CA$1.1 billion1 transaction;
immediately accretive
- Expands and broadens Chorus' business to include an
established and growing asset management platform with an excellent
track record
- Enhances and diversifies future cash flows with a shift
to an asset light model
- Differentiated model benefits all
stakeholders
- Creates a leading regional aircraft lessor with
best-in-class regional aviation management team
- Establishes partnership with Brookfield as a strategic cornerstone investor
in Chorus
HALIFAX, NS, Feb. 27, 2022 /CNW/ - Chorus Aviation Inc.
('Chorus') (TSX: CHR) announced today that it has entered into a
sale and purchase agreement (the 'SPA') pursuant to which one
or more wholly-owned subsidiaries of Chorus will acquire Falko
Regional Aircraft Limited ('Falko'), a leading regional aircraft
lessor, together with (i) affiliates of Falko, and (ii) the
equity interests in certain entities and aircraft which are
ultimately owned by funds managed by Fortress
Investment Group LLC ('Fortress') and managed by Falko (or
one of its affiliates). The total consideration for the transaction
is approximately US$855 million
comprised of (a) US$445 million of
cash consideration (inclusive of agreed adjustments)2,
and (b) approximately US$410 million
of existing indebtedness that will remain with the relevant target
entities. The transaction includes Falko's asset management
platform and Fortress' equity interests in 1263 owned
and managed regional aircraft and will create new opportunities for
growth and a differentiated business model to maximize returns on
aircraft assets. The combined company will have a total of 353
owned, operated, and managed regional aircraft. Upon closing,
Chorus anticipates having 32 airline customers in 23 countries.
Brookfield, through its Special
Investments program ('BSI'), and together with institutional
partners, has agreed to make a strategic equity investment in
Chorus in connection with the transaction. Conditional upon closing
the acquisition, Brookfield will
invest US$374 million in Chorus,
including US$300 million of preferred
equity4 and US$74 million
of common equity. The preferred equity will be non-convertible and
will initially pay a dividend of 8.75% annually in cash, or 9.5% in
kind, at Chorus' option, with step-ups after the sixth
anniversary5. Chorus will issue 25,400,000 common
shares6 at CA$3.70 per share, representing 12.5% of the
pro forma issued and outstanding common shares and an approximate
8% premium to the 30-day VWAP of Chorus' shares as of January 28, 20227, and 18,642,772
common share purchase warrants with an exercise price of
CA$4.608 per share, representing an approximate 35%
premium to the 30-day VWAP of Chorus' shares as of January 28, 20227.
Upon closing the transaction, Chorus will enter into an investor
rights agreement with Brookfield
providing for, among other things, registration rights, standstill
and transfer restrictions and the right to nominate two directors
to Chorus' Board of Directors. Upon closing the transaction,
Brookfield will nominate
David Levenson and Frank Yu to Chorus' Board of Directors.
The acquisition transaction and the private placement to
Brookfield are subject to
applicable regulatory approvals and customary completion
requirements, and are expected to close in the second quarter of
2022.
"The acquisition of Falko is transformative for Chorus, creating
a world premier full-service provider in regional aviation," stated
Joe Randell, President and Chief
Executive Officer, Chorus. "We are extremely pleased to have
Brookfield, a well-respected
company with global reach, as our strategic cornerstone investor,
bringing extensive experience in asset management, fundraising and
capital markets. The equity investment is an important endorsement
of our strategy and simultaneously reduces leverage9.
Brookfield's significant financial
strength and transaction expertise provides Chorus with increased
stability and support to execute on our strategy to the benefit of
all stakeholders. The size and scale of the newly combined
entity broadens and enhances market opportunities. Growth
through this established asset management platform meaningfully
changes Chorus' risk profile in terms of debt levels, residual
value asset risk, and enhanced earnings stability and diversity.
This transaction will be accretive10 to earnings and
earnings per share in the first year."
