(Bloomberg) -- Canada’s Chorus Aviation Inc. has struck a deal to unload its regional-aircraft leasing business to HPS Investment Partners, reversing a strategy it embarked on more than two years ago when interest rates were lower.
Chorus will sell the business for about $1.9 billion (US$1.4 billion) including debt, according to a statement seen by Bloomberg News. The Toronto-based aerospace firm will receive $814 million in cash.
It’s a U-turn for Chorus, which plunged into owning and leasing regional aircraft in a major way with the 2022 acquisition of Falko Regional Aircraft Ltd., which gave it a portfolio of about 350 planes. The strategy didn’t pan out as rising interest rates made it more difficult to finance and expand the division.
Investors have punished Chorus, and its stock market value was $560 million as of Monday’s market close — down from nearly $1 billion in June 2021.
Chorus will use the money to clean up its balance sheet, shedding aircraft debt and paying down or redeeming debentures and preferred shares, according to the statement. The company’s leverage ratio will fall to about 1.8 times adjusted earnings before interest, taxes, depreciation and amortization on a pro forma basis, from 3.6 times.
“The Falko returns were not materializing at the pace we were expecting,” Chorus Chief Executive Officer Colin Copp said in an interview. After the deal, the company will be “vastly simplified — improved free cash flow, improved profitability. It’s an extremely compelling transformation.”
Brookfield Asset Management and Air Canada, the company’s largest shareholders, have agreed to support the deal, according to the statement. Combined, they own about 21 per cent of Chorus, according to data compiled by Bloomberg. The transaction requires approval of two-thirds of votes at an upcoming shareholder meeting.
Chorus — which was spun off as a public company in 2006 as part of a restructuring of Air Canada — will continue to operate its core aviation division, which flies smaller routes under contract to Canada’s largest airline and offers other services, such as aircraft maintenance.
HPS has established itself as a major player in the booming private credit market since it was carved out of JPMorgan Chase & Co. in 2016. The firm filed confidentially for an initial public offering, Bloomberg News reported in December. Assets under management have grown from US$34 billion in 2016 to around US$116 billion in private and public credit as of May.
HPS and its peers make loans and investments with cash they’ve raised from investors such as insurers, pensions and wealthy individuals. The New York-based firm manages various strategies, including privately negotiated senior and junior debt, preferred and equity, as well as liquid credit such as syndicated leveraged loans and collateralized loan obligations.
HPS raised more than US$21 billion in its latest private credit fund and has engaged in some of the largest transactions in the industry to date. The firm recently took the rare step of limiting inflows into one of its funds to manage a surge in demand.
©2024 Bloomberg L.P.
