Offshore Drilling Contractor files for bankruptcy

Noble Corporation has filed for Chapter 11 bankruptcy in the Southern District of Texas. Technically, the company has its head office in London, but, operationally, the company is run from its Sugar Land offices.

Noble has a fleet of 12 drillships and semisubmersibles and 12 jackup rigs, largely focused on ultra deepwater. Of the 12 floaters, five are cold-stacked while four of the jackup rigs are warm-stacked. [Warm-stack means the rig is in port with a crew ready to go, cold-stack means the rig is being stored at minimum expense].



Agreement with Bondholders

Noble has agreement with two ad hoc groups of the largest bondholders. Combined, they represent about 50% of $3.4 billion of unsecured debt outstanding. They need to get approval from two-thirds of the bondholders for the plan to be effective.

Under the proposed plan, the unsecured debt will be cancelled and exchanged for, effectively, 86% of the equity in the reorganized company. The bondholder have also agreed to invest $200 million of new capital in the form of new second lien notes. 10% of the new equity will be reserved for a management incentive plan. Existing shareholders will get 4% of the new equity.

A new $675 million secured revolving credit facility will also be provided by the current syndicate of credit facility lenders. The borrowings on the current facility are $550 million.

Unsecured trade creditors will be paid in full.

CEO and CFO transition

In February, Noble promoted Robert Eifler from Senior VP, Commercial to CEO, replacing Julie Robertson, who became Executive Chairman. Unusually, Ms Robertson (who has been with the company since 1979) got a lump sum payment of $3.75 million as part of the transition, even though she wasn’t leaving the company.

That CEO transition promptly triggered a CFO transition. Stephen Butz, who had only joined the company in December 2019, resigned in March. He got to keep $450,000 of his $1.1 million sign-on bonus. Mr Butz had replaced Adam Peakes who had left in September 2019 with a $1 million severance.

The current CFO is Richard Barker, who joined from Moelis & Company, an investment bank. He was awarded cash retention bonuses of $725,000 and $575,000, to be paid in December 2020 and December 2021 respectively.

SEC filing – Noble Corp bankruptcy

 

Houston tax preparers indicted for false filing of tax returns

Two Houston-area woman have been indicted on 32 counts related to the false filing of tax returns.

Rita Rogers and Joi Lin Hunt owned Caliente Xpress Tax Service in Sharpstown, Houston. The business started in 2014. At its peak, the business had 12 employees.



According to the indictment, they allegedly prepared returns for customers for the 2013-2016 tax years that included false schedules on 1040 forms. These claimed company losses for customers who did not own any businesses and had no such expenses.

The indictment further alleges Hunt and Rogers did not inform customers that the 1040 forms were being prepared on their behalf. Although the taxpayers would collect the refunds, Caliente Xpress charged fees ranging from $300 to $600 to prepare the return.

During the 2013-2016 tax years, Hunt and Rogers prepared 2,613 tax returns, according to the indictment. 98% received refunds, totaling $13.5 million. For 66% of these, Caliente allegedly claimed fictitious expenses on a Schedule 1040.

It appears that, during 2016, taxpayers started getting letters from the IRS that their 2013 or 2014 tax return was under audit. An undercover IRS Special Agent later visited the business in February 2017, posing as a taxpayer needing a return prepared. Rogers initially prepared a correct tax return that reported a tax due to the IRS. She then, allegedly prepared another return, claiming false expenses and a refund due. Hunt transmitted the return to the IRS.

If convicted, both face up to five years imprisonment and a possible $250,000 maximum fine.

Caliente Xpress indictment

https://www.justice.gov/usao-sdtx/pr/two-houston-area-tax-preparers-indicted

KLX Energy Services and Quintana complete merger

Photo by Joshua Doubek

The merger between two publicly-traded oilfield service companies, Quintana Energy Services (QES) and KLX Energy Services (KLXE), has been completed. The all-stock deal was first announced in May 2020.

KLXE is based in Florida while QES’s head office is in downtown Houston. KLXE is a leading provider of completion, intervention and production services. QES’s primary services include directional drilling, snubbing, coiled tubing, wireline services and pressure pumping.



The merger allows the companies to rationalize their fleets of coiled tubing and wireline assets. Before the merger was announced, QES had decided to repurpose its recently-idled pressure pumping units to support its coiled tubing fleet. The merger helps that objective.

The combined company takes the KLX Energy name and keeps the KLXE ticker symbol. However, the head office will remain in Houston.

