Transaction to unlock significant embedded equity value for common shareholders¹ and position Chorus for the future

• Sale price of $1.9 billion to unlock embedded equity value in the Regional Aircraft Leasing ("RAL") segment, with net proceeds of $814 million.
• Transaction to eliminate $1.7 billion in financings, including all RAL segment aircraft-related debt, substantially all Chorus corporate debt, and US$300 million in Series 1 Preferred Shares.²
• Pro forma Leverage Ratio³ as at the end of 2023 would decrease to 1.8x from 3.6x, with substantially all remaining debt relating to aircraft operated by Jazz Aviation under the Capacity Purchase Agreement (the "CPA") with Air Canada and supported by fixed payments under the CPA.
• Pro forma Free Cash Flow³ after debt payments as at the end of 2023 is higher by 29%.
• Post-closing, Chorus to produce higher Free Cash Flow after debt repayments and have significant liquidity to both enable growth in aviation services and accelerate the return of capital to common shareholders.
• Brookfield Asset Management Ltd. (NYSE: BAM, TSX: BAM) through its Special Investments program, and Air Canada (TSX: AC), Chorus’ two largest common shareholders⁴, endorse the transaction.

HALIFAX, NS, July 30, 2024 – Chorus Aviation Inc. ("Chorus" or the "Company") (TSX: CHR) announced today that it has entered into an agreement to sell all assets in its RAL segment, including Falko Regional Aircraft Limited ("Falko") and Chorus’ equity interests in the aircraft investment funds managed by Falko and its affiliates to affiliates of investment funds managed by HPS Investment Partners, LLC (the "Transaction"). The aggregate consideration for the Transaction is approximately $1.9 billion, of which $814 million is in the form of cash (net of estimated transaction expenses) and $1.1 billion is in the form of aircraft debt to be assumed or prepaid by the buyers at closing and the value of the non-controlling interest.⁵

"We are pleased to announce this transaction, which is a catalyst for unlocking the embedded equity value in our RAL segment," stated Colin Copp, President and Chief Executive Officer, Chorus. "This is a compelling transaction for shareholders with net proceeds representing a significant premium to the implied market value of the segment⁶ and at a price consistent with the trading multiples of our aircraft leasing peers.⁷"

"This transaction will allow us to significantly reduce our debt and corporate financings, leaving Chorus with strong and predictable free cash flows from our long-term contracts. That will enable us to implement a sustainable return of capital program for our common shareholders and invest in future growth," said Mr. Copp. "We will leverage our deep operational expertise and capabilities to focus our growth on aviation services, as demonstrated by recent growth in Voyageur’s business."

"This decision follows rigorous analysis and a sharp focus on accelerating value creation for shareholders. With the macro-economic environment, it became apparent that the transition to an asset light leasing model would take longer than originally anticipated," said Paul Rivett, Chair, Board of Directors, Chorus. "Shareholders expected a strong, near-term catalyst for value creation. After evaluating various options, we determined that a sale of the RAL segment would give us the flexibility to pursue future growth and return capital to our shareholders faster."

"We support the decision to sell the RAL segment, which allows the company to execute on its strategic plans, and we appreciate management’s efforts in negotiating a favorable transaction for Chorus," said Frank Yu, a Managing Partner in Brookfield’s Special Investments program.

Brookfield holds approximately 13.2% of Chorus’ outstanding common shares, and Air Canada holds approximately 8.1% of Chorus’ outstanding common shares. Both shareholders have signed voting support agreements with the buyers pursuant to which they have agreed to vote in favour of the approval of the Transaction and are expected to maintain representation on the Company’s board of directors following completion of the Transaction. Chorus and Air Canada have also agreed to amend and restate the investor rights agreement between them to, among other changes, reinstate Air Canada’s pro rata pre-emptive rights and reduce the ownership threshold applicable to Air Canada’s director nomination right. A copy of the amended and restated investor rights agreement will be filed under the Company’s profile on SEDAR+ at www.sedarplus.ca on or before the filing of the Company’s Material Change Report.

The Transaction is expected to close by the end of this year.

Immediate Value Realization

The $1.9 billion sale consideration nets $814 million in proceeds, which represents approximately 0.84x of the RAL segment’s book value and is consistent with trading multiples of public company lessors^5,7. Based on Chorus’ current share price, the net proceeds from the Transaction represent a premium to the implied market value of the RAL segment⁶.  The Transaction will unlock value for common shareholders.

