DEBT

Listed below is information regarding our indebtedness. All indebtedness owed under our Senior Notes as of March 31, 2019 is classified as subject to compromise, and as of December 31, 2018 was classified as short-term debt on our balance sheet. The Thirty-Two, LLC and Blue Torch term loans are classified as long-term debt as of March 31, 2019, except for the amount due within the next twelve months.



	March 31, 2019					December 31, 2018
	Principal			Unamortized Debt Issuance Debt Cost		Principal			Unamortized Debt Issuance Debt Cost
Unsecured	(Thousands of dollars)
Senior Notes issued March 17, 2014, interest only payable semi-annually at 5.25%, matured March 15, 2019	$	500,000		$	—	$	500,000		$	260

Secured
Term Loan - Blue Torch Finance, LLC, interest payable quarterly at LIBOR plus 6%, maturing March 13, 2023	70,000			5,609		—			—
Related Party Term Loan - Thirty Two L.L.C., interest payable quarterly at 6%, due September 28, 2020	130,000			656		130,000			765
Total indebtedness	700,000			6,265		630,000			1,025
Less: Current maturities	(875		)	—		(500,000		)	—
	$	699,125		$	6,265	$	130,000		$	1,025

Senior Notes - Subject to the automatic stay of the Bankruptcy Code, our 5.25% Senior Notes (the “Senior Notes”) matured on March 15, 2019. These notes are unconditionally guaranteed on a senior basis by each of PHI, Inc.’s wholly-owned domestic subsidiaries. These notes and related guarantees are the general, unsecured obligations of PHI, Inc. and the guarantors. For more information regarding the impact of our bankruptcy proceedings on the Senior Notes, see Note 2.

Blue Torch Term Loan Agreement - On March 13, 2019, we entered into a Loan Agreement, dated the same date (the “Term Loan Agreement”), by and among the Company, as borrower, certain of our subsidiaries as guarantors party thereto, the lenders from time to time party thereto, and Blue Torch Finance, LLC, as administrative agent and collateral agent, for a first lien term loan of up to $70 million (the “Term Loan”). Immediately upon entering into the Term Loan Agreement, and prior to the filing of the Chapter 11 Cases, we borrowed $70 million thereunder, the net proceeds of which (after the payment of transaction expenses and fees thereunder) are expected to be used to continue to fund the working capital and liquidity requirements of the Company during the pendency of the Chapter 11 Cases and thereafter. For additional information regarding our Chapter 11 Cases, see Notes 2 and 7 herein and Notes 1 and 19 on our filed 2018 10-K.

The full principal amount of the Term Loan is due March 13, 2023. At our election, borrowings under the Term Loan bear interest at either the LIBOR Rate (as defined in the Term Loan Agreement) plus 6% or the Base Rate (as defined in the Term Loan Agreement) plus 5%. The Term Loan is secured by a first lien on 91 aircraft registered and located in Antarctica, Australia, Canada, and the United States (which are currently deployed primarily in our oil and gas and technical services operations), the related spare parts for such aircraft, and certain other non-working capital assets, as well as a second lien on all working capital assets (second in priority to the liens granted under our below-described term loan agreement, dated as of September 28, 2018, with Thirty Two, L.L.C.). The Term Loan Agreement contains customary pre-payment requirements. In addition, we paid on March 13, 2019 a funding fee, which is subject to forgiveness based on certain future events.

The Term Loan Agreement contains certain customary negative covenants that, among other things, restrict, subject to certain exceptions, the Company’s and each guarantor’s incurrence of additional indebtedness or liens, mergers, dispositions of assets, investments, restricted payments, modifications to material agreements, sale and leasebacks, transactions with affiliates, fundamental changes, locations of certain aircraft and acquisitions of assets. In addition, the financial covenants under the Term Loan Agreement require us to maintain (a) minimum liquidity of the Company, the guarantors and their respective subsidiaries, as of the last day of any calendar month, of at least $20 million of unrestricted cash and cash equivalents (provided that at least $10 million of such cash and cash equivalents shall, as of any date of determination, be held solely by the Company and the guarantors); (b) a minimum fixed charge coverage ratio, as of the last day of the following test periods, commencing with the first full fiscal quarter following the effective date of the plan of reorganization in the Chapter 11 Cases, of at least (i) 0.0000:1.00 for quarters ending on or prior to March 31, 2020, (ii) 0.1875:1.00 for quarters ending from June 30, 2020 through September 30, 2020, (iii) 0.3750:1.00 for quarters ending from December 31, 2020 through March 31, 2021, (iv) 0.9125:1.00 for quarters ending from June 30, 2021 through September 30, 2021, and (v) 1.2000:1.00 for quarters ending on December 31, 2021 and thereafter; (c) a secured leverage ratio, as of the last day of each of the following test periods, commencing with the first full fiscal quarter ending following the effective date of the plan of reorganization in the Chapter 11 Cases (as defined below), of no greater than (i) 4.50:1.00 on or prior to September 30, 2020, (ii) 4.25:1.00 from December 31, 2020 through September 30, 2021, (iii) 4.00:1.00 from December 31, 2021 through December 30, 2022 and (iv) 3.75:1.00 on December 31, 2022 and thereafter; and (d) a total appraisal ratio of the aircraft collateral (less dispositions permitted under the Term Loan Agreement) to borrowings outstanding under the Term Loan, as of the last day of any calendar month, of at least 4.00:1.00. The Term Loan Agreement also contains customary affirmative covenants and customary representations and warranties. As of the date of these financial statements, we are in compliance with these covenants.

