Chorus Aviation Inc. (TSX: CHR) has announced a landmark agreement to divest its Regional Aircraft Leasing (RAL) segment, including Falko Regional Aircraft Limited and equity interests in related aircraft investment funds, to affiliates of HPS Investment Partners, LLC. The total consideration for this transaction amounts to approximately C$1.9 billion, comprising C$814 million in cash and C$1.1 billion in assumed or prepaid aircraft debt and non-controlling interest.

Strategic benefits and financial implications

This deal marks a transformative moment for Chorus Aviation, offering substantial financial and strategic advantages. Colin Copp, President and Chief Executive Officer of Chorus, described the transaction as a pivotal move to unlock significant equity value within the RAL segment. He emphasized that the net proceeds from the sale represent a considerable premium over the segment’s implied market value, aligning with the valuation multiples of other aircraft leasing firms.

The transaction will allow Chorus to substantially reduce its corporate debt and improve its capital structure. By lowering its debt load, the company anticipates enhanced financial flexibility and the ability to implement a sustainable capital return program for its shareholders. The proceeds will be used to pay down corporate financings, including Series 1 Preferred Shares and Debentures, and cover related transaction costs.

Expert opinion on the strategic move

Paul Rivett, Chair of Chorus’s Board of Directors, highlighted that the decision to sell the RAL segment comes after a thorough analysis of the macroeconomic environment and the company’s strategic needs. Rivett noted that transitioning to an asset-light leasing model was taking longer than expected, prompting the need for a decisive action to accelerate value creation for shareholders.

Frank Yu, Managing Partner at Brookfield’s Special Investments program, supported the decision, recognizing it as a strategic move that aligns with Chorus’s long-term goals. Brookfield, which holds approximately 13.2% of Chorus’s shares, and Air Canada, with an 8.1% stake, have both signed voting support agreements to endorse the transaction.

Transaction details and shareholder approval

The deal is set to close by the end of the year, subject to approval by Chorus’s common shareholders, regulatory clearances, and other customary conditions. A special meeting of shareholders will be convened to vote on the transaction, which requires at least two-thirds approval. Goldman Sachs International and Scotiabank have acted as financial advisors, with Milbank LLP and Osler, Hoskin & Harcourt LLP providing legal counsel.

The sale price of C$1.9 billion equates to approximately 0.84 times the RAL segment’s book value, and it is expected to result in a C$187 million impairment on discontinued operations. The transaction will also lead to a more robust balance sheet with a projected leverage ratio of 1.8x by year-end.

Future outlook

Following the transaction, Chorus will focus on leveraging its operational expertise to expand in aviation services. The company plans to use the proceeds to support future growth initiatives and enhance its ability to return capital to shareholders. The transaction is poised to reshape Chorus’s financial landscape, positioning the company for a more sustainable and strategic future.

  Air Canada, Chorus Aviation, Colin Copp, Falko Regional Aircraft Limited, Frank Yu, Goldman Sachs International, Hoskin & Harcourt LLP, HPS Investment Partners, Milbank LLP, Osler, Paul Rivett, Scotiabank