Tag Archives: Bankruptcy reorganizations

Weatherford exits bankruptcy protection

Weatherford International has completed its financial restructuring and emerged from Chapter 11 bankruptcy protection.

The company entered into Chapter 11 at the beginning of July. The reorganization reduced overall debt by $6.2 billion (from $8.3 billion at filing). In return, the bondholders will own 94% of the restructured company. 5% has been set aside for a management incentive plan. Existing shareholders will own the other 1%.

Initially the company’s shares will trade over-the-counter. However it plans to list on the NYSE by the end of March, after it has reported its fourth quarter results and completes its fresh start accounting.

The company is the fourth largest oilfield service company but hasn’t made a profit since 2011

In November, Weatherford appointed Christian Garcia as its new CFO. He doesn’t start his new job until January 6, 2020.

In late November, William Macaulay, Chairman of the Board, died aged 74. He had been on the board since 1998 and had been Chair since March 2017 when Mark McCollum was appointed CEO. Thomas Bates has been appointed as the new Chairman.



Oilfield Services company misses interest payment as bankruptcy looms

Photo by Joshua Doubek

[Update 11-27-19:  Shares have now been delisted because the market cap has been below $15 million for 30 days]

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.

2016 Bankruptcy

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.

SEC Filing – Key Energy loan default

Charming Charlie files for bankruptcy – to close all stores

Social Woodlands

Houston-based retailer, Charming Charlie, has filed for bankruptcy protection for the second time in 19 months. This time it intends to close all remaining 261 stores by the end of August.

In its Chapter 11 filing, the company listed assets of less than $50,000 and liabilities of between $50 million and $100 million.

The company has more than 3,300 employees. It has suspended online sales and the issuance of new gift cards. According to the Wall Street Journal, the company has $19.8 million in gift cards outstanding. It is seeking court approval to honor gift cards for 30 days.

Bankruptcy in 2017

The company was founded in 2004 by Charlie Chanaratsopon (then aged 26) and was backed by PE firms, TSG Consumer Partners and Hancock Park Associates.

It originally filed for Chapter 11 in December 2017 and exited in April 2018. During that process, the company closed 100 stores. Before the original bankruptcy filing, the company had $154 million of debt. It exited with $50 million in term loans and a $35 million credit facility.

Mr Chanaratsopon stepped down as CEO in October 2017 to be replaced by Lana Krauter. The current CFO is Al Bellon, who was appointed to the role in April 2019. He originally joined the company as Assistant Controller in December 2014.

Current creditors

After the conversion of debt to equity, the company’s major shareholder is THL Credit. They still hold about $25 million of the remaining term loans. They also have a commitment of $8.3 million in vendor financing.

Major unsecured creditors include the professional firms of Guggenheim Securities ($2.1 million), FTI Consulting ($850,000), Paul, Weiss, Rifkind, Wharton & Garrison ($637,000) and BDO ($325,000).

Law firms Paul Hastings LLP and Klehr Harrison Harvey Branzburg LLP are handling the chapter 11 proceedings. Clear Thinking Group LLC is the restructuring adviser.

Charming Charlie Chapter 11 filing


Weatherford to file for bankruptcy (this time really)

Back on May 10, Weatherford International disclosed that it intended to file for bankruptcy. However the company didn’t actually file as it worked to get an agreement on a pre-packaged bankruptcy deal.

Now the time has come. The company today announced that it intends to file for Chapter 11 by July 1, 2019.

Soon after the announcement in May, the NYSE told the company that it intended to de-list the shares. Proceedings are underway, through trading is currently suspended by the NYSE (last share price 5 cents).

If you are feeling sorry for the senior management, don’t! They have looked after themselves. See my blog post Weatherford gives retention and quarterly cash bonuses to Senior Execs. These bonuses survive the bankruptcy filing.

In May, the company said it had entered into a Restructuring Support Agreement (RSA) with approximately 62% of the company’s unsecured loan note holders. Since then, the percentage has increased to 79%.

Interest default

The trigger for the filing now is that the company elected not to pay $68.8 million of interest on $1.7 billion of the notes. The interest payment was due June 15, 2019. The company has a 30-day grace period (i.e. July 16, 2019) before it is technically in default. At that point, those note holders would have the option to accelerate maturity of the principal, plus any accrued and unpaid interest.

Restructuring Terms

As a reminder, under the RSA, the company expects that

  • $7.4 billion of existing unsecured notes will be exchanged for 99% of the common stock of the reorganized company and $1.25 billion of new unsecured tranche B notes. Holders of the unsecured notes will have the option to convert up to $500 million of the tranche B notes to equity.
  • existing secured debt and unsecured credit facility ($1 billion) will be repaid in full
    all trade claims against the company will be paid in full.
  • existing equity will be cancelled and exchanged for 1% of the new common stock and three year warrants to purchase 10% of the new common stock.
  • two debtor-in-possession (DIP) facilities will be entered into. One for a $750 million revolving credit facility, the other a term loan for $1 billion, backed by the note holders.
  • once the company exits bankruptcy, the DIP facilities will be replaced by a $1 billion revolving credit facility and $1.25 billion new tranche A senior unsecured notes.

