PHI, Inc. – Court Appoints Mediator For Plan Talks Between Debtors, Creditors Committee and Equity Committee (Amongst Others) as Texas Helicopter Brawl Continues

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May 13, 2019 – The Court hearing the PHI cases issued an order (i) approving the appointment of Judge Robert L. Jones as mediator and (ii) scheduling mediation amongst the Debtors, the Debtors' Official Committee of Unsecured Creditors (the "Committee"), the Debtors' Official Committee of Equity Security Holders (the "Equity Committee") and secured lender Thirty Two LLC which will commence on May 31, 2019 [Docket No. 443]. 

Even in the fractious world of bankruptcy, the PHI cases have been particularly antagonistic with both clients and counsel launching visceral attacks. The animosity has existed from the outset of the PHI cases, with the Debtors March 14, 2019 Chapter 11 filing coming literally moments (11:45pm) before a March 15, 2019 maturity date in respect of $500mn of unsecured senior notes and the Debtors squarely placing the blame for their need to file on the holders of those notes (who now comprise the Committee). In a declaration in support of the Debtors' filing, Robert A. Del Genio, PHI’s Chief Restructuring Officer, stated “PHI did not arrive in chapter 11 due to operational failures, and the Company’s business model remains strong. What necessitated the commencement of these Chapter 11 Cases is the looming maturity date—March 15, 2019—of those certain unsecured 5.25% Senior Notes…in the aggregate principal amount of $500 million." To be fair, the holders of $500mn in maturing debt might be entitled to their own opinion as to whether "the Company’s business model remains strong," $500mn of debt and debt servicing having a way of skewing the bottom line.

In a press release announcing the Chapter 11 filings, the Debtors struck (with 20/20 hindsight) an overly optimistic note: “PHI remains in discussions with the holders of its $500 million in unsecured notes and their advisors to consider alternatives to address PHI’s outstanding debt obligations. The Company is also engaged in ongoing discussions with its various lessors to address certain of its above-market lease obligations. Importantly, the Company believes that its creditors and lessors will be supportive of PHI and its prospective business strategy and, to that end, anticipates filing a plan of reorganization in the early stages of the Chapter 11 process.”

In recent weeks, motions, objections and accusations have flown between the Debtors and the Committee, the latter of which has slammed the Debtors' Plan as a "highly coercive" attempt to preserve the current equity ownership structure at the expense of creditors and an "Insider Plan" littered with "deathtraps." For its part, the Debtors have accused the Committee and its counsel of "shocking behavior," reserving "the right to seek sanctions against the Committee and its professionals…" Only today [May 13], the Equity Committee launched an objection to the Debtors continued use of cash collateral [Docket No. 440, which we cover separately], if perhaps only to underscore that it too merits an invitation to the mediation party.

On April 16, 2019, the Committee filed a motion [Docket No. 268,  later joined by Delaware Trust Company as Indenture trustee for the Debtors’ unsecured 5.25% Senior Notes) requesting an adjournment of a scheduled Disclosure Statement hearing, stating that "The Debtors have crafted a plan of reorganization and timetable designed to prevent the Official Committee from completing its work and being in a position to advise the Debtors' unsecured creditors with respect to the merits, infirmities, and alternatives with respect to the Insider Plan." The motion also drew attention to the Debtors' last minute $70.0mn term loan from Blue Torch capital, acerbicly commenting, "The Official Committee's advisors are not aware of any commercial lender ever agreeing to lend millions of dollars to a company on the eve of a significant unsecured debt maturity and inevitable bankruptcy filing, and, accordingly, the Official Committee needs to understand how the Blue Torch Facility became possible."

On April 18, 2019, the Committee objected [Docket No. 293] to the Debtors' proposed Key Employee Incentive Plan (the “KEIP”) [Docket No. 108], citing concerns that it is retentive (not incentive) in nature and comprehensively inappropriate. The Committee had earlier objected to the Debtors' cash management motion.

On April 25, 2019, the Debtors fired back at the adjournment motion [Docket No. 337], vigorously arguing that the motion was part of an "improper attempt to take control of these cases" and "[to] disengage, object, delay, and hope to terminate exclusivity" in order to be afforded the opportunity to present its own Plan.  The Debtors' objection summed up: "This improper litigation tactic—veiled in upholding what the Debtors agree are paramount statutory obligations of a committee—not only seeks to destabilize the Debtors’ business, but also seeks to upend a debtor’s exclusive right to file and solicit acceptances on a chapter 11 plan at the inception of a case. This shocking behavior should not be countenanced. The Debtors reserve the right to seek sanctions against the Committee and its professionals’ actions in seeking to ‘cause unnecessary delay, or needlessly increase the cost of litigation'." For those interested, Debtors' counsel is DLA Piper and the Committee's counsel is Milbank.

The Mediation Motion

As previously cited from the requesting motion submitted by the Debtors and (in a moment of rare agreement) with the apparent support of the Committee [Docket No. 353], “To date…the Debtors have been unable to engage in any negotiations with the Official Committee of Unsecured Creditors (the ‘Committee’). To meet their fiduciary duties to their estates and preserve the value of their business, the Debtors desire to meaningfully engage with the Committee and other stakeholders regarding plan issues that hopefully will result in the parties reaching a global resolution. Accordingly, the Debtors believe that it is in the best interest of their estates to seek the appointment of a mediator to facilitate discussions, negotiations and resolution among the key stakeholders of plan issues. In the Debtors’ view, it is critical that any mediation occur against the backdrop of the plan process, including disclosure statement approval, plan solicitation, and plan confirmation. The Debtors believe that parallel paths for mediation and confirmation, rather than a serial process, are necessary to ensure that the confirmation process is not delayed while the parties attempt to resolve their differences. Any delay places additional pressure on the Debtors’ businesses and employees, which have, overall, performed well notwithstanding the challenges presented by these chapter 11 cases. In addition, commencing a mediation while the confirmation process is ongoing significantly enhances the likelihood of its success.

The Committee has indicated that it is willing to participate in mediation regarding the Plan. The Debtors and the Committee are currently engaged in discussions regarding the details of the mediation, including the selection of a mediator.”

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