A consortium of creditors is acquiring MD Helicopters Inc. after the Mesa company filed for bankruptcy following a legal judgment that it had defrauded the U.S. Army.
The company said a creditor group led by investment firm Bardin Hill and MBIA Insurance Corp. will acquire nearly all of the company’s assets and provide new capital to strengthen MD’s financial position and support its ability to manufacture and service high-performance helicopters. The group is providing $60 million in short-term financing during the bankruptcy process.
The company filed for Chapter 11 bankruptcy protection March 30, listing more than 1,000 creditors from local businesses to foreign entities.
Damages awarded in Army case
The bankruptcy filing was linked to a setback in September, when a jury in U.S. District Court in northern Alabama awarded $36.8 million to the federal government in a case where MD Helicopters was accused of breaking contractor rules through its employment ties to Norbert Vergez.
The former colonel and U.S. Army procurement officer in Huntsville, Alabama, helped the company win contracts in 2011 and 2012 with El Salvador, Costa Rica and Saudi Arabia.
The jury found that the company fraudulently induced the Army into the contracts, damaging its reputation for providing an acquisition process free of corruption. The company also was accused of defrauding the Army by charging it higher prices for military helicopters than on comparable aircraft that it sold to commercial customers.
Vergez pleaded guilty to criminal conflict of interest charges in 2015 and was fined and placed on probation, according to media reports.
The $36.8 million damage awarded to the federal government and whistleblowers was subject to tripling.
MD Helicopters also faces a $15 million judgment in a case brought by the Netherlands. Further, the company’s business prospects ebbed following the American withdrawal from Afghanistan, from supply chain disruptions and from other problems, according to a declaration by Barry Sullivan, the company’s president and chief financial officer.
Company’s Arizona roots
The Mesa company makes helicopters for commercial, military and law enforcement customers, and for air rescue. It was bought in 2005 by Arizona businesswoman Lynn Tilton, whose Patriarch Partners investment firm claims to own more than 240 companies generating more than $100 billion in combined annual revenue and employing 700,000 people. The portfolio includes Spiegel Catalogs, Dura Automotive, Rand McNally and Stila Cosmetics, according to Patriarch’s website.
Tilton stepped down as CEO of MD Helicopters in 2020. During her oversight, she said employment at MD Helicopters grew from around 150 to more than 400 as of a 2017 interview with The Arizona Republic. MD Helicopters currently employs 263 people, almost entirely in Mesa, according to Sullivan. The company is still largely owned by entities tied to Hilton, though not Patriarch Partners, according to court documents.
MD Helicopters was founded by Howard Hughes’ Hughes Aircraft Co. and later was owned by entities including McDonnell Douglas and Boeing. The company said it has more than 2,500 aircraft in use around the world.
MD Helicopters said it expects to continue its regular operations during the bankruptcy-sale process. That includes serving its civil and military customers and working with suppliers.
Bankruptcy process begins
MD Helicopters filed for Chapter 11 reorganization in federal bankruptcy court in Delaware. MD Helicopters said it expects a “quick and orderly sale … with the creditor consortium serving as the ‘stalking horse bidder’ in a court-supervised sale process.”
The planned acquisition is “subject to higher or otherwise better offers, court approval and other customary conditions,” the company added. Stalking-horse bids are bids arranged in advance.
“Since last year, we have been exploring a potential sale of the company that would enable us to move forward with new ownership to support MD’s continued manufacturing operations and maintenance services long into the future, as well as deleverage our capital structure,” said Alan Carr, sole director and chairman of MD Helicopters, in a prepared statement.
He has overseen MD Helicopters since Tilton’s departure two years ago.
“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,” Carr added.
Looking to the future
Jason Dillow, CEO and chief investment officer of Bardin Hill, said his company believes MD is “on an exciting growth trajectory, led by a strong management team, state-of-the-art technology and an established brand.” In a prepared statement, he said MD has a “storied history in the aerospace industry and a track record of delivering exceptional performance, value and support to its operators.”
In connection with the proposed sale transaction, MD Helicopters said it received a commitment for around $60 million in financing from accounts managed by Bardin Hill and MB Global Partners. The company said it expects this new financing, together with cash generated from operations, to support the business throughout the sale process.
In conjunction with the Chapter 11 filing, the company said it has filed a number of customary motions with the court seeking authorization to continue operations without interruption including paying wages to employees, honoring customer commitments and making payments to various vendors.
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