"We are very excited about this transaction as it combines two
highly experienced platforms with complementary aircraft portfolios
and diversified, high-quality customers worldwide," said
Jeremy Barnes, Chief Executive
Officer, Falko. "Regional aircraft serve a critical role for
airlines around the world and the growth trajectory is strong. In
an increasingly competitive environment, together we're better able
to effectively address the needs of our customers and provide them
with a larger scale of fleet solutions. Chorus' technical skills
and capabilities will help maximize asset returns for the benefit
of shareholders and fund investors. This transaction caps over a
decade of growth and success under the sponsorship of Fortress. We
are grateful for the resources, expertise and partnership that
Fortress provided as we built Falko into a truly best-in-class
platform in a competitive industry, and we now look forward to an
exciting next phase of success as part of Chorus."
"We are pleased to partner with Chorus on the acquisition of
Falko, which enables the combined company to execute on its
asset-light strategy and benefit from the recovery in the aviation
sector," commented Angelo Rufino,
Managing Partner and Head of Americas for BSI. "This investment is
another example of how Brookfield
partners with companies to originate flexible capital solutions to
help them achieve their strategic goals," said David Levenson, Managing Partner and Global Head
of BSI.
A slide presentation regarding the transaction is available on
the Chorus investor relations website at this link.
Advisors
Deutsche Bank Securities Inc. is the exclusive financial advisor
to Chorus. Dentons UK and Middle East LLP is the legal advisor to
Chorus in connection with the acquisition transaction, and
Osler, Hoskin & Harcourt LLP
is the legal advisor to Chorus in connection with the private
placement.
Endnotes
1. Total consideration of US$855,000,000 converted at a USD/CAD exchange
rate of 1.27.
2. The total consideration payable is
subject to certain further adjustments at closing contemplated in
the SPA.
3. Consists of 74 wholly or majority
owned aircraft and minority interests in 52 aircraft held in
managed funds.
4. Refers to newly issued Series 1
Preferred Shares of Chorus.
5. Dividend rate escalates annually
after the sixth anniversary to a maximum, after the eleventh
anniversary, of 14.75% for payment in cash and 15.5% for payment in
kind.
6. Refers to Chorus' Class A Variable
Voting Shares and Class B Voting Shares.
7. 30-day VWAP as of January 28, 2022 (CA$3.42), the date the parties
agreed to pricing.
8. Subject to anti-dilution and
dividend adjustments.
9. Leverage is defined as pro forma net
debt to equity.
10. Based on assumptions including currently
contracted and planned lease revenue, and asset management revenue,
depreciation expense, interest costs on the debt assumed with the
acquisition, estimated tax rates and a US/CA exchange rate of 1.27.
Preferred share dividends are deducted for the purposes of
calculating EPS.
Investor Conference Call / Audio Webcast
In connection with this announcement, Chorus will hold an
analyst call at 9:30 a.m. ET on Monday,
February 28, 2022. The call may be accessed by dialing
1-888-664-6392. The call will be simultaneously audio webcast
via:
https://produceredition.webcasts.com/starthere.jsp?ei=1533367&tp_key=46d42f2bf8
This is a listen-in only audio webcast.
The conference call webcast will be archived on Chorus'
website at www.chorusaviation.com under Investors >
Reports > Executive Management Presentations. A playback
of the call can also be accessed until midnight ET, March 7,
2022, by dialing toll-free 1-888-390-0541, and using
passcode 294815#
About Chorus Aviation Inc.
Chorus is a global provider
of integrated regional aviation solutions. Chorus' vision is
to deliver regional aviation to the world. Headquartered in
Halifax, Nova Scotia, Chorus is
comprised of Chorus Aviation Capital a leading lessor of regional
aircraft, and Jazz Aviation and Voyageur Aviation - companies that
have long histories of safe operations with excellent customer
service. Chorus provides a full suite of regional aviation support
services that encompasses every stage of an aircraft's
lifecycle, including aircraft acquisitions and leasing; aircraft
refurbishment, engineering, modification, repurposing and
preparation; contract flying; aircraft and component maintenance,
disassembly, and parts provisioning.
