Chorus Aviation Announces Agreement to Sell its Regional Aircraft Leasing Segment
Transaction to unlock significant embedded equity value for common shareholders1 and position Chorus for the future
- Sale price of
$1.9 billion to unlock embedded equity value in theRegional Aircraft Leasing ("RAL") segment, with net proceeds of$814 million . - Transaction to eliminate
$1.7 billion in financings, including all RAL segment aircraft-related debt, substantially all Chorus corporate debt, andUS$300 million in Series 1 Preferred Shares.2 - Pro forma Leverage Ratio3 as at the end of 2023 would decrease to 1.8x from 3.6x, with substantially all remaining debt relating to aircraft operated by
Jazz Aviation under the Capacity Purchase Agreement (the "CPA") with and supported by fixed payments under the CPA.Air Canada - Pro forma Free Cash Flow3 after debt payments as at the end of 2023 is higher by 29%.
- Post-closing, Chorus to produce higher Free Cash Flow after debt repayments and have significant liquidity to both enable growth in aviation services and accelerate the return of capital to common shareholders.
-
Brookfield Asset Management Ltd .Air Canada (TSX: AC), Chorus' two largest common shareholders4, endorse the transaction.
"We are pleased to announce this transaction, which is a catalyst for unlocking the embedded equity value in our RAL segment," stated
"This transaction will allow us to significantly reduce our debt and corporate financings, leaving Chorus with strong and predictable free cash flows from our long-term contracts. That will enable us to implement a sustainable return of capital program for our common shareholders and invest in future growth," said
"This decision follows rigorous analysis and a sharp focus on accelerating value creation for shareholders. With the macro-economic environment, it became apparent that the transition to an asset light leasing model would take longer than originally anticipated," said
"We support the decision to sell the RAL segment, which allows the company to execute on its strategic plans, and we appreciate management's efforts in negotiating a favorable transaction for Chorus," said
Brookfield holds approximately 13.2% of Chorus' outstanding common shares, and
The Transaction is expected to close by the end of this year.
Immediate Value Realization
The
Significant Improvement in Capital Structure
The proceeds from the Transaction are expected to be used to pay down or redeem the Company's corporate financings, including the Series 1 Preferred Shares and all of the Debentures8, as well as pay all related transaction expenses and early redemption amounts (including the multiple on invested capital payable upon the redemption of the Series 1 Preferred Shares). Following the closing of the Transaction, Chorus will exercise its rights to redeem or make an offer to redeem (as applicable) the Debentures in accordance with the terms of the relevant indentures.
Importantly, following the closing of the Transaction, and the application of the proceeds therefrom, substantially all of the Company's remaining debt is expected to consist of amortizing term debt relating to aircraft operated by
Following closing, the Transaction is expected to significantly strengthen the Company's balance sheet with a pro-forma Leverage Ratio3 of 1.8x at
Bolsters Ability to
The substantial improvement in Chorus' capital structure will enhance the Company's financial flexibility and support its ability to implement a sustainable return of capital program for common shareholders.
Other
Chorus and its subsidiary,
The SPA permits Chorus' board of directors to consider an unsolicited superior proposal (including a proposal for the acquisition of Chorus) which is received after the date of the SPA and before the approval of the Transaction by shareholders. The buyers will have the right to match a superior proposal for the RAL segment. Chorus has agreed to pay the buyers a break fee of USD
The net sale price, representing 0.84x of the RAL segment's book value, is expected to result in an impairment on discontinued operations of
The guidance for Chorus' Regional Aviation Services segment contained in the Outlook section of Chorus' First Quarter 2024 Management's Discussion and Analysis of Results of Operations and Financial Condition remains unchanged. The guidance in that section relating to Chorus consolidated and the RAL segment is withdrawn in light of the expected closing of the Transaction by year end.
Shareholder Approval
The Transaction is subject to the approval of at least two thirds (66 2/3%) of the votes cast by Chorus' common shareholders. The Company will seek approval of the Transaction by its shareholders at a special meeting of shareholders to be called in due course (the "Meeting"). The Chorus board has unanimously determined that the Transaction is in the best interest of Chorus and will unanimously recommend that shareholders vote in favour of the Transaction. Brookfield and
Further information regarding the Transaction will be included in the management proxy circular that will be prepared for the Meeting. The description of the Transaction in this news release does not purport to be complete and is subject to, and qualified in its entirety by reference to, the contents of the management proxy circular. Shareholders are encouraged to carefully review the management proxy circular when it becomes available.
