Current report filing

FRESH-START ACCOUNTING

v3.20.1
FRESH-START ACCOUNTING
12 Months Ended
Mar. 31, 2020
FRESH-START ACCOUNTING [Abstract]  
FRESH-START ACCOUNTING
Note 3 — FRESH-START ACCOUNTING

Upon the Company’s emergence from the Chapter 11 Cases, the Company qualified for and adopted fresh-start accounting in accordance with the provisions set forth in ASC 852 as (i) the Reorganization Value of the Company’s assets immediately prior to the date of confirmation was less than the post-petition liabilities and allowed claims, and (ii) the holders of the existing voting shares of the Predecessor entity received less than 50% of the voting shares of the emerging entity. Refer to Note 2 for the terms of the Plan. Fresh-start accounting requires the Company to present its assets, liabilities and equity as if it were a new entity upon emergence from bankruptcy. The new entity is referred to as “Successor” or “Successor Company.” However, the Company will continue to present financial information for any periods before adoption of fresh-start accounting for the Predecessor Company. The Predecessor and Successor companies may lack comparability, as required in ASC 205, Presentation of Financial Statements (“ASC 205”). Therefore, “black-line” financial statements are presented to distinguish between the Predecessor and Successor companies.

Adopting fresh-start accounting results in a new financial reporting entity with no beginning retained earnings as of the fresh-start reporting date. Upon the application of fresh-start accounting, the Company allocated the Reorganization Value (the fair value of the Successor Company’s total assets) to its individual assets based on their estimated fair values. The Reorganization Value is intended to represent the approximate amount a willing buyer would value the Company’s assets immediately after the reorganization.

Reorganization Value is derived from an estimate of Enterprise Value, or the fair value of the Company’s long-term debt, stockholders’ equity and working capital. The Enterprise Value approved by the Bankruptcy Court as of the Effective Date was $1.25 billion. The Enterprise Value was derived from an independent valuation using an asset based methodology of financial information, considerations and projections, applying a combination of the income, cost and market approaches as of the fresh-start reporting date of October 31, 2019.

See further discussion below under “Fresh-start accounting adjustments” for the specific assumptions used in the valuation of the Company’s various assets.

Although the Company believes the assumptions and estimates used to develop the estimate of Enterprise Value and Reorganization Value are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and resulting conclusions. The assumptions used in estimating these values are inherently uncertain and require judgment.

The following table reconciles the Company’s estimated Enterprise Value to the estimated fair value of the Successor’s Common Stock as of October 31, 2019 (in millions):

Enterprise Value
 
$
1,250
 
Plus: Cash, cash equivalents and restricted cash
   
251
 
Less: Fair value of debt
   
(586
)
Total Implied Equity
   
915
 
Less: Successor Preferred Stock (1)
   
(619
)
Implied value of Successor Common Stock (2)
 
$
296
 


(1)
At emergence, $470 million share settled redemption feature embedded derivative was bifurcated from issued Successor Preferred Stock and reclassified to preferred stock embedded derivative on the consolidated balance sheet. See Note 9 for further information.


(2)
Difference between $294.7 million shown on the October 31, 2019 consolidated balance sheet is a result of rounding.

The following table reconciles the Company’s Enterprise Value to its Reorganization Value as of October 31, 2019 (in millions):

Enterprise Value
 
$
1,250
 
Plus: Cash, cash equivalents and restricted cash
   
251
 
Plus: Current Liabilities and other, noninterest bearing
   
209
 
Plus: Other Long-term Liabilities, noninterest bearing (including Deferred Tax Liability)
   
409
 
Total Reorganization Value
  $
2,119
 

Consolidated Balance Sheet

The following table illustrates the effects on the Company’s consolidated balance sheet due to the reorganization and fresh-start accounting adjustments. The explanatory notes following the table below provide further details on the adjustments, including the Company’s assumptions and methods used to determine fair value for its assets and liabilities. Amounts included in the table below are rounded to thousands.