Consideration

The combined company had proforma revenues for the three months ended April 30, 2020 of $176 million and an operating loss before impairment of $36.5 million. KLXE shareholders got 59% of the combined company, QES 41%. The preliminary valuation of the QES equity at March 31 was $46.9 million, considerably below its net asset value of $112.9 million.

According to the merger proxy statement, QES has long held the view that consolidation in the oilfield services sector was necessary. They identified KLXE as a possible merger partner in the fall of 2019. At that time QES was in discussions to acquire another unnamed company. They first approached KLXE in March 2020.

Management of combined company

Interestingly, QES initially suggested that then-CEO of KLXE, Amin Khoury and Thomas McCaffrey, then CFO of KLXE take the same roles in the combined company for one year. After that, QES CEO Chris Baker and QES CFO Keefer Lehner would take the top jobs.  Unfortunately, Mr Khoury had to resign suddenly in April for personal family health reasons. Mr McCaffrey was appointed CEO of KLXE.

As a result, Mr Baker immediately became the CEO of the combined group and Mr Lehner the CFO. To alleviate possible concerns of the KLXE shareholders Mr McCaffrey has been appointed to the combined Board and will chair the integration committee.

The company expects to generate $40 million in synergies. This will primarily be achieved by  rationalizing the Florida corporate office and the combining the KLXE and QES Houston-area locations. There’s also some overlap of field offices.

 

E-commerce provider files for bankruptcy after hacking breach

Austin-based Volusion LLC has filed for Chapter 11 bankruptcy in the Southern District of Texas. Volusion is a provider of cloud-hosted online stores for small and medium-sized businesses. However, in late 2019, hackers compromised the Google cloud infrastructure of the company and stole 239,000 credit card records. The hackers sold the stolen credit cards for at least $1.6 million.



Volusion was founded by Kevin Sproles in 1999 when he was 16 years old. He returned to the company in 2015 as CEO, though he stepped down from that role in August 2019, shortly before the breach took place.

Mr Sproles still owns 88% of the equity. Main Street Capital, a Houston-based public company, owns 8% of the equity, which they valued at $12.95 million in their most recent annual report. Main Street also has a further $19.2 million in secured debt and $0.3 million in unsecured debt invested in the company.  The other 4% of the equity is owned by another Houston company, HMS Equity Holdings, which also has secured debt outstanding.

According to a research report by Gemini, the hackers inserted malicious JavaScript code onto the company’s servers. This was then loaded onto at least 6,589 online stores of customers of Volusion. The malicious code recorded payment card details as it was being entered onto checkout forms. The breach occurred on September 7, 2019 and was discovered on October 8. The stolen card data was put up for sale on the dark web in November.

Tim Stallkamp of Conway MacKenzie has been appointed Chief Restructuring Officer of the company.

Volusion llc Chapter 11

 

 

Another Houston E&P company files for bankrutpcy

Rosehill Resources, which has its head office in west Houston, has filed for bankruptcy in the Southern District of Texas. At the beginning of the month, the company had stated it had a pre-packaged plan agreed with most of its creditors.



History of the company

The company operates in the Delaware Basin, a sub-basin of the Permian Basin where it had 15,785 gross acres. It currently operates or owns working interests in 133 oil and gas wells, though, back in March, it announced the suspension of all drilling and completion activity for the rest of 2020. The company was formed in 2017 when KLR Energy Acquisition, a blank check company, acquired Tema Oil & Gas in a deal valued at $445 million.

Amounts owed

At the time of filing, the company owed $226 million on a revolving credit facility. In March the company had drawn $340 million on the revolving credit facility, however it monetized all its hedges for $88 million to pay the balance down. The company also owed  $106 million on second lien 10% Secured Notes due January 2023. The notes are owned by EIG Management Company or its affiliates, an investment firm.

The main terms of the bankruptcy plan are

  • The Secured Noteholders will get 68.60% of the equity in the reorganized company
  • The Secured Noteholders and Tema have agreed to provide a $17.5 million debtor-in-possession financing facility. In return they will get 25.84% of the equity.
  • Tema will get 4% of the equity. This is because, at the time of sale, it had a tax receivable that Rosehill agreed to collect on its behalf, for a 10% administrative fee. At the time of filing, this was valued at $89 million.
  • The Preferred Series A stock holders will get 1.48%, provided none of the stock holders objects to the plan.
  • A new revolving credit facility of $235 million will be put in place.
  • All unsecured creditors will be paid in full

Rosehill Chapter 11

NRG to buy Houston-based Direct Energy

NRG has agreed to buy Houston-based Direct Energy from Centrica for $3.6 billion in cash. The company expects to save $300 million in synergies, much of it from the elimination of duplicate headquarters and back office functions.

