I'm no financial advisor but this doesn't look good. I've added explanations/scale of Moody's ratings in
bold.
Rating Action:
Moody's downgrades Bristow to Caa2
04 Mar 2019
Approximately $750 million of rated debt affected
New York, March 04, 2019 -- Moody's Investors Service, ("Moody's") downgraded Bristow Group Inc.'s (Bristow) Corporate Family Rating (CFR) to Caa2 from B3, Probability of Default Rating (PDR) to Caa2-PD from B3-PD, senior secured rating to Caa1 from B2, and senior unsecured notes to Caa3 from Caa2. The Speculative Grade Liquidity Rating was downgraded to SGL-4 from SGL-3. The rating outlook remains negative.
"The downgrade reflects Bristow's declining liquidity and continued weak financial performance, management's determination of material weakness in internal controls over financial reporting, as well the elevated default risk posed by possible non-financial covenant violation and debt reclassification that may occur if the company is unable to successfully assess its historical compliance with covenants or obtain necessary waivers," said Sajjad Alam, Moody's Senior Analyst. "While the company has asserted that it is not aware of any non-compliance in its secured financing and helicopter lease agreements that have not been cured or waived, it is unclear how long it will take to complete management's review of existing processes and controls and remedy the internal control deficiency, when Bristow will be able to complete its assessments and obtain any necessary waivers from various lenders and lessors as they work through this matter with its auditor, and whether Bristow will be able to produce financial statements within a reasonable timeframe without adverse or qualifying statements from its auditor."
Issuer: Bristow Group Inc.
.Downgraded:
.... Corporate Family Rating, Downgraded to Caa2 from B3
.... Probability of Default Rating, Downgraded to Caa2-PD from B3-PD
....Senior Secured Rating, Downgraded to Caa1 (LGD3) from B2 (LGD3)
....Senior Unsecured Regular Bond/Debenture, Downgraded to Caa3 (LGD5) from Caa2 (LGD5)
....Speculative Grade Liquidity Rating, Downgraded to SGL-4 from SGL-3 -
A rating of the risk, published by Moody's, that a company will not be able to meet its short-term liabilities due to illiquidity. An SGL-4 rating is the least liquid rating. This indicates a company may not have cash on hand to pay immediate obligations.
INVESTMENT GRADE- » Aaa – highest rating, representing minimum credit risk
- » Aa1, Aa2, Aa3 – high-grade
- » A1, A2, A3 – upper-medium grade
- » Baa1, Baa2, Baa3 – medium grade
SPECULATIVE GRADE- » Ba1, Ba2, Ba3 – speculative elements
- » B1, B2, B3 – subject to high credit risk
- » Caa1, Caa2, Caa3 – bonds of poor standing
- » Ca – highly speculative, or near default
- » C – lowest rating, bonds typically in default, little prospect for recovery of principal or interest
.Outlook:
....Maintain Negative Outlook
RATINGS RATIONALE
Bristow's Caa2 CFR reflects its very high financial leverage and the associate debt service cost; elevated default risk due to delayed financial reporting, potential non-financial covenant violation, and the uncertainty around the company's ability to continue as a going concern; and persistent negative free cash flow generation that continues to drain liquidity. If the company's auditor includes a "going concern" statement in the annual 10-K filing, it would 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 due to industry-wide helicopter overcapacity. Moody's expects negative free cash flow generation to continue through fiscal 2020 leaving very limited cash cushion in early 2020 unless the company is able to execute assets sales or raise funding through other means. Bristow's ratings are supported by its global scale, leading market position in the offshore helicopter services industry, long-term and non-cyclical search and rescue (SAR) contract with the UK government, large and modern fleet of mostly owned aircraft, contractual relationship with a diverse group of oil and gas customers, and consistent commitment to safety.
Financial leverage will remain elevated around 7x through fiscal 2020 and additional projected negative free cash flow will further stress 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.
Bristow's liquidity is weak, which is reflected in the SGL-4 rating. Despite cutting capex, Bristow could still generate $70-$80 million of negative free cash flow in fiscal 2020. 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 Caa3, one notch below the Caa2 CFR given the significant amount of secured debt in the capital structure. The secured term loan is rated one notch above the CFR at Caa1 because of their priority-claim to Bristow's assets in a potential default scenario. Moody's Loss Given Default Methodology indicates a two notch separation between the CFR and the secured notes, but Moody's believes that the assigned Caa1 rating is more appropriate given that secured lenders do not have an all-asset pledge reducing potential recoveries in the event of a default.
The negative outlook reflects Bristow's declining liquidity, projected negative free cash flow generation and the elevated risk of default. A downgrade is likely if the company is unable to cure the potential covenant breach or any default event or if total liquidity falls below $100 million. An upgrade could be considered if the company resolves its financial reporting and covenant issues, provides visibility around how it plans to remedy control weakness, and maintains adequate liquidity while improving earnings.
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.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on
www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see
www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on
www.moodys.com for additional regulatory disclosures for each credit rating.
Sajjad Alam
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653