SEC filing

Bristow Group files for bankruptcy

Bristow Group, which provides helicopter services, has filed for Chapter 11 bankruptcy. This comes less than 24 hours after another Houston company, Weatherford International said it intends to file for bankruptcy.

Bristow said that its US subsidiaries and two of its Cayman Islands subsidiaries are included in the Chapter 11 filings. Its other non-US entities are not included.

Certain senior secured noteholders made a $75 million term loan to the company prior to the filing and provided a commitment for a further $75 million in debtor-in-possession (“DIP”) financing.

Earlier this week, I wrote that 9 senior executives, including the newly-installed CEO and CFO were paid large cash retention bonuses.

The company hasn’t filed a quarterly return since September 2018 as the company found material weaknesses in its internal controls. It had obtained waivers of default but the company elected not to make a $12.5 million interest payment in April on its senior loan notes. This means that waivers expired. In an April 12 filing, the company stated it had $202 million in liquidity.

Bristow has debt of around $1.5 billion. The senior note holders are owed $895 million while the banks and financial institutions are owed $580 million.  The company had assets of $2.86 billion at September 30, 2018.

No details yet on the terms of the restructuring.

Alvarez & Marsal is serving as the company’s restructuring advisor. Houlihan Lokey is serving as the financial advisor to the company.

On Friday, the shares closed at 29 cents (market cap $10 million).

Press release


Weatherford to file for bankruptcy

Earlier this week, Weatherford delayed filing its quarterly report and canceled its earnings call. We now know why. As part of its 10-Q filing, the company disclosed it intends to file for bankruptcy.

The company stated that it expects to reach an agreement in principle with holders of the majority of unsecured senior notes on the terms of a pre-packaged bankruptcy agreement.

Terms of the Proposed Restructuring

The company expects that

  • $7.7 billion of existing unsecured notes will be exchanged for 99% of the common stock of the reorganized company and $1.25 billion of new unsecured tranche B notes. Holders of the unsecured notes will have the option to convert up to $500 million of the tranche B notes to equity.
  • existing secured debt and unsecured credit facility ($1.1 billion) will be repaid in full
  • all trade claims against the company will be paid in full
  • existing equity will be cancelled and exchanged for 1% of the new common stock and three year warrants to purchase 10% of the new common stock.
  • two debtor-in-possession (DIP) facilities will be entered into. One for a $750 million revolving credit facility, the other a term loan for $1 billion, backed by the noteholders.
  • once the company exits bankruptcy, the DIP facilities will be replaced by a $1 billion revolving credit facility and $1.25 billion new tranche A senior unsecured notes.

Poor Q1 performance

The intended Chapter 11 filing was triggered by another poor quarterly performance. The company made an operating loss of $301 million in the quarter. The operating loss included a goodwill impairment charge of $229 million. The company had total assets of $6.5 billion and total liabilities of $10.6 billion.

More importantly, the company had a net cash outflow from operating activities of $249 million.  As a result, the company’s availability under its $1.1 billion credit facility dropped from $325 million at December 2018 to $93 million at March 31.

McKinsey under delivers

In 2018 Weatherford hired McKinsey to help with its transformation. The company disclosed in its quarterly report that the targeted savings of $30 million in the first quarter were not achieved due to ‘higher than anticipated costs associated with rationalizing our manufacturing footprint and market headwinds that  negatively impacted the progress of our sales and commercial initiatives during the first quarter of 2019. Additionally, diminished pricing leverage and lack of supply chain savings contributed to slower progress on our transformation targets.’ Sounds like McKinsey oversold on their promises.

I will be interested to see how smoothly the Chapter 11 proceedings go. I suspect some of the smaller loan note holders will balk at the conversion terms and hold out for better terms, causing delays to the process.

$18 billion market cap in 2014

After market, the shares were trading at 10 cents (market cap $100 million). In 2014, the market capitalization was $18 billion.

SEC filing


Houston retailer may file for bankruptcy

Source: Social Woodlands

Houston-based Mattress Firm may file for bankruptcy, according to this article in Reuters.

The company is seeking to get out of costly store leases and shut some of its 3,200 locations that are losing money. The company is working with AlixPartners, a restructuring firm.

Mattress Firm was publicly-traded until it was acquired by Steinhoff, a South African company for $3.8 billion in 2016. Back in December, the shares of the parent company plunged 80% as it disclosed accounting irregularities in its European operations.