NRG is an integrated power company that has its head office in New Jersey. It has an operational head office in Houston as most of its retail revenues are in Texas. Its generating capacity is split more evenly between Texas, New York, Connecticut, Illinois and California.



Direct Energy was acquired by UK-based Centrica in 2000 for $912 million. At that time, Centrica (formerly a nationalized company called British Gas) was looking to grow internationally. Through Direct Energy, it subsequently acquired Clockwork, a home services franchise platform that operated brands such as One Hour Heating & Air Conditioning, Benjamin Franklin Plumbing and Mister Sparky Electric.

In recent years, Centrica has been losing market share in its home market. This forced it to retreat from its international operations. It sold Clockwork last year for $300 million.

When Direct Energy was acquired, its head office was in Toronto, Ontario.  The head office moved to Houston in 2012. It is one of the largest retail providers of electricity, with customers in all 50 states. The acquisition allows NRG to diversify its retail customer base.

NRG expects to achieve $300 million in synergies by 2023 while spending $220 million in one-off costs to do that. It doesn’t quantify how it gets to the $300 million but does state that there will be ‘facility savings with significant employee geographic overlap, co-loaded headquarters and branch offfices’.

The transaction is expected to close by the year end.

https://investors.nrg.com/events/event-details/business-update-call

 

 

CFO leaves struggling retailer

Jack Calandra, CFO of Tailored Brands, is leaving the company in a cost-cutting move. The retailer, which has its head office in the Westchase area of Houston, operates 1,445 stores (mainly Men’s Wearhouse and Jos A Bank) and has been hit hard by global pandemic. All stores were shut between mid-March and early May. Sales are down substantially since most they reopened.



At the beginning of this month, the company announced it had elected not to pay interest on its 7% Senior Notes due 2022. Legally, the company has a 30-day grace period to make the payment before the non-payment is considered a default. In practice, it is negotiating with lenders on terms for a possible bankruptcy plan.

Mr Calandra will leave effective July 31, 2020. He will receive a lump sum payment of $600,000, which is the equivalent of one year’s base salary. The company has no immediate plans to replace Mr Calandra. Instead his duties will be divided up between CEO Dinesh Lathi and Holly Etlin, who has been appointed Chief Restructuring Officer. Ms Etlin is a Managing Director at AlixPartners.

The company has promoted John Vazquez to be the Chief Accounting Officer and Treasury. He was serving as the Vice President – Financial Reporting.

Layoffs and Store closures

The company will close up to 500 stores and reduce its corporate workforce by approximately 20%. It will record a $6 million charge for severance and other termination costs in the current quarter.

At the end of February 2020, the company had debt of $1.1 billion. In June it announced that it  had borrowed an additional $310 million from the credit facility. The company had $200 million of cash on hand. It’s market capitalization is currently just $34 million.

Disastrous Acquisition

As a reminder, back in September 2013, Jos A Bank made an unsolicited offer to buy Houston-based The Men’s Wearhouse for $2.3 billion (in cash at a 42% premium). Instead The Men’s Wearhouse ended up buying Jos A Bank for $1.8 billion in June 2014 (in cash at a 56% premium). The combined company was renamed Tailored Brands. Within 18 months, it had written off $1.3 billion of that. This is one of the most spectacular destructions of shareholder value in recent years!

The CEO in charge of that acquisition left in 2018 with a $10 million severance package. Mr Calandra was not part of that acquisition, having joined in December 2016.

SEC filing – Tailored Brands CFO to depart

 

 

Well known Oilfield Services company files for bankruptcy

BJ Services, which has its head office in Tomball, TX has filed for Chapter 11 bankruptcy. There is no pre-packaged plan in place. If agreement can’t be reached with the lenders in the next few days, the company may have to liquidate. The company has laid off 800 employees since March and a further 1,250 jobs are at risk.

BJ Services currently operates 42 pressure pumping fleets (2.1 million hydraulic horsepower) and 180 cementing pumps.



History of the company

The company has one of the most well-known brand names in oilfield services. Byron Jackson, an inventory of pumps for farmers and miners in California, founded the original company in 1872. Hughes Tool acquired the company in 1974. Hughes merged with Baker International to form Baker Hughes in 1987. In 1990 Baker Hughes spun off BJ Services into a public company only to acquire it again in 2010 in a $5.5 billion transaction.

The current incarnation was created in November 2016 when Baker Hughes contributed its pressure pumping assets into a new joint venture with Allied Completion Holdings, another pressure pumping company that is backed by CSL, a private equity firm based in Houston.  Baker Hughes ended up owning 47% of the joint venture and its share was valued at $566 million. That investment has been written down to zero due to losses incurred by BJ since 2016.