   
As of October 31, 2019
Current assets:
 
Predecessor
Company
   
Reorganization
Adjustments
         
Fresh-Start
Adjustments
         
Successor
Company
 
                                   
Cash and cash equivalents
 
$
139,278
   
$
62,801
     
(1
)
 
$
         
$
202,079
 
Restricted cash
   
23,761
     
24,686
     
(2
)
   
           
48,447
 
Accounts receivable from non-affiliates
   
201,950
     
(3,034
)
   
(3
)
   
           
198,916
 
Accounts receivable from affiliates
   
15,926
     
             
(1,298
)
   
(12
)
   
14,628
 
Inventories
   
116,926
     
             
(35,766
)
   
(13
)
   
81,160
 
Prepaid expenses and other current assets
   
47,283
     
(3,322
)
   
(4
)
   
(13,415
)
   
(14
)
   
30,546
 
Total current assets
   
545,124
     
81,131
             
(50,479
)
           
575,776
 
Investment in unconsolidated affiliates
   
112,932
     
             
7,039
     
(15
)
   
119,971
 
Property and equipment – at cost:
                                               
Land and buildings
   
238,967
     
             
(74,225
)
   
(16
)
   
164,742
 
Aircraft and equipment
   
2,432,045
     
             
(1,665,136
)
   
(17
)
   
766,909
 
     
2,671,012
                   
(1,739,361
)
           
931,651
 
Less – Accumulated depreciation and amortization
   
(970,731
)
   
             
970,731
     
(18
)
   
 
     
1,700,281
     
             
(768,630
)
           
931,651
 
Right-of-use assets
   
325,764
     
             
3,263
     
(19
)
   
329,027
 
Other assets
   
91,179
     
213
             
70,897
     
(20
)
   
162,289
 
Total assets
 
$
2,775,280
   
$
81,344
           
$
(737,910
)
         
$
2,118,714
 
Current liabilities:
                                               
Accounts payable
 
$
74,170
   
$
10,448
     
(5
)
 
$
(2,377
)
   
(21
)
 
$
82,241
 
Accrued wages, benefits and related taxes
   
40,657
     
             
             
40,657
 
Income taxes payable
   
2,988
     
             
             
2,988
 
Other accrued taxes
   
8,223
     
             
             
8,223
 
Deferred revenue
   
9,187
     
             
(321
)
   
(22
)
   
8,866
 
Accrued maintenance and repairs
   
31,303
     
             
             
31,303
 
Accrued interest
   
21,213
     
(20,111
)
   
(6
)
   
             
1,102
 
Current portion of operating lease liabilities
   
83,008
     
             
(8,497
)
   
(23
)
   
74,511
 
Other accrued liabilities
   
50,070
     
(15,417
)
   
(7
)
   
(718
)
   
(24
)
   
33,935
 
Short-term borrowings and current maturities of long-term debt
   
955,009
     
(926,556
)
   
(8
)
   
8,627
     
(25
)
   
37,080
 
Total current liabilities
   
1,275,828
     
(951,636
)
           
(3,286
)
           
320,906
 
Long-term debt, less current maturities
   
75,167
     
525,301
             
(51,186
)
   
(25
)
   
549,282
 
Accrued pension liabilities
   
18,623
     
             
14,891
     
(26
)
   
33,514
 
Preferred stock embedded derivative
   
     
470,322
     
(10
)
   
             
470,322
 
Other liabilities and deferred credits
   
7,701
     
             
(3,110
)
   
(27
)
   
4,591
 
Deferred taxes
   
54,009
     
93,245
     
(28
)
   
(104,025
)
   
(28
)
   
43,229
 
Long-term operating lease liabilities
   
244,566
     
             
9,139
     
(23
)
   
253,705
 
Total liabilities not subject to compromise
   
1,675,894
     
137,232
             
(137,577
)
           
1,675,549
 
Liabilities subject to compromise
   
624,867
     
(624,867
)
   
(9
)
   
             
 
Total liabilities
   
2,300,761
     
(487,635
)
           
(137,577
)
           
1,675,549
 
Commitments and contingencies (Note 11)
                                               
Mezzanine equity:
                                               
Preferred stock
   
     
148,599
     
(10
)
   
             
148,599
 
Stockholders’ investment:
                                           
 
Predecessor common stock, $.01 par value
   
386
     
(386
)
   
(11
)
   
             
 
Predecessor additional paid-in capital
   
920,761
     
(920,761
)
   
(11
)
   
             
 
Predecessor retained earnings
   
52,136
     
524,687
     
(11
)
   
(576,823
)
   
(30
)
   
 
Predecessor accumulated other comprehensive loss
   
(314,439
)
   
337,373
     
(11
)
   
(22,934
)
   
(30
)
   
 
Predecessor Treasury shares
   
(184,796
)
   
184,796
     
(11
)
   
             
 
Successor Common stock
   
     
1
     
(10
)
   
             
1
 
Successor Additional paid-in capital
   
     
294,670
     
(10
)
   
             
294,670
 
Total Bristow Group stockholders’ investment
   
474,048
     
420,380
             
(599,757
)
           
294,671
 
Noncontrolling interests
   
471
     
             
(576
)
   
(29
)
   