Chorus is advised by
Investor Conference Call / Audio Webcast
Chorus will hold a conference call at
The conference call will be available for analysts' questions. Media may access this call on a listen-in basis.
The conference call webcast will be archived on Chorus' website at www.chorusaviation.com under Investors > Reports. A playback of the call can also be accessed until
Non-GAAP Financial Measures
This news release references "Leverage Ratio", "Free Cash Flow" and "Adjusted EBITDA", which are non-GAAP financial ratios and measures that are not recognized for financial presentation under GAAP. As such, they do not have standardized meanings, may not be comparable to similar measures presented by other issuers and should not be considered a substitute for or superior to GAAP results.
Leverage Ratio is used by Chorus as a means to measure financial leverage. Leverage Ratio is calculated by dividing Net debt by trailing 12-month Adjusted EBITDA10. Management believes Leverage Ratio to be a useful ratio when monitoring and managing debt levels. In addition, as leverage is a measure frequently analyzed for public companies, Chorus has calculated the amount to assist readers in this review. Leverage Ratio should not be construed as a measure of cash flows. Net debt is a key component of capital management for Chorus and provides management with a measure of its net indebtedness.
Free Cash Flow is used by Chorus as an indicator of financial strength and performance. Chorus believes that this measurement is useful as an indicator of its ability to service its debt, meet other ongoing obligations and reinvest in the Company and return capital to common shareholders. Free Cash Flow does not represent residual cash flow available for discretionary expenditures. Free Cash Flow is defined as cash provided by operating activities less net changes in non-cash balances related to operations, capital expenditures excluding aircraft acquisitions and improvements plus net proceeds on asset sales (proceeds on disposal of property and equipment less the related debt repayments for the assets sold). Free Cash Flow After Debt Repayments is defined as Free Cash Flow less repayment of long-term borrowings excluding the Unsecured Credit Facility.
EBITDA is defined as earnings before net interest expense, income taxes, depreciation and amortization and impairment and is a non-GAAP financial measure that is used frequently by companies in the aviation industry as a measure of performance. Adjusted EBITDA10 (EBITDA before employee separation program costs, strategic advisory fees, impairment provisions, lease repossession costs net of security packages realized, restructuring ECL provision, Defined Benefit Pension Revenue and other items such as foreign exchange gains or losses) is a non-GAAP financial measure used by Chorus as a supplemental financial measure of operational performance. Management believes Adjusted EBITDA assists investors in comparing Chorus' performance by excluding items, which it does not believe will re-occur over the longer-term (such as employee separation program costs, impairment provisions, lease repossession costs net of security packages realized, restructuring ECL provision, Defined Benefit Pension Revenue and strategic advisory fees) as well as items that are non-cash in nature such as foreign exchange gains and losses. Adjusted EBITDA should not be used as an exclusive measure of cash flow because it does not account for the impact of working capital growth, capital expenditures, debt repayments and other sources and uses of cash, which are disclosed in the statements of cash flows, forming part of Chorus' financial statements.
