Canadian Helicopters Income Fund to convert to a corporation around January 2011

Canadian Helicopters Income Fund to convert to a corporation around January 2011

11-May-2010 Source: Canadian Helicopters

Canadian Helicopters Income Fund (CHL.UN) (the “Fund”) is pleased to announce today its intention to proceed with the conversion of the Fund from an income trust to a dividend paying corporation, which will continue the helicopter transportation business of the Fund and its subsidiaries (the “Arrangement”). In reaction to changes in tax legislation affecting income trusts, the conversion, effected through the Arrangement, is intended to remove the uncertainty that exists in the income fund marketplace today, allow Canadian Helicopters to be more appropriately valued relative to its corporate peers, enhance Canadian Helicopters’ access to capital and simplify its corporate structure. Upon completion of the Arrangement, Canadian Helicopters expects to pay a monthly dividend of $0.091875, the same amount currently paid as a monthly distribution by the Fund.

On October 31, 2006, the Minister of Finance (Canada) (the “Minister”) announced the federal government’s proposal to apply a tax at the trust level on distributions of certain income from, among other entities, certain publicly traded mutual fund trusts at a rate of tax comparable to the combined federal and provincial corporate tax rate and to treat such distributions as dividends to unitholders. The Minister announced that existing trusts would have a four-year transition period and generally would not be subject to the new rules until 2011, provided such trusts experienced only “normal growth” and no “undue expansion” before then.

Following the October 31, 2006 announcement and subsequent details in respect thereof, the board of trustees of the Fund (the “Board”), with the assistance of senior management of Canadian Helicopters Limited (“Management”) considered the potential impact and significance of the proposed tax changes to the Fund, and conducted a series of detailed analyses concerning the strategic direction of the Fund. In connection with this process, management considered a broad range of strategic alternatives, including new corporate structures and acquisition opportunities.
After careful consideration of the available alternatives, the Board and Management believe that the proposed corporate structure will maximize long term value for the benefit of holders of ordinary units of the Fund (“Units”) and of exchangeable Class B limited partnership units (“Class B Units”), of Canadian Helicopters Limited Partnership (collectively, “Unitholders”). Management and the Board believe that the Arrangement provides a number of compelling and strategic benefits, including, without limitation, the expectation that a conversion to a public corporation would remove the uncertainty that exists in the income fund marketplace today, allow Canadian Helicopters’ financial and operational performance to be more appropriately valued relative to its corporate peers and attract new investors.

The Fund and its subsidaries have entered today into an Arrangement Agreement pursuant to which the Arrangement will be carried out. The Arrangement will occur pursuant to a statutory plan of arrangement (the “Plan of Arrangement”) under Section 192 of the Canada Business Corporation Act (the “CBCA”). If approved, the Arrangement will result in the reorganization of the Fund’s income trust structure into a new public corporation, “Canadian Helicopters Group Inc.” (“New CH”). In connection with the Arrangement, Unitholders will receive one common share of New CH (a “Common Share”) for each Unit and Class B Unit held. The Arrangement will not be taxable to the Fund or Unitholders and the transfer of Units and Class B Units in exchange for Common Shares will be on a rollover basis. Pursuant to the Arrangement, each Common Share held by persons who are not “Canadian” within the meaning of the Canada Transportation Act (the “CTA”) will automatically convert into one variable voting share of New CH (a “Variable Voting Share”). The share capital of New CH is described in greater details below.

Additional details of the Arrangement will be announced by way of news release and filings on SEDAR ( in the coming weeks. The Fund expects to mail an information circular to Unitholders, which will include a summary of the Arrangement Agreement and additional details concerning the Arrangement, in mid-May 2010. The Unitholders will vote on the Arrangement at the Annual and Special Meeting of the Fund (“Meeting”), which is currently scheduled to be held at 1000 De La Gauchetière Street West, Suite 2500, Montréal, Québec, H3B 0A2, on Thursday June 17, 2010, at 9:30 A.M. (Eastern time). The record date for determining Unitholders entitled to vote on the Arrangement is May 10, 2010.