(105
)
Total stockholders’ investment
   
474,519
     
420,380
             
(600,333
)
           
294,566
 
Total liabilities, mezzanine equity and stockholders’ investment
 
$
2,775,280
   
$
81,344
           
$
(737,910
)
         
$
2,118,714
 

Reorganization adjustments

(1)
The table below details cash payments as of October 31, 2019, pursuant to the terms of the Plan described in Note 2 (in thousands):

Equity Rights Offering Proceeds
 
$
385,000
 
Release of funds from Restricted Cash
   
6,972
 
Payments to 8.75% Senior Secured Notes due 2023 for principal and interest
   
(270,939
)
Payment of DIP interest
   
(1,098
)
Payments for 2019 Term Loan Amendment Fee
   
(563
)
Reserve for Professional Fee Escrow
   
(30,669
)
Payment of Unsecured 4(a)(2) Cash Pool Funding
   
(7,000
)
Payments for Transaction Expenses
   
(11,867
)
Payments to Indenture Trustee
   
(989
)
Payment of Executive Key Employee Incentive Plan
   
(3,432
)
Payments for Prepetition Trade Cures
   
(2,614
)
Total
 
$
62,801
 

(2)
Represents the Reserve for Professional Fee Escrow of $30.7 million plus the remainder of the Disputed Claims Cash Reserve under the Plan of $0.9 million offset by a $6.9 million release of restricted cash related to the DIP Facility.

(3)
Represents the write-off of the value added tax receivable in relation to the rejected aircraft purchase contract with Airbus Helicopters S.A.S. (“Airbus”) for 22 large aircraft in October 2019.

(4)
Represents the write-off of the prepaid asset related to the Predecessor’s directors and officers tail coverage insurance policy.

(5)
Represents the accrual for success fees of $14.0 million, partially offset by trade cure payments of $2.6 million and other miscellaneous accruals of $0.9 million.

(6)
Represents the settlement of the DIP Facility accrued interest of $16.1 million and the 8.75% Senior Secured Notes accrued interest of $4.0 million.

(7)
Represents reversal of the $19.3 million Backstop Obligation Reserve plus $0.3 million miscellaneous adjustments, partially offset by accrual for ABL Facility (as defined herein) fees of $2.2 million and a reclassification of the deferred compensation plan of $2.0 million.

(8)
The table below reflects the settlement and write-off of the short-term debt and current maturities (in thousands):

Settlement of the 8.75% Senior Secured Notes due 2023
 
$
275,182
 
Settlement of DIP Facility
   
150,000
 
Settlement of remaining 8.75% Senior Secured Notes due 2023 (1)
   
(8,255
)
Write-off of unamortized discount on the 8.75% Senior Secured Notes due 2023
   
1,641
 
Reinstated Milestone Omnibus Agreement
   
(17,313
)
Reclassification from short-term borrowings and current maturities of long-term debt to long-term debt, less current maturities
   
525,301
 
   
$
926,556
 




(1)
Represents the difference between the amount outstanding on the 8.75% Senior Secured Notes and the cash paid to settle the 8.75% Senior Secured Notes.

(9)
Liabilities subject to compromise consisted of the following (in thousands):

6¼% Senior Notes due 2022 principal and accrued interest (1)
 
$
415,894
 
4½% Convertible Senior Notes due 2023 principal and accrued interest (2)
   
146,627
 
Accrued lease termination costs (3)
   
43,049
 
Milestone Omnibus Agreement (4)
   
17,313
 
Deferred compensation plan
   
1,984
 
Liabilities subject to compromise
 
$
624,867
 




(1)
Includes $401.5 million of principal and $14.4 million of interest accrued through May 11, 2019.


(2)
Includes $143.8 million of principal and $2.9 million of interest accrued through May 11, 2019.


(3)
Relates to ten aircraft leases rejected in June 2019, including nine S-76C+s and one S-76D.


(4)
Includes costs related to the return of four leased H225s on May 6, 2019 and includes lease termination costs, deferred lease costs previously included as short-term debt on the consolidated balance sheet and additional lease return costs.

