CHC Group Ltd. (HELI)

CHC Group Ltd. (HELI) is one of two global helicopter service providers to the offshore oil and gas industry; other competitors are smaller, regional operators.   HELI has a significant market position in all global offshore oil and gas markets, with the exception of the Gulf of Mexico.

Including four operating companies scheduled to raise this week, the five expect to raise $2 billion this week. The full IPO calendar can be found at IPOpremium.

HELI scheduled a $500 million IPO on the NYSE with a market capitalization of $1.3 billion at a price range midpoint of $17 for Friday, January 17, 2014.  Update:  today there are indications HEKI will be priced under range.

The SEC filings can be found at SEC Documents

The Manager & Joint managers are J.P. Morgan, Barclays and UBS Investment Bank.  The Co-Managers are HSBC, RBC Capital Markets, Wells Fargo Securities, BNP Paribas, Standard Bank, Cormark Securities, Cowen &Co., Raymond James, Simmons &Co., Tudor, Pickering, Holt & Co.

Glossary

Recommenation

Avoid; loses money; C, 7. 

HELI has a unbroken record of recent losses.  For the six months ended October 2013 vs the same period in 2012, top line revenue was down -1%, operating income was down -80%, net loss fell to -$67 million from -$25 million, and finance charges were eight (8) times operating earnings.

Going into an IPO, this is one of the worst income statement trends we have seen in years.

HELI is, however, a leader in its marketplace and  institutions like market leaders, so we expect some support at some level, but the income statement metrics are all unfavorable.

Business

HELI is the world’s largest commercial operator of helicopters based on revenue of $1.7 billion in fiscal 2013.

HELIis also the world’s largest commercial operator of heavy and medium helicopters based on its fleet of 238 heavy and medium helicopters as of October 31, 2013.

With bases on six continents, HELI is one of only two global commercial helicopter service providers to the offshore oil and gas industry.

HELI’s fleet of heavy and medium helicopters, global capabilities and reputation for safety position it to capitalize on anticipated increases in ultra-deepwater and deepwater drilling and production spending by its major, national and independent oil and gas company customers.

HELI’s helicopters are primarily used to facilitate large, long-distance crew changes on offshore production facilities and drilling rigs.

HELIalso provide search and rescue services, or SAR, and emergency medical services, or EMS, to government agencies.

HELImaintains a presence in most major offshore oil and gas markets through a network of approximately 70 bases with operations in approximately 30 countries, more than any other commercial helicopter service provider in the world.

HELIcovers this expansive and diverse geography with a technologically advanced fleet of 238 helicopters and the expertise to serve customers in ultra-deepwater and deepwater locations.

Competition

HELIis one of two global helicopter service providers to the offshore oil and gas industry; other competitors are smaller, regional operators.

HELIhas a significant market position in all global offshore oil and gas markets, with the exception of the Gulf of Mexico.

Oil and gas companies operating in the Gulf of Mexico have historically used primarily light and medium helicopters under short term contracts and, as a result, the current economics of providing services in the Gulf of Mexico would be less profitable for HELI than those in other regions of the world.

As oil and gas companies seek to expand drilling and production to deeper waters offshore in the Gulf of Mexico HELI may re-examine participation in this market.

5% stockholders

CHC Cayman owns 100% of HELI pre-IPO.  The ownershi pf CHC Cayman is not clearly deliniated in the SEC filing, whch is a potential cause for concern…

“The issued and outstanding equity securities of CHC Cayman consist of 1,870,561,417 of Ordinary A shares, 7,859,869 of Ordinary B shares, one Adjustable C share and 313,000 of Special shares. Funds affiliated with First Reserve own an approximate 98.7% economic and voting interest in CHC Cayman. 1,845,561,417 Ordinary A shares of CHC Cayman are held by Horizon Alpha Limited, or Horizon Alpha, FR XI Horizon Co-Investment I, L.P., or FR XI Horizon Co-Investment I, and FR XI Horizon Co-Investment II, L.P., or FR XI Horizon Co-Investment II. The equity interests of Horizon Alpha are held by First Reserve Fund XII, L.P., or First Reserve Fund XII, FR XII-A Parallel Vehicle, L.P., or FR XII-A and FR Horizon AIV, L.P., or FR Horizon AIV. The general partner of First Reserve Fund XII and FR XII-A is First Reserve GP XII, L.P., whose general partner is First Reserve GP XII Limited. The general partner of FR Horizon AIV is FR Horizon GP, L.P. and the general partner of FR Horizon GP, L.P. is FR Horizon GP Limited. Each of First Reserve GP XII Limited and FR Horizon GP Limited is wholly-owned by First Reserve’s senior managing directors. The general partner of each of FR XI Horizon Co-Investment I and FR XI Horizon Co-Investment II is FR XI Offshore GP, L.P. and the general partner of FR XI Offshore GP, L.P. is FR XI Offshore GP Limited. The members of FR XI Offshore GP Limited are First Reserve’s senior managing directors. Each of such First Reserve entities may be deemed to beneficially own the shares beneficially owned by Horizon Alpha, FR XI Horizon Co-Investment I and FR XI Horizon Co-Investment II directly or indirectly controlled by it, but each disclaims beneficial ownership of such shares. The address of each of the entities listed in this footnote is c/o First Reserve Management, L.P., One Lafayette Place, Greenwich, Connecticut 06830. Immediately following the completion of this offering, funds affiliated with First Reserve will own an approximate 60.5% indirect economic and voting interest in CHC Group Ltd. through CHC Cayman. CHC Cayman’s ownership percentages after the offering do not take into account Founders’ Grants and First Annual Awards to be issued to our officers under the 2013 Incentive.”

Use of proceeds

HELI expects to net $465.3 million from its IPO. Proceeds are allocated as follows:

$134.0 million of the net proceeds from this offering to redeem 10% of the aggregate principal amount of HELI’s senior secured notes at 103% of the principal amount, plus accrued and unpaid interest, if any, and the remaining net proceeds, together with cash then on hand, to repay borrowings under HELI’s existing senior secured revolving credit facility and for general corporate purposes.