Houston Frac sand company files for bankruptcy

Hi-Crush, a frac sand supplier, has filed for Chapter 11 bankruptcy. The company, which is based in the Galleria, has been hard hit by the downtown in completion activity following the COVID-19 pandemic.



It’s a pre-packaged bankruptcy as the company has agreement of 94% of the senior unsecured noteholders. The main terms are;

  • $450 million senior loan noteholders get 100% of the new common stock to be issued by the company.
  • Existing shareholders will be wiped out
  • There will be a $43.3 million rights offering whereby existing noteholders and other eligible holders of unsecured claims will be granted rights to purchase new secured convertible notes.
  • Debtor-in-financing facilities including a $25 million asset-based revolving loan facility and a $40 million delayed-draw term loan. The latter will convert into new senior secured convertible notes upon exit from Chapter 11.

Retention Bonuses

Of course, it’s not a Energy bankruptcy without retention bonuses for senior management.  These were paid on Friday 10 July. CEO Robert Rasmus got a $1.35 million retention payment (more than 2x base salary), COO Michael Oehlert was paid $693,750 while General Counsel Mark Skolos got $552,750.  CFO Phil McCormick got a $360,000 bonus. This replaces the $250,000 retention bonus that was promised when Mr McCormick promoted to the CFO position in December 2019.

The bonuses will be considered earned and therefore not repayable once the company exits Chapter 11.  That is expected within 60 to 90 days. The executives are not eligible for any annual bonus in 2020.

$2.5 billion market cap in 2014

Hi-Crush went public in 2012 and, initially, was primarily a supplier of ‘Northern White’ sand from Wisconsin, a premium sand used in fracking. The company had a peak market capitalization of over $2.5 billion in the middle of 2014. In recent years, E&P operators began seeking cheaper alternatives and the company made acquisitions of mines in the Permian Basin.

The company was originally a limited partnership before converting to a C-Corp in 2019. However a partnership structure is not ideal when the underlying business is so volatile.

Excessive distributions

The company paid out $82 million in distributions in 2017 and $167 million in 2018. These figures approximate to net income for those years. However the company also had heavy capital expenditures in each of those years of about $100 million in excess of the depreciation charge. The large cash outflow was funded by an additional $250 million in debt, at 9.5% interest, in 2018.

Even though that debt was not due to be repaid until 2026, the debt burden was too much for the company to bear.

SEC filing – Hi-Crush bankruptcy

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