(10)
Represents the discharge of debt through the issuance of New Stock. Pursuant to the Plan, Class 4 (Secured Notes Claim holders), Class 8 (Unsecured Notes Claim holders), and Class 12 (General Unsecured Claim holders) received cash and subscription rights to the New Stock issued pursuant to the Rights Offering in full satisfaction and settlement of claims. Any subscription right not exercised by these parties was purchased by the Commitment Parties. Further, Class 8 and Class 12 received New Stock as part of the Unsecured Equity Pool and DIP claim holders received New Stock in full satisfaction and settlement of DIP claims. The following is the calculation of the total pre-tax gain and corresponding impact on additional paid-in capital (“APIC”) on the discharge of debt (in thousands):

Liabilities subject to compromise (see footnote above for further details)
 
$
624,867
 
Less amounts reinstated:
       
Milestone Omnibus Agreement
   
(17,313
)
Deferred Compensation Plan
   
(1,984
)
Total liabilities subject to compromise settled at emergence
   
605,570
 
Plus 8.75% Senior Secured Notes due 2023
   
275,182
 
Plus proceeds from Rights Offering
   
385,000
 
Shares issued to participants in Rights Offering and to compromised creditor classes:
       
Equity issued pursuant to Rights Offering and Unsecured Equity Pool (1)
   
(727,139
)
Less cash paid to settle claims:
       
Cash paid out (2)
   
(273,022
)
Total pre-tax gain
 
$
265,591
 
Settlement of DIP Claims through issuance of New Stock
       
DIP Claims plus interest accrued
   
165,000
 
DIP Equitization Allocation New Stock plus Consent Fee (1)
   
(186,453
)
APIC Predecessor (3)
 
$
(21,453
)


 

(1)
Successor Equity Issued


(2)
The cash paid was used to settle 97% of the 8.75% Senior Secured Notes principal balance (Class 4) and the payments made to Unsecured Notes Claim holders (Class 8) and General Unsecured Claim holders (Class 12).


(3)
Pursuant to the DIP Credit Agreement, the DIP claims and the Equitization Consent Fee were settled with New Stock. The difference between the “DIP claims plus accrued interest” and “DIP Equitization Allocation New Stock plus Consent Fee” does not flow through the income statement but is a direct adjustment to the Predecessor APIC.

Successor New Stock
     
Equity Issued pursuant to Rights Offering
     
Common Stock, $.01 par value (b)
 
$
1
 
Preferred Stock Mezzanine Equity (a)
   
523,973
 
Additional paid in capital (c)
   
153,897
 
Equity Issued Unsecured Equity Pool
       
Common Stock, $.01 par value (b)
   
 
Additional paid in capital (c)
   
49,268
 
Total New Stock issued to participants in Rights Offering and to compromised creditor  classes
 
$
727,139
 
New Stock Issued for settlement of DIP Claims
       
Common Stock, $.01 par value (b)
   
 
Preferred Stock Mezzanine Equity (a)
   
94,948
 
Additional Paid in Capital (c)
   
91,505
 
Total New Stock issued for settlement of DIP Claims
 
$
186,453
 
Total New Stock Issued
   
913,592
 
(a) Total Preferred Stock Mezzanine Equity
   
618,921
 
(b) Total Common Stock par value
   
1
 
(c) Total Additional Paid in Capital
   
294,670
 
New Preferred Stock
   
618,921
 
Less: Share-settled Redemption Feature Embedded Derivative
   
(470,322
)
Total Equity at Emergence
 
$
148,599
 

(11)
Represents the cancellation of the Predecessor common stock and related components of the Predecessor equity.

Fresh-start accounting adjustments

(12)
Represents the adjustments to accounts receivable from affiliate caused by the write-off of revenue previously being straight-lined for which the Company has no future performance obligations.

(13)
Represents the valuation adjustments applied to the Company’s inventory, which consists of aircraft parts, kit parts, work in process and fuel. The fair value of the inventory was estimated using the cost approach.

(14)
Represents the write-off of the Predecessor’s unamortized debt issuance costs as of October 31, 2019 as well as the adjustment to prepaid rent resulting from the change in the Company’s fair value of leases. See footnotes 19 and 25 for further details. This balance also represents the fair value adjustment of the Company’s short-term portion of contract acquisition and pre-operating costs by $8.8 million to its fair value of zero at the Effective Date.

(15)
Represents the valuation adjustments to the Company’s equity method investments in Cougar and Líder, and cost method investment in PAS to fair value. The fair value for the unconsolidated investments was based on a combination of the income approach and the market approach. The income approach includes consideration of a market participant discount rate and cash flow projections prepared by their management. The Guideline Public Company Method relies on valuation multiples from reasonably similar Guideline Public Companies.

(16)
Represents the fair value adjustment to the Company’s land and buildings. The fair value was determined using the direct valuation method of the cost approach of certain owned properties with all other owned properties and related site improvements valued using the indirect method of the cost approach. Concurrently, the income approach and market approach were considered in the context of the Company’s economic obsolescence analysis as part of the application of the cost approach.