Significant Improvement in Capital Structure

The proceeds from the Transaction are expected to be used to pay down or redeem the Company’s corporate financings, including the Series 1 Preferred Shares and all of the Debentures⁸, as well as pay all related transaction expenses and early redemption amounts (including the multiple on invested capital payable upon the redemption of the Series 1 Preferred Shares).  Following the closing of the Transaction, Chorus will exercise its rights to redeem or make an offer to redeem (as applicable) the Debentures in accordance with the terms of the relevant indentures.

Importantly, following the closing of the Transaction, and the application of the proceeds therefrom, substantially all of the Company’s remaining debt is expected to consist of amortizing term debt relating to aircraft operated by Jazz Aviation under the CPA with Air Canada, which is fully supported by the CPA out to 2035, and a revolving operating credit facility that can be drawn from time to time.  

Following closing, the Transaction is expected to significantly strengthen the Company’s balance sheet with a pro-forma Leverage Ratio³ of 1.8x at December 31, 2023.

Bolsters Ability to Return Capital to Shareholders

The substantial improvement in Chorus’ capital structure will enhance the Company’s financial flexibility and support its ability to implement a sustainable return of capital program for common shareholders. 

Other

Chorus and its subsidiary, Chorus Aviation Capital Corp., have entered into a binding sale and purchase agreement ("SPA") in respect of the Transaction with affiliates of investment funds managed by HPS Investment Partners, LLC. Pursuant to the SPA, the Transaction is subject to approval by Chorus’s common shareholders, regulatory approvals and other customary conditions to closing. Completion of the Transaction is not conditional on financing.

The SPA permits Chorus’ board of directors to consider an unsolicited superior proposal (including a proposal for the acquisition of Chorus) which is received after the date of the SPA and before the approval of the Transaction by shareholders. The buyers will have the right to match a superior proposal for the RAL segment. Chorus has agreed to pay the buyers a break fee of USD $25 million in the event that the Chorus board withdraws or otherwise changes its recommendation in favour of the Transaction after receiving a superior proposal and subsequently terminates the SPA to accept the superior proposal.

The net sale price, representing 0.84x of the RAL segment’s book value, is expected to result in an impairment on discontinued operations of $187 million as at June 30, 2024.⁹A copy of the SPA will be filed under the Company’s profile on SEDAR+ at www.sedarplus.ca on or before the filing of the Company’s Material Change Report.

The guidance for Chorus’ Regional Aviation Services segment contained in the Outlook section of Chorus’ First Quarter 2024 Management’s Discussion and Analysis of Results of Operations and Financial Condition remains unchanged. The guidance in that section relating to Chorus consolidated and the RAL segment is withdrawn in light of the expected closing of the Transaction by year end.

Shareholder Approval

The Transaction is subject to the approval of at least two thirds (66 2/3%) of the votes cast by Chorus’ common shareholders. The Company will seek approval of the Transaction by its shareholders at a special meeting of shareholders to be called in due course (the "Meeting"). The Chorus board has unanimously determined that the Transaction is in the best interest of Chorus and will unanimously recommend that shareholders vote in favour of the Transaction. Brookfield and Air Canada, the Company’s largest shareholders⁴, have both signed agreements to vote in favour of the Transaction at the Meeting.

Goldman Sachs International provided an opinion to the Chorus board that, as of the date thereof and subject to the assumptions, limitations and qualifications set forth therein, the consideration to be received by Chorus pursuant to the Transaction was fair, from a financial point of view, to Chorus. The full text of such fairness opinion, which sets forth the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken in connection with such opinion, will be available in the management proxy circular that will be prepared for the Meeting. The opinion of Goldman Sachs International is not a recommendation as to whether or not any shareholder of Chorus should vote with respect to the Transaction or any other matter.

Further information regarding the Transaction will be included in the management proxy circular that will be prepared for the Meeting. The description of the Transaction in this news release does not purport to be complete and is subject to, and qualified in its entirety by reference to, the contents of the management proxy circular. Shareholders are encouraged to carefully review the management proxy circular when it becomes available.

Transaction Advisors to Chorus

Goldman Sachs International acted as lead financial advisor to the Company. Scotiabank also acted as financial advisor to the Company.

Chorus is advised by Milbank LLP as lead transaction counsel and Osler, Hoskin & Harcourt LLP as Canadian corporate counsel.