 every day past January 31, 2019, until the Macquarie Sale Transaction actually closed. By moving as quickly as they did to consummate the below-described sales, the Debtors were able to largely preserve the value of their business platform as a going concern and capture a substantial portion of the value of their asset base, to the benefit of the WAC Lenders.
The WAC9 Credit Bid was a credit bid for (i) 100% of the equity of WAC9 and (ii) all profit participating notes issued by WAC9 or any of its subsidiaries. The aggregate consideration provided was a credit bid for 100% of the obligations under the WAC Facility for WAC9, in an amount not less than $60,464,373.77 (in terms of the dollar-denominated tranche of the credit agreement obligations) and €33,588,431.00 (in terms of the euro-denominated tranche of the credit agreement obligations) as of the closing date and $3,569,259.39 in cash for the exit payment. A hearing to consider the WAC9 Sale Transaction was held on February 12, 2019, and this Court entered an order approving the WAC9 Purchase Agreement on February 14, 2019 [ECF No. 441]. The WAC9 Sale Transaction closed on February 26, 2019.
The WAC12 Credit Bid was a credit bid for (i) 100% of the equity of WAC12 and (ii) all profit participating notes issued by WAC12 or any of its subsidiaries. The aggregate consideration provided was a credit bid for 100% of the obligations under the WAC Facility for WAC12, in an amount not less than $115 million and $2,805,839.67 in cash for the exit payment. A hearing to consider the WAC12 Sale Transaction was held on February 12, 2019, and this Court entered an order approving the WAC12 Purchase Agreement on February 14, 2019 [ECF No. 440]. The WAC12 Sale Transaction closed on February 28, 2019.
The WAC2 Credit Bid was a credit bid for substantially all of the assets of WAC2, including (i) 100% of the beneficial interests of certain trust subsidiaries of WAC2 and (ii) aircraft and related leases and certain other assets owned by WAC2, as identified in the WAC2 Credit Bid. The aggregate consideration provided was a credit bid of $18,340,000 and $4,449,500.00 in cash for the winddown payment. A hearing to consider the WAC2 Sale Transaction was held on March 12, 2019, and this Court entered an order approving the WAC2 Purchase Agreement on March 13, 2019 [ECF No. 525]. The WAC2 Sale Transaction closed on March 28, 2019.
Pursuant to the Macquarie Purchase Agreement, Macquarie acquired substantially all of the remaining assets of the Debtors, including one-hundred and twenty aircraft, all outstanding leases with respect to such aircraft, related parts, tooling and other inventory, certain leases for real estate, intellectual property, and certain other contracts for total consideration of approximately $445 million. A hearing to consider the Macquarie Sale Transaction was held on February 12, 2019, and this Court entered an order approving the Macquarie Purchase Agreement on February 15, 2019 [ECF No. 444]. The Macquarie Sale Transaction closed on March 13, 2019.
Additionally, the Debtors' Disclosure Statement provided the following overview of the Plan, “The Debtors’ assets have been substantially liquidated pursuant to four separate sale transactions, and a significant portion of those proceeds was previously distributed to the WAC Lenders. The Plan contemplates a liquidation of the Debtors’ estates and their remaining assets. The Plan’s primary objective is to distribute the bulk of the remaining sale proceeds plus any additional proceeds or other funds that are or become available for distribution, all in accordance with the priorities established by the Bankruptcy Code. The Plan constitutes a joint chapter 11 plan for all of the Debtors, and the classifications and treatment of Claims and Interests in the Plan apply to all of the Debtors. Given the amount and extent of the WAC Lenders’ secured claims and their underlying collateral, the Plan provides for the deemed consolidation of the WAC Groups for voting and distribution purposes, such that all assets and liabilities of each member of a WAC Group shall be treated as though they were pooled, each Claim against any member of a WAC Group shall be deemed a single obligation of the WAC Group, and any joint or several liability of any of the members of a WAC Group shall be one obligation of the WAC Group. The remaining Debtors not within a WAC Group will not be substantively consolidated.”
Summary of Classes and Voting Results
Please see our coverage of Docket Nos. 871 and 861, respectively, for a summary of classes and voting results.
