Hawker Beechcraft yesterday secured more time to solve its debt problems through a restructuring plan, with lenders granting a 90-day forbearance agreement. The move staves off the immediate threat of a filing for Chapter 11 bankruptcy protection–a move that has been widely expected by industry analysts.
The U.S. manufacturer, which is owned by Onex and GS Partners (a division of investment banking giant Goldman Sachs), announced it had “reached an agreement with certain lenders that will provide the company with approximately $120 million of additional liquidity.”
As part of the agreement, lenders currently holding approximately 70 percent of Hawker Beechcraft bank debt will defer the company’s obligation to make certain interest payments on the company’s senior secured revolving and term loans, when due. In addition, lenders also granted Hawker Beechcraft relief from certain existing loan covenants. This forbearance agreement is scheduled to expire on June 29, the company said.
According to its third-quarter 2011 10Q report, filed with the U.S. Securities and Exchange Commission (SEC), Hawker Beechcraft had total liabilities of $3.493 billion, including $2.028 billion in long-term debt, as of Sept. 30, 2011. The SEC filing shows that the company had only $146.7 million of cash at the end of the third period and reported a loss of $88.6 million. Having incurred consecutive quarterly losses since mid-2008, industry analysts and observers expect the company’s fourth-quarter results, scheduled to be released on Friday, to show the total debt continues to climb and that cash reserves are dwindling further.
Due to its poor financial balance sheet situation, Moody’s Investment Service downgraded Hawker Beechcraft’s credit rating from Caa2 to Caa3 in September. This was followed by a similar downgrade from the Standard & Poor’s rating agency.
“Like others in the industry, Hawker Beechcraft has been impacted by the prolonged weakness in our markets. In the last three years the company has made aggressive transformational changes in all operational functions,” said Hawker Beechcraft Inc. CEO Steve Miller in a company statement. Hawker Beechcraft Corp. CEO Bill Boisture and executive vice president Shawn Vick have led this transformation since they landed at the company in 2009.
“While these steps have been effective, the company is operating with a debt load that is restricting its ability to succeed and fully execute on its strategy,” Miller added. “We believe this agreement will stabilize the company’s current financial position and ensure that Hawker Beechcraft continues manufacturing airplanes and providing service and support. At the same time, the agreement provides Hawker Beechcraft and its lenders with additional time and flexibility to work together to recapitalize the company and better position Hawker Beechcraft for the future. We believe this loan demonstrates confidence in the long-term value of the company.”
With the latest news of the forbearance agreement scheduled to expire in just three months, analysts are speculating whether this is a holding action while a major restructuring strategy is worked out. “This step keeps the wheels from falling off the company long enough to development a thoughtful restructuring plan,” concluded business aviation industry consultant Brian Foley.
In the meantime, the company is operating normally and continues to sell, deliver and service aircraft, as well as perform its other various activities. In fact, HawkerBeechcraft announced a $50 million order for 10 King Air twin turboprops from Avion Pacific, a deal that was completely done here at ABACE.
