Key Energy Services has announced that it has engaged Moelis & Company as its financial advisor and Sullivan & Cromwell as its legal advisor to analyze various strategic alternatives. The company also elected not to pay interest on its $250 million term loan. The interest was due October 18, 2019. This caused a default on the loan.
On October 29, the company entered into forbearance agreements with its lenders in which the lenders agreed not to exercise any rights related to the loan default until the earlier of December 6, 2019 or the occurrence of certain early termination events.
Key operates the largest well service rig fleet in the US. It also provides fishing and rental tools, coiled tubing and fluid management services. It is based in downtown Houston.
For the six months ended June 30, 2019, the company had revenues of $222 million and a net loss of $42 million. At that date, it only had $6 million in equity.
Key entered into a pre-packaged bankruptcy agreement in October 2016. As part of that deal, its $1 billion of debt was reduced to $250 million (due in December 2021). The term loan had an average interest rate during 2018 of 12.42%. No wonder the company is seeking strategic alternatives!
Big loss for Platinum Equity
$338 million of the original debt was owned by Platinum Equity, a large PE firm based in Beverley Hills. After the restructuring, Platinum ended up with 50% of the equity of Key. After emerging from Chapter 11, the total equity of the company was valued at $252 million. The current market capitalization is $10 million (47 cents per share). So Platinum is sitting on a big loss. Even their $2.75 million annual advisory fees are now in jeopardy. Platinum subsequently acquired $30 million of the term loan so they will have some say in the restructuring.
Goldman Sachs stake
Back in May, Goldman Sachs disclosed it owned 1.5 million shares, or 7.5% of the company. The shares were acquired between February and April 2019. At the time Goldman said it planned to engage with Key’s management and board to discuss issues including corporate structure, board compensation, dividend policy and transactions such as asset sales or mergers “as a means of enhancing stockholder value”. In June, Goldman disclosed it had reduced its stake to 4.4%.
Robert Drummond, the CEO at the time of the bankruptcy, left in May 2018 to become the CEO of Keane Group. They have just merged with C&J Energy Services. Later that year, Key tried to merge, in an all-stock deal with Basic Energy of Dallas. Basic rejected the merger offer.