Bristow Issues $500M Notes, Undermining Deleveraging Targets

What happened

Bristow Group has priced an upsized private offering of $500 million in 6.75% senior secured notes due 2033. This move occurs as the company, with elevated leverage at a Net Debt/EBITDA ratio of 3.3x, had been targeting a reduction in gross debt to around $500 million by end-2026. While management may frame this as strategic for refinancing or funding capital commitments like helicopter deliveries, it directly increases total debt. Critical analysis suggests this contradicts the deleveraging plan, potentially worsening financial risk and covenant pressures in a cyclical industry. Investors must now scrutinize the use of proceeds and whether this signals a shift away from balance sheet discipline.

Implication

The $500 million note offering will increase Bristow's gross debt, making the target of reducing it to ~$500m by 2026 more challenging. With a 6.75% coupon, interest expenses will rise, pressuring cash flow and interest coverage, which was 4.11x. If proceeds are used for growth, such as funding UKSAR2G contracts, it could support earnings but adds debt without immediate deleveraging. Elevated leverage heightens vulnerability to offshore cycle downturns or execution risks on government contracts. This move may erode investor confidence in management's capital allocation, potentially keeping stock multiples depressed.

Thesis delta

The investment thesis, which hinged on Bristow's deleveraging and cyclical earnings recovery, shifts negatively with this debt increase. It introduces higher financial risk and delays balance sheet normalization, undermining a key pillar of the potential buy case. This raises doubts about management's commitment to stated goals and could trigger a re-evaluation of the stock's risk-reward profile.