The Term Loan Agreement specifies certain customary events of default, including, among others, failure to pay principal or interest on the Term Loan when due, the breach of representations or warranties in any material respect, non-performance of other covenants and obligations, judgments in excess of $2.5 million, the occurrence of certain ERISA events resulting in liability in excess of $2.5 million, impairments of more than $2.5 million of the collateral securing the Term Loan, and certain change of control events. The filings of the Chapter 11 Cases neither constituted an event of default nor accelerated payment of the Company’s indebtedness under the Term Loan Agreement.

Related Party Term Loan - On September 28, 2018, we entered into a term loan agreement with Thirty Two L.L.C., which provided us with a term loan of $130 million maturing on September 28, 2020. This loan bears interest at an annual fixed rate of 6% payable quarterly, with all principal due on maturity. Thirty Two L.L.C., an entity wholly-owned by our CEO and controlling shareholder, is a related party.

Contemporaneously with borrowing $130.0 million under the term loan, we applied approximately $122.7 million of the loan proceeds to repay principal and accrued interest under our senior secured revolving credit facility, which was terminated in connection with such repayment, and applied the remainder of the proceeds to cash to collateralize certain outstanding letters of credit.

Obligations under the term loan are guaranteed by PHI Air Medical, L.L.C. and PHI Tech Services, Inc., both of which are wholly-owned by us. Our obligations and the guarantors’ obligations are secured by all of their respective inventory, spare parts and accounts receivable located in the U.S.

The related party term loan agreement contains customary restrictive covenants that, subject to certain exceptions and limitations, limit or restrict our ability to, among other things, (i) purchase, retire or redeem any shares of our capital stock; (ii) incur indebtedness; (iii) mortgage or encumber our assets; (iv) make loans to, or guarantee the indebtedness of, any individual or entity; (v) effect a change of control of PHI; (vi) consolidate with or merge into any other corporation, or permit any other corporation to merge into us; (vii) sell or lease all or substantially all of our assets; or (viii) acquire all or a substantial part of the assets or capital stock of another entity. The term loan agreement contains no financial covenants. The term loan agreement contains customary representations and warranties, affirmative covenants and events of default.

Letter of Credit - At March 31, 2019, we had $19.8 million of outstanding letters of credit secured by a like amount of restricted cash, $12.2 million of which secured certain domestic operations or insurance policies and $7.6 million of which guaranteed our performance under an international contract. At December 31, 2018, we had $19.8 million of outstanding letters of credit issued for the same purposes.

Other - PHI, Inc. has cash management arrangements with certain of its principal subsidiaries, in which substantial portions of the subsidiaries’ cash is regularly advanced to PHI, Inc. Although PHI, Inc. periodically repays these advances to fund the subsidiaries’ cash requirements throughout the year, at any given point in time PHI, Inc. may owe a substantial sum to its subsidiaries under these advances, which, in accordance with GAAP, are eliminated in consolidation and therefore not recognized on our consolidated balance sheets. For additional information, see Note 15.

Acceleration of Certain Debt Obligations - The commencement of the Chapter 11 Cases constituted an event of default that accelerated the obligations under the indenture governing our 5.25% Senior Notes due 2019 and our term loan agreement with Thirty Two, L.L.C. Any efforts to enforce payment of such financial obligations under such instruments and agreements are automatically stayed as a result of the Chapter 11 Cases and the holders’ rights of enforcement in respect of such financial obligations are subject to the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.