Wall Street Journal l Hawker Nearing Chapter 11

May 4, 2012 § Leave a comment

Jet Maker Labored Under Debt From a Goldman-Onex Buyout

Hawker Beechcraft Inc., the struggling aircraft manufacturer, is in the final stages of preparing to file for bankruptcy protection and hand ownership to several hedge funds, said people familiar with the matter.

Hawker, based in Wichita, Kan., has negotiated a debt-restructuring deal with lenders and could file for Chapter 11 bankruptcy protection sometime within the next week, the people said, depending on how quickly lawyers can put finishing touches on documents.

Hawker’s lawyers are “working by the hour” to prepare the filing, so “it will happen” as soon as they’re done, said a person familiar with the matter.

Hawker’s woes in part trace back to a buyout by Goldman Sachs Group Inc.’s private-equity arm and Onex Partners, which purchased the company for $3.3 billion in 2007. The timing proved bad. The global financial crisis crimped demand for business jets. Uncertainty over Defense Department spending also hurt Hawker’s military aircraft business.

Laboring under heavy debts imposed by the Goldman-Onex deal, Hawker posted a net loss of more than $630 million for 2011. In April, Hawker gave layoff notices to about 350 workers at a Wichita plant. Hawker today employs more than 7,000 people, down from 9,300 in late 2007.

The company plans to file a so-called prearranged bankruptcy in which creditors holding a substantial amount of the company’s $2.3 billion-plus in debt would agree to a restructuring deal ahead of time. The creditors would convert more than $2 billion of those obligations to equity in a restructured company, leaving the company’s balance sheet nearly free of debt, the people said.

A prearranged restructuring would allow Hawker to rework its finances quickly, limiting the company’s time in bankruptcy court. The company would continue operating and paying employees while under Chapter 11 protection, the people said.
Centerbridge Partners, Angelo, Gordon & Co., Sankaty Advisors LLC and Capital Research & Management own large pieces of Hawker’s $1.8 billion in senior debt and would forgive those obligations for the bulk of the company’s new equity, making them owners, the people said.

Some of the lenders are expected to provide Hawker with roughly $350 million of so-called debtor-in-possession financing that would help the aircraft manufacturer keep operating during bankruptcy proceedings, the people said. The people cautioned the financing could be provided by other investors.

During bankruptcy proceedings, Hawker could explore “strategic alternatives,” including possible sales of its business lines, one of the people said. If buyers emerge for any of Hawker’s assets, that could change its restructuring.
Hawker hired Robert S. “Steve” Miller, a restructuring veteran, to take over as CEO in February amid weak demand for business jets.

Mr. Miller is expected to oversee Hawker during its Chapter 11 court proceedings, and could depart once the restructuring is completed, said a person familiar with the situation.

The company received a waiver on various debt terms from creditors in March, along with a $124.5 million loan to keep the company running. That loan comes due June 29. Hawker raised “substantial doubt” about its “ability to continue as a going concern” in an April regulatory filing and listed seeking Chapter 11 protection under the U.S. Bankruptcy Code as an option for dealing with difficulties making debt payments.

The company also flagged “material weakness” in internal controls related to financial reporting in the regulatory filing. Hawker hired turnaround firm Alvarez & Marsal to help fix the accounting problems, the company said. Along with Alvarez & Marsal, law firm Kirkland & Ellis LLP and investment bank Perella Weinberg Partners are advising Hawker on its potential bankruptcy filing and restructuring.

By Mike Spector —Joann S. Lublin contributed to this article.

May 2nd, 2012

Wall Street Journal l Hawker Nearing Chapter 11


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