|
|
||||
(expressed in thousands of |
As |
Discontinued |
Continuing |
Redemption/ |
Pro |
Long-term debt (including
Less: Cash |
1,755,580
|
986,921
|
768,659
|
297,434
|
471,225 |
Net debt |
1,669,595 |
931,489 |
738,106 |
346,542 |
391,563 |
Operating Income |
231,766 |
73,236 |
158,530 |
- |
158,530 |
Adjusted EBITDA10 |
458,666 |
237,130 |
221,536 |
- |
221,536 |
Leverage Ratio3 |
3.6 |
3.9 |
3.3 |
- |
1.8 |
|
Year Ended |
||||
(expressed in thousands of |
As Reported |
Discontinued |
Continuing |
Redemption/ |
Pro |
Cash provided by |
299,675 |
94,045 |
205,630 |
16,777 |
222,407 |
Add (deduct) |
|
|
|
|
|
Net Changes in non-cash |
62,055 |
71,608 |
(9,553) |
- |
(9,553) |
Capital expenditures, |
(15,251) |
(876) |
(14,375) |
- |
(14,375) |
Heavy checks |
(15,776) |
- |
(15,776) |
- |
(15,776) |
|
330,703 |
164,777 |
165,927 |
16,777 |
182,703 |
Net proceeds on asset |
720 |
720 |
- |
- |
- |
Free Cash Flow |
331,423 |
165,497 |
165,926 |
16,777 |
182,703 |
|
|
|
|
|
|
Repayment of long-term |
|
|
|
|
|
Repayment of long-term |
341,234 |
165,246 |
175,988 |
- |
175,988 |
Repayment of Unsecured |
67,480 |
- |
67,480 |
- |
67,480 |
Repayment of long-term |
273,754 |
165,246 |
108,508 |
- |
108,508 |
Free Cash Flow After |
57,669 |
251 |
57,418 |
16,777 |
74,195 |
For further information, please refer to Chorus' Management's Discussion and Analysis of Results of Operations and Financial Condition dated
Forward Looking Statements
This news release includes forward-looking information and statements (collectively, "forward looking information") within the meaning of applicable securities laws. Forward-looking information may be identified by the use of terms and phrases such as "anticipate", "believe", "can", "could", "estimate", "expect", "future", "intend", "make", "may", "plan", "potential", "predict", "project", "will", "would", and similar terms and phrases, including negative versions thereof and other similar expressions. All information and statements other than statements of historical fact are forward-looking and, by their nature, are based on various underlying assumptions and expectations that are subject to known and unknown risks, uncertainties and other factors that may cause actual future results, performance or achievements to differ materially from those indicated in forward-looking information. As a result, there can be no assurance that the forward-looking information included in this news release will prove to be accurate or correct.
Actual results may differ materially from those anticipated in forward-looking information for a number of reasons, including: whether Chorus' shareholders approve the Transaction; whether all conditions precedent, including all necessary regulatory approvals, to the Transaction are satisfied; Chorus' ability to realize the anticipated benefits of the Transaction, including the implementation of any capital return program for shareholders; the anticipated net proceeds from the Transaction, the anticipated use of proceeds from the Transaction, the potential impact of the announcement or completion of the Transaction on relationships, including with employees, suppliers, customers, investors and other providers of capital; changes in the aviation industry and general economic conditions; and the risk factors in Chorus' most recent Annual Information Form and in its public disclosure record available under its profile on SEDAR+ at www.sedarplus.ca. Forward-looking information and statements contained in this news release represent Chorus' expectations as of the date of this news release (or as of the date they are otherwise stated to be made) and are subject to change after such date. Chorus disclaims any intention or obligation to update or revise such information or statements to reflect new information, subsequent events or otherwise, except as required by applicable securities laws. Readers are cautioned that the foregoing factors and risks are not exhaustive.
About
Chorus is a global aviation solutions provider and asset manager, focused on regional aviation. Our principal subsidiaries are:
Chorus Class A Variable Voting Shares and Class B Voting Shares trade on the
Endnotes
1 "Common shareholders" and "shareholders" refers to the holders of Chorus' Class A Variable Voting Shares and Class B Voting Shares. |
2 Elimination of |
3 "Leverage Ratio", "Free Cash Flow", and "Adjusted EBITDA" are non-GAAP financial measures that are not recognized measures for financial presentation under GAAP. For further information, please refer to the section of this news release titled "Non-GAAP Financial Measures". |
4 Based on the knowledge of Chorus' directors and executive officers and on publicly available early warning reports and insider reports. |
5 Aggregate consideration has been converted from |
6 Common share price is based on the closing price of the common shares on the |
7 As compared to peers on a price-to-book basis. Price-to-book value is a common valuation metric used to measure a company's equity value in relation to its book value per share. For comparison of price-to-book value, peers are Air Lease Corporation, BOC Aviation Limited, and Aercap Holdings N.V. Peer comparison price-to-book values are the 2024 year-to-date averages per FactSet as of |
8 "Debentures" refers to Chorus' 5.75% senior unsecured debentures due |
9 Impairment on discontinued operations of |
10 "Adjusted EBITDA" is a non-GAAP financial measure that is not a recognized measure for financial presentation under GAAP. For further information, please refer to the section of this news release titled "Non-GAAP Financial Measures". |
11 Includes repayment of a balance of |
SOURCE