Military helicopter contractor enters bankruptcy with sale plans

(Reuters) - Military contractor MD Helicopters Inc filed for Chapter 11 protection on Wednesday with creditors of its owners – two funds run by financier Lynn Tilton that have been going through their own bankruptcies – in line to purchase the company.

The Arizona-based company, which filed for bankruptcy in Delaware and is controlled by Tilton’s investment funds, has obtained a lead bid, opens new tab from investment firm Bardin Hill and MBIA Insurance Corporation that will be subject to competing offers through the Chapter 11 process. In recent years, the company has faced False Claims Act litigation and contract disputes, as well as a substantial hit to revenue as a result of the U.S. military’s withdrawal from Afghanistan. The company remains in operation as it pursues a sale.

“After a thorough review of the options available to us, we believe this transaction and court-supervised process will help achieve our objective and create the best path forward for MD and all of our stakeholders,” Board Chairman Alan Carr said in a statement.

The company has $357 million in senior debt and is in default on that loan agreement, which matured in April 2019. It also owes about $60 million to junior noteholders.

Bardin Hill and MBIA, which have also agreed to provide a $60 million loan to fund MD Helicopters during bankruptcy, have made a $150 million credit bid for the company.

Tilton acquired MD Helicopters through her investment firm, Patriarch Partners, in 2005 and quickly took over the role of the company’s sole director and chief executive officer. She resigned from both positions in March 2020.

Patriarch funds known as Zohar I and Zohar II are collectively MD Helicopters’ largest shareholders as well as its primary lender. The Zohar funds filed for bankruptcy in 2018 and have since been working to monetize its portfolio companies, including MD Helicopters.

In 2013, two former employees sued the company in Alabama federal court, accusing it of improper conduct related to obtaining government contracts. Following a trial on fraudulent inducement claims related to three contracts, a jury issued a $36.8 million verdict against MD Helicopters in September 2021. In the months since, the company, the former employees and senior lenders have been in mediation over the judgment, which led to an agreement that incorporates a restructuring.

Additionally, MD Helicopters faces a $15 million judgment in favor of the Netherlands related to an aircraft procurement contract.

A hearing on operational matters will take place on Friday before U.S. Bankruptcy Judge Karen Owens in Wilmington, Delaware.

The case is In re MD Helicopters, Inc., U.S. Bankruptcy Court, District of Delaware, No. 22-10263.

For MD Helicopters: Suzzanne Uhland, Adam Ravin, Brett Neve, Tianjiao Li and Ali Zablock of Latham & Watkins and David Stratton, David Fournier, Evelyn Meltzer and Ken Listwak of Troutman Pepper Hamilton Sanders