The Canadian provider of helicopter transportation services for the offshore drilling industry has until May 15 to pay $46 million it owes on its debt, cut a deal with its lenders — including its largest note holder, Franklin Resources Inc. — to reduce its obligations or face the possibility of filing for bankruptcy protection from its creditors.

CHC missed an interest payment on its first-lien notes due 2020 on April 15. It has a 30-day grace period to pay or be declared in default on that debt. Moody’s Investors Service downgraded the bonds on April 19 and said that its decision “reflects Moody’s expectation that the company will file for creditor protection or restructure its debt in 2016.”

In addition, Moody’s expects the company to breach covenants tied to helicopter leases that could trigger hundreds of million of dollars in payments coming due unless the company can amend the agreements.

“This is not a sustainable capital structure and they need to deal with it on both sides, debt and leasing,” said Paresh Chari, an analyst at Moody’s in Toronto.

CHC’s 9.25 percent bonds due in 2020, which are in danger of default, last traded at 44.5 cents on the dollar at 9:49 a.m. in New York Thursday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Susan Gordon, a spokeswoman for CHC, declined to speculate on whether it may choose to file for bankruptcy protection. The company said in its latest quarterly earnings report on March 4 that it “may seek protection of the bankruptcy court.”

“Given the dynamic backdrop of the industry, we believe the grace period helps us to most thoroughly continue the robust review that remains under way with our advisers,” she wrote in an e-mail. “We remain focused on strengthening CHC for the long-term and ensuring that we are well positioned to benefit from the eventual market recovery.”

Stronger Headwinds

Richmond, British Columbia-based CHC has oil and gas drilling clients in the North Sea, as well as Brazil and Australia. Like many businesses tied to the oil and gas industry, it’s been struggling to manage its finances with a slump in oil prices that’s approaching two years.

Global offshore spending is forecast to drop 27 percent this year, according to a February estimate by Wells Fargo Securities analysts led by Judson Bailey. That follows an 11 percent fall in 2015. A rebound isn’t expected soon, as the analysts projected that spending will drop another 11 percent in 2017 and 5 percent in 2018.

To make matters more challenging, CHC is facing stronger headwinds than some of its peers that own more of their own aircraft and have larger non-energy divisions, Chari said. CHC is tied to lease commitments for its rental fleet and hasn’t built out other divisions including search and rescue to the same extent as competitors, he said.

On a March 4 earnings conference call, CHC Chief Executive Officer Karl Fessenden said the company’s financial and legal advisers — Seabury Advisors, PJT Partners, CDG Group and Weil, Gotshal & Manges — are helping it examine alternatives including restructuring the balance sheet and reworking aircraft leases.

Avoiding Bankruptcy

Franklin, a money manager particularly affected by the crude slump from its energy investments, already has reduced its exposure to CHC by almost cutting in half its holdings in the company’s first-lien notes as of the end of March, according to data compiled by Bloomberg.

Stacey Coleman, a spokeswoman for Franklin, declined to comment in an e-mail.

To restructure its debt and avoid bankruptcy, CHC might be trying to orchestrate a deal with bondholders to trade warrants or options in return for lower interest payments or a cut in the principal it owes, said Evan Mann, a senior bond analyst at Gimme Credit LLC in Livingston, New Jersey. It’s a technique that companies have increasingly used to help avoid bankruptcies in such challenging times.

“I was expecting to see more bankruptcies already which we have not really seen because of the issuers’ capacity to use loose covenants to prime existing bondholders,” said Marc-Andre Gaudreau, a vice-president and portfolio manager at 1832 Asset Management in Montreal. “That’s giving the issuers a break and keeping them alive a little longer.”