Chorus Class A Variable Voting Shares and Class B Voting Shares
trade on the Toronto Stock Exchange under the trading symbol 'CHR'.
Chorus 6.00% Senior Debentures, 5.75% Senior Unsecured Debentures
due December 31, 2024, 6.00%
Convertible Senior Unsecured Debentures due June 30, 2026, and 5.75% Senior Unsecured
Debentures due June 30, 2027 trade on
the Toronto Stock Exchange under the trading symbols 'CHR.DB',
'CHR.DB.A', 'CHR.DB.B', and 'CHR.DB.C', respectively.
www.chorusaviation.com
About Falko Regional Aircraft Limited
Falko is an
established asset management company actively engaged in all
aspects of commercial aircraft leasing, financing, and management
with particular focus on the regional aircraft market. The team of
specialists is focused on managing a portfolio of modern regional
jet and turboprop aircraft on lease to leading airlines worldwide,
in combination with a growing engine leasing and trading business.
Falko is globally positioned to offer comprehensive asset
management solutions to the regional aviation industry, with
offices and representation in Europe, Asia,
South America and Australia, from which extensive experience and
expertise can be deployed across all regions of the world.
Since 2011, Falko, through its managed funds and affiliates, has
acquired over 320 regional jet and turboprop aircraft worth in
excess of US $3 billion.
www.falko.com
About Brookfield
Brookfield Asset Management
(NYSE: BAM, TSX: BAM.A) is a leading global alternative asset
manager with approximately $690
billion of assets under management across real estate,
infrastructure, renewable power and transition, private equity, and
credit. Brookfield owns and
operates long-life assets and businesses, many of which form the
backbone of the global economy. Utilizing its global reach, access
to large-scale capital and operational expertise, Brookfield offers a range of alternative
investment products to investors around the world—including public
and private pension plans, endowments and foundations, sovereign
wealth funds, financial institutions, insurance companies and
private wealth investors.
Forward-Looking Information
This news release includes
forward-looking information and statements. Forward-looking
information and statements are identified by the use of terms
and phrases such as "anticipate", "believe", "could", "estimate",
"expect", "intend", "may", "plan", "potential", "predict",
"project", "will", "would", and similar terms and phrases,
including references to assumptions. 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 or statements. As a
result, there can be no assurance that the forward-looking
information and statements included in this news release will prove
to be accurate or correct.
Actual results may differ materially from anticipated results
indicated in forward-looking information and statements for a
number of reasons, including: Chorus' ability to obtain the
regulatory approvals required to complete the acquisition
transaction; the ability of the parties to the acquisition and/or
private placement transactions to satisfy all conditions precedent
to those transactions and conclude them on the terms currently
contemplated or at all; Chorus' ability to successfully integrate
Falko's operations and employees and realize the anticipated
benefits of the acquisition transaction; the potential impact of
the announcement or completion of the acquisition transaction on
relationships, including with employees, suppliers, customers,
investors and other providers of capital; a prolonged duration of
the COVID-19 pandemic (including as a result of the emergence of
new COVID-19 variants) and/or further restrictive measures to
minimize its public health impacts; the impact of the COVID-19
pandemic on the financial strength of Chorus' and Falko's
contractual counterparties; changes in the aviation industry
and general economic conditions; Chorus' ability to pay its
indebtedness and otherwise remain in compliance with its debt
covenants; the risk of cross defaults under debt agreements and
other significant contracts; the risk of asset impairments and
provisions for expected credit losses; and the risk factors in
Chorus' most recent Annual Information Form and in its public
disclosure record available under its profile on www.sedar.com.
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.
SOURCE Chorus Aviation Inc.