Events leading up to the Chapter 11 filing
In a declaration in support of the Chapter 11 filing (the “Wolynski Declaration”) [Docket No. 14], Todd K. Wolynski, Waypoint’s General Counsel and Chief Administrative Officer detailed the events leading to the Company’s Chapter 11 filing.
According to the Wolynski Declaration, the Company derives a significant portion of its revenue from the offshore oil and gas industry and has over the last three years experienced “significant and increasing pressure in response to the distressed market conditions in this sector.” Notwithstanding the recent rebound in crude oil and natural gas prices, “the effects of the protracted downturn are still evident in decreased spending on offshore exploration, development, and production activities and resulting reduced demand for the Debtors’ helicopters. Major oil and gas companies have cut costs by, among other things, employing less frequent offshore worker rotations and service patterns. Oil and gas companies have also looked to their helicopter operators to cut costs by cancelling contracts, requesting contract price reductions, and decreasing the number of aircraft utilized. The cost cutting employed by the oil companies has had a ripple effect: a decreased demand for helicopter operators caused such operators to implement their own cost- cutting measures, which, in turn, negatively impacts helicopters lessors such as Waypoint.”
In May 2016, Waypoint’s largest customer filed for bankruptcy protection. This customer (CHC Helicopter, or “CHC”) accounted for approximately $75 million (or 53%) of the Company’s annual operating revenues. As part of its own Chapter 11, CHC (i) rejected 15 of the 44 aircraft leases that it had with Waypoint, returning the leased helicopters on an “as is, where is” basis, and (ii) renegotiated the remaining leases with less favourable terms for the Company. As a result of the CHC bankruptcy, Waypoint experienced an annualized $45 million reduction in revenues related to the same forty-four helicopter assets and incurred approximately $28.4 million in unexpected transition and maintenance costs to return these aircraft to service.
In April 2016, an accident involving an Airbus H225 helicopter (but not involving Waypoint, which has six H225 aircraft) resulted in multiple grounding orders from civil aviation authorities. Although these orders began to be lifted from October 2016, the Wolynski Declaration notes that “there is currently little to no demand for the H225 model aircraft from the Debtors’ customer base.”
The Wolynski Declaration further details the financial impact of weak demand from oil and gas helicopter operators coupled with the oversupply of available helicopters in the market, noting that “Total revenue for the Debtors declined 12% in 2017 compared to 2016 and the decline continues to accelerate in 2018, while the weighted average remaining lease term was reduced to 2.2 years for the year ended December 31, 2017, down from 3.1 years at the end of 2016 and 4.7 years at the end of 2015. As of November 16, 2018, of the one hundred sixty-five (165) aircraft in the Debtors’ fleet, approximately thirty-five (35) were not revenue generating, and an additional five (5) aircraft are currently on leases that will expire during the remainder of 2018. The Debtors’ total fleet utilization is approximately 78%, significantly down from utilization rates of approximately 94% – 100% during 2013 to late 2015, before the cyclical downturn in the offshore oil and gas industry began to severely impact this industry segment. As a result, in spite of the growth in the overall portfolio asset base, net revenue has fallen from an annualized run-rate revenue of $135 million in January 2016, generated by 121 aircraft to $106 million in annualized run-rate revenue in November 2018 generated by 165 aircraft.”
The Wolynski Declaration also notes that “the strain on the Company’s net revenue has been further exacerbated by the Debtors’ extensive Orderbook obligations. As the Debtors’ financial performance has deteriorated over the past several months, the Debtors have been unable to satisfy all of their PDP [pre-delivery payments] payments and maintain their Orderbook obligations. Consequently, the Debtors have fallen behind on their PDP payments and have been in constant discussions with certain OEMs [Original Equipment Manufacturers] regarding the restructuring and modification of their Orderbook obligations. As of the Petition Date, the Debtors have made approximately $19 million in PDP payments to the OEMs in support of nineteen (19) outstanding aircraft orders; however, the Debtors owe approximately $35 million that is contractually due and payable as of the Petition Date to certain OEMs under the Orderbook out of approximately $175 million in total contracted remaining Orderbook payments.”
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