According to the unaudited half-year results through March 2018 that were filed at the end of June,  the parent company wrote off nearly $13 billion in shareholders’ equity and admitted that €3 billion of cash reported the previous year either didn’t exist or shouldn’t have been consolidated.

Although Mattress Firm wasn’t part of this accounting shenanigans, the inflated purchase price that Steinhoff paid for the business added to the pressures. The same half-yearly results paint a grim picture for Mattress Firm. For the 6 months ended March 2018, the revenues of Mattress Firm were €1.26 billion (approx $1.5 billion), down 17% on the corresponding period. The EBITDA loss increased from €33 million to €94 million in the period to March 2018.

In early 2017 Mattress Firm had a spectacular and litigious fall out with Tempur Sealy, a supplier of many of the products in the stores, that clearly impacted revenues. This caused a €1.5 billion write-off of goodwill in 2017, one year after acquisition. Surprisingly, Steinhoff still carries €1 billion of goodwill on its books for Mattress Firm, despite the EBITDA losses.

Mattress Firm CEO  Ken Murphy, appointed in March 2016, stepped down in January, to be replaced by Steve Stagner, who was CEO between 2010 and 2016.

In November 2017 Mattress Firm sued two former real estate employees and a former broker with Colliers International claiming they defrauded the company of tens of millions of dollars by signing store leases at above-market prices. The defendants were responsible for the leases for about 1,500 of the new stores. The defendants have counter-sued, claiming Mr Stagner and Mr Murphy knew about the above-market rate deals.

Just before Mr Murphy resigned, in a bizarre move, he denied conspiracy theory allegations that surfaced on Reddit that Mattress Firm was a giant money laundering scheme! More revealing is this article that appeared in the lifestyle section of the Houston Chronicle in September 2016.

The aching loneliness of the Houston mattress salesman – Houston Chronicle

My December blog entry on the Steinhoff accounting irregularities

Charming Charlie files for bankruptcy

Mike Mozart of TheToyChannel and JeepersMedia on YouTube

Houston-based retailer, Charming Charlie, has filed for bankruptcy protection. The company has reached a restructuring pact with its lenders and equity sponsors that would allow it to keep most of its stores open through the holiday period.

Charming Charlie operates 375 stores in the US and Canada, selling accessories and. according to a report in the Wall Street Journal, expects to close about 100 in the coming weeks (other news report suggest these stores will close by 29 Dec).  The company said it has secured commitments for $20 million in new-money debtor-in-possession (‘DIP’) financing and also entered into a $35 million DIP asset-backed loan with its current lenders.

The company has also laid off some staff at its corporate office near the SW Freeway.

The company was founded in 2004 and is backed by PE firms, TSG Consumer Partners and Hancock Park Associates. Before the bankruptcy filing, Charming Charlie’s debt load consisted of a $150 million term loan and a $55 million asset-backed loan, according to S&P.

Charlie Chanaratsopon, the 39-year-old founder of the company, stepped down from the CEO position a couple of months ago, but remains the non-executive chairman of the company. Last year Mr Chanaratsopon was on the Forbes list of America’s richest entrepreneurs under 40  with an estimated net worth of $450 million.

C&J Energy Services to exit Chapter 11

C&J Energy Services, an oilfield services company with its operational headquarters in west Houston, announced that the bankruptcy court had approved its reorganization plan and that it expects to exit Chapter 11 in early 2017.

C&J entered Chapter 11 in July 2016. The company provides onshore well construction and completion services. In addition to being hard hit by the downturn in oilfield activity in the past couple of years, it also suffered from the blow of the sudden death in March 2016 of its charismatic founder and Chief Executive Officer, Josh Comstock.

In the reorganization plan, $1.4 billion of debt will be converted to equity, $200 million of new equity will be raised through a rights issue, and $100 million bank facility will be put in place.

C&J are following in the footsteps of other onshore well service companies. Key Energy Services emerged from bankruptcy on 15  December and Basic Energy Services still expects to do so before the year end. Stallion Oilfield Services, which is private-equity backed, completed its recapitalization in October 2016 where most of its debt was converted to equity, though its restructuring was performed without going through Chapter 11.


Key and Basic Energy Services set to emerge from Chapter 11

Key Energy Services and Basic Energy Services, two large oilfield services companies that went into Chapter 11 within days of each other in October, have gained court approval on their re-organization and should exit Chapter 11 before the year-end.

The two plans are very similar. Basic, based in Fort Worth, will convert $800 million of debt into equity, eliminate over $60 million in annual cash interest and raise new capital of $125 million. Key, based in downtown Houston, will reduce debts from $1 billion to $250 million, save $80 million in interest and raise $110 million in new capital.

Both companies provide onshore services to drilling and should benefit from the rising rig count, which now stands at 624, up from a low of 404 in May. Half of the increase in rigs has been in the Permian Basin. That basin now accounts for almost 40% of the US rigs.