BJ Services filed for an Initial Public Offering in June 2017 though at the time the company was losing money, even at the EBITDA level. It never completed its offering and eventually withdrew its registration statement in March 2019.

Current debt load

BJ Services currently has $357 million of debt. This comprises $102 million of an asset-based loan, $190 million in equipment term loans and $65 million for real estate term loans. These loans are held by different lender groups.

The drastic downturn in drilling and completions caused by the collapse in oil prices in March 2020 caused the company to engage Kirkland & Ellis and PJT Partners as restructuring partners.

CSL offered to invest an additional $75 million in new-money in exchange for the vast majority of the equity in the reorganized company. However, the deal was contingent on generating $120 million from the sale or liquidation of certain non-core assets. That money would go to the equipment lenders.

The company also expected to sell the cementing business for $30 million or more, on a going-concern basis.  On the pressure pumping side, CSL has bid for 3 of the 42 frac fleets on a going-concern basis. CSL has also offered to buy the research and development for the next generation of pressure pumping units.

Proposed deals fall through

The proposed deals fell through because the company, CSL and the various lenders couldn’t agree on terms of the proposed write-downs to be shared by the parties and how the businesses being sold would be funded on a going-concern basis. Given the potential conflicts that CSL has and that the equipment lenders have collateral in the pressure pumping and cementation fleets but not in the R&D, I am not surprised.

The company is trying to get all parties to agree a reorganization plan in the next 7 days. If not, the company may not have funds to operate on a going-concern basis and may be forced to liquidate its assets in an orderly wind-down.

Declaration by BJ Services CEO in support of Chapter 11 filing

 

Chevron to acquire Noble Energy for $5 billion

Chevron has agreed to buy Houston-based Noble Energy for $5 billion in an all-stock deal. The price is $10.38 per share. Including debt, the deal values Noble at $13 billion.

The price represents a premium of nearly 8% over the closing price on Friday. However it is considerably lower than the 52-week high of $27.31.



Noble’s primary assets are in the Eastern Mediterranean sea (Israel and Cyprus).  These will fit well with Chevron’s assets in Egypt. Noble also has 92,000 contiguous net acres in the Permian which are next to Chevron’s acreage. Noble also has 336,000 of net acres in the DJ Basin in Colorado. This would be a new onshore basin for Chevron.

Chevron will also acquire Noble’s 63% stake in publicly-traded Noble Midstream Partners.

Chevron expects to generate annualized operating and cost synergies of $300 million, though there were no details of how this is broken out.

The deal represents the first major acquisition by Chevron since it decided not to get into a bidding war with Occidental last year for Anadarko. Chevron did, however, walk away with a $1 billion termination fee from that contest.

Severance payments

The executive management of Noble will receive large payments if they are terminated becasue of a change of control. Chairman and CEO David Stover will receive a severance payment of $8.2 million, representing 2.99 times base salary and target annual bonus. He will also get close to $10 million in pro-rated bonuses and stock that vests. Likewise COO Brent Smolik will get a $4 million cash severance and another $5 million in pro-rated bonuses and stock vesting. The figures for CFO Ken Fisher are $1.2 million and close to $3 million, respectively.

The deal is expected to close in the fourth quarter of 2020.

SEC filing – Chevron to acquire Noble Energy

 

Another Houston man charged with PPP fraud

Joshua Argires, 29, of Houston, has been charged with COVID relief fraud. He allegedly made two fraudulent applications for more than $1.1 million in forgivable loans through the Paycheck Protection Program (PPP).



The complaint alleges that Mr Argires made applications on behalf of two businesses, Texas Barbecue and Houston Landscaping. He allegedly claimed that the two companies had numerous employees and hundreds of thousands of dollars in payroll expenses.

The $956,000 Texas Barbecue loan was funded through PrimeWay Federal Credit Union, while the Houston Landscaping loan was funded by Bank of America.

The funds received on behalf of Texas Barbecue were allegedly invested in a cryptocurrency account. The funds obtained for Houston Landscaping were held in a bank account and slowly depleted via ATM withdrawals.

Mr Argires is charged with making false statements to a financial institution, wire fraud, bank fraud and engaging in unlawful monetary transactions.

Last month, another Houston man, Jase Gautreaux, was charged with fraudulently seeking over $13 million through PPP loans.

https://www.justice.gov/usao-sdtx/pr/another-houston-man-charged-covid-relief-fraud