The Arrangement is subject to, among other customary conditions, approval by the Superior Court of Québec of the Plan of Arrangement, the approval of the TSX and a positive vote in favour of the Arrangement by the holders of at least 66 2/3% of the Fund’s voting units cast by Unitholders, either in person or by proxy, voting at the Meeting. There can be no certainty, nor can the Fund provide any assurance, that these conditions will be satisfied or, if satisfied, when they will be satisfied. If these conditions are satisfied as anticipated, the Arrangement is scheduled to be completed and become effective on or about January 1, 2011.

Following a thorough analysis of material information and relevant considerations including, but not limited to, capital requirements, the changing credit environment, capital markets, changes to its business environment, economic conditions and considering their duties and responsibilities to the Unitholders, the Board concluded that the proposed transaction was in the best interests of the Fund and fair to Unitholders and recommends that Unitholders vote in favour of the Arrangement.

The share capital of New CH, which provides for inter-convertible Common Shares (which must be owned and controlled by Canadians) and Variable Voting Shares (which must be owned or controlled by Non-Canadians), has been structured to allow New CH to respect foreign ownership restrictions of the CTA and is similar to the capital structure of other issuers in the transportation industry faced with the same foreign ownership restrictions as the Fund and New CH. Subject to modifications if the foreign ownership restrictions of the CTA (or regulations thereunder) are amended to allow greater voting rights by Non-Canadians, Variable Voting Shares may never, in aggregate, represent more than 25% of the voting rights in New CH and the voting rights attaching to any Variable Voting Share will be decreased proportionally on any vote if this threshold is exceeded. Except for voting rights as described above, the Common Shares and Variable Voting Shares have equal or equivalent rights in all other respects.

It is a condition to the completion of the Arrangement that the Toronto Stock Exchange (the “TSX”) shall have conditionally approved the substitutional listing of the Common Shares and Variable Voting Shares, subject to the fulfilling of the requirements of the TSX as soon as possible after the effective time of the Arrangement.

Distributions paid to Unitholders for the months of May 2010 through to December 2010 will not be affected by the proposed Arrangement and the Fund expects that they will be paid in the usual manner. Accordingly, Unitholders will receive their regular monthly cash distribution of $0.091875, subject to the Board’s consideration of, among other things, operating cash flow generated by Canadian Helicopters Limited (“CHL”), financial requirements of CHL and restrictions under credit facilities. Provided the Arrangement is approved at the Meeting, the last distribution paid to Unitholders by the Fund is expected to be for the month of December 2010.

If the Arrangement is approved by Unitholders at the Meeting and becomes effective on or about January 1, 2011, as currently scheduled, it is anticipated that the dividend policy of New CH will be set at $0.091875 per Common Share and Variable Voting Share per month. The dividend policy will be subject to the discretion of the board of directors of New CH and may vary depending on, among other things, New CH’s earnings, financial requirements, the satisfaction of solvency tests imposed by the CBCA for the declaration of dividends and other conditions existing at such future time.

Following completion of the Arrangement, it is expected that the Board of Directors and senior management of New CH will be comprised of all of the current members of the Board and all of the senior management of CHL. Mssrs. Don Wall and Robert Lafleur will continue to serve as President and Chief Executive Officer and Vice-President, Chief Financial Officer, respectively, of New CH. The Arrangement will be treated as a continuity of business by Management and will not trigger any change of control or similar provisions of employment agreements or compensation plans and will not result in the acceleration of any benefits thereunder.

Through Canadian Helicopters Limited, Canadian Helicopters Income Fund is the largest helicopter transportation services company operating in Canada and one of the largest in the world based on the size of its fleet. From over 35 base locations across Canada, Canadian Helicopters provides helicopter services to a broad range of sectors, including emergency medical services, infrastructure maintenance, utilities, oil and gas, forestry, mining and construction. In addition to helicopter transportation services, Canadian Helicopters operates three flight schools, provides third party repair and maintenance services and provides military support in Afghanistan. With over 60 years of experience, Canadian Helicopters is an industry leader in establishing safety standards and operating procedures.

This press release contains forward-looking statements of a speculative nature relating to the Fund’s future performance, implementation of conversion transaction, future dividend policy, future management team or treatment of contractual obligations. Such forward-looking statements are subject to certain risks and uncertainties, including the conditions described in this press release, and actual results or events may differ materially. Consequently, readers should not place any undue reliance on such forward-looking statements. The forward-looking statements relate to the date on which they were made. Canadian Helicopters disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise unless being required by applicable laws.

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