(17)
Represents the valuation adjustment to the Company’s aircraft and equipment fair value. The cost approach was the primary valuation method utilized to determine fair value. Concurrently, the income approach was considered in the context of the Company’s economic obsolescence analysis as part of the application of the cost approach. Certain assets, specifically those aircraft classified as held for sale as of December 31, 2019 (Successor), were valued utilizing the market approach, based on preliminary sales offers for those assets. The key assumptions used were market conditions and third party market data, locational considerations and aircraft interchangeability, asset age, current flight hours and operational status and earning potential of the overall business.

(18)
Represents the elimination of the Predecessor’s accumulated depreciation in accordance with fresh-start accounting requirements and revaluation of the corresponding assets described in footnotes 16 and 17 above.

(19)
Reflects the valuation adjustments to the Company’s ROU assets based on the recalculated operating lease liabilities adjusted for the fair value of any favorable or unfavorable lease term.

(20)
Primarily reflects the valuation adjustments to intangible assets and deferred tax asset. The Company’s intangible assets consist of PBH contracts, in which aircraft maintenance is covered by the manufacturer in exchange for a fee per flight hour, and a U.K. SAR customer contract. The fair value of the PBH contracts was determined using a cost approach in which the estimated prior accrued payments were discounted using the weighted average cost of capital for each business over the vendor’s remaining non-cancelable term of the contract. The fair value of the PBH contracts related to non-UK aircraft was further reduced based on the economic obsolescence rate applied to the corresponding aircraft. The U.K. SAR customer contract was fair valued using the multi-period excess earnings method of the income approach.

(21)
Primarily reflects the write-off of short-term portion of contract acquisition and pre-operating costs related to two customer contracts in Norway of $2.2 million and various other miscellaneous costs of $0.2 million.

(22)
Reflects the write-off of deferred revenue related to contracts in which the Company was no longer obligated to provide future services.

(23)
Reflects the adjustment to the Company’s lease assumptions (i.e. discount rate) to record its lease obligations as of the Effective Date and the corresponding adjustment to its short-term lease liability. To estimate the market rent, comparable closed leases and current lease listing were analyzed. Market rent growth was based on published survey data.

(24)
Primarily reflects the write-off of long-term portion of contract acquisition and pre-operating costs related to two customer contracts in Norway.

(25)
Reflects the valuation adjustments to the Lombard Debt, Macquarie Debt, PK Air Debt and Airnorth Debt (each as defined herein). The fair value for these debt instruments was determined by considering the future cash flows of the instruments based on the contractual interest rates and then discounted back to Day 1, based on the implied market yield and the Company’s credit rating as of the Effective Date. When fair valuing the debt, credit spreads, a term-matched risk-free rate associated with each payment based on interpolating the U.S. Constant Maturity Treasury Curve, yield volatility (ranging from 30% to 35%) and call schedule (ranging from 100.25% to 103.5%) were utilized. All of the Predecessor’s unamortized debt issuance costs of $15.2 million were written off as of October 31, 2019. Refer to Note 8 for definitions of and further information regarding debt instruments.

(26)
Reflects the valuation adjustment to the Company’s pension liabilities. The fair value was determined by updating the pension plan assumptions and calculations as of the Effective Date.

(27)
Represents the write-off of long-term deferred revenue as no performance obligations remained for the Successor.

(28)
Represents the adjustments to deferred tax liability.

(29)
Reflects the portion of the valuation adjustments to land, buildings and equipment applicable to noncontrolling interest.

(30)
Represents the cumulative impact of the fresh-start accounting adjustments discussed above and the cancellation of the Predecessor’s retained earnings and accumulated other comprehensive loss.

Reorganization Items

Reorganization items represent (i) expenses or income incurred subsequent to the Petition Date as a direct result of the Plan, (ii) gains or losses from liabilities settled, and (iii) fresh-start accounting adjustments and are recorded in “Reorganization items” in the Company’s unaudited consolidated statements of operations. The following table summarizes the net reorganization items (in thousands):

   
Successor
   
Predecessor
 
   
Five Months Ended
March 31, 2020
   
Seven Months Ended
October 31, 2019
 
Gain on settlement of liabilities subject to compromise
 
$
   
$
265,591
 
Fresh-start accounting adjustments
   
     
(686,116
)
Reorganization professional fees and other
   
(7,232
)
   
(197,448
)
Loss on reorganization items
 
$
(7,232
)
 
$
(617,973
)

Cash paid for reorganization items for the five months ended March 31, 2020 (Successor) and the seven months ended October 31, 2019 (Predecessor) was $21.3 million and $66.0 million, respectively.