Tag Archives: Chapter 11

Houston oilfield service company files for bankruptcy

Superior Energy Services has filed for Chapter 11 bankruptcy. It expects to convert $1.3 billion of debt into equity and may split into two companies.

Superior has its head office in downtown Houston. It was recently delisted from the NYSE because its market capitalization was below $15 million. The company has two main businesses:

  • Remainco : An international business involved in drill pipe rentals, bottom hole assemblies, completion tools and well control services. The business has projected revenues of $550 million.
  • NAM : An onshore US business involved in service rigs coiled tubing, wireless, pressure control and fluid management. This business has projected revenues of $260 million in 2021.



Prepackaged bankruptcy agreement

The company has the support of 69% of the company’s senior unsecured noteholders. The noteholders have the right to decide whether or not to split the company into two. If they do, they would get 98.5% of the equity of Remainco and 95% of the equity of NAM. Existing shareholders will get the rest, though a management incentive plan will be put in place. This will dilute the percentages a little bit.

Back in December 2019, Superior announced the merger of its US completions business with Forbes Energy Services, with the combined entity to be spun off. The deal was called off in May due to deteriorating market conditions.

As part of the bankruptcy proceedings, the Board of Directors has agreed pay $7.3 million in retention bonuses to the six executive officers of the company. CEO David Dunlap gets $3.2 million, while CFO Westy Ballard gets $1.1 million.

Retention Plan

In March, Mr Dunlap got an annual cash bonus of $0.9 million. He also got an additional payout of $1.275 million, in cash, for performance stock units (PSU) for the period 2017-2019. This payout was primarily due to Superior being in the top 17% of total stockholder returns of its peer group, over that three year period.  Mr Ballard got a $346,000 annual bonus and $300,000 for the PSUs.

Complete Production Services

The company’s debt problem stems all the way back to October 2011 when it agreed to buy Complete Production Services for $2.9 billion. It paid $553 million in cash and issued stock for the rest. As part of the deal financing, in December 2011, it issued $800 million of unsecured senior notes, due 2021, to repay $650 million of debt that Complete owed. The other $500 million of notes were also, effectively, issued in 2011, though they were refinanced in 2017.

The $2.9 billion price for Complete Production Services included $2.3 billion in goodwill and intangibles. In 2015, the company wrote goodwill down by $1.3 billion. By 2018, all the goodwill had been written off.

Mr Dunlap became CEO of Superior 18 months before the deal with Complete Production Services.

SEC filing – Superior bankruptcy

 

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

 

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

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

 

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

McDermott seeks large bonuses for senior management while in bankruptcy

Photo: Nandu Chitnis

McDermott has filed a motion with the Bankruptcy court seeking approval for an employee retention plan for both senior executives and key employees who are not executives. CEO David Dickson could receive $6.3 million in 2020 if the company hits its targets.



As a reminder, the company, which is based in west Houston, awarded Mr Dickson a $3.375 million cash retention bonus only last October. The company filed for Chapter 11 bankruptcy in January 2020, at which point the company paid out the last 30% of that award, even though it wasn’t technically earned.

Quarterly retention bonuses

The retention bonuses will be paid quarterly in cash. The senior executives and their target bonuses are as follows;

  • David Dickson (CEO) – $6.3 million
  • Chris Krummel (CFO) – $1.2 million
  • John Freeman (Chief Legal Officer) – $1.1 million
  • Samik Mukherjee (COO) – $1.3 million
  • Ian Prescott (Senior VP, Asia Pacific) – $423,000

The bonuses are dependent on the following performance metric;

  • Adjusted EBITDA  (27.5%)
  • Available cash balance (27.5%)
  • Technology Business sale proceeds (15%)
  • Safety (15%)
  • Achievement targets (15%)

The maximum payout is 200% of target, so Dickson could get $12.6 million.

The incentive scheme runs until the end of 2020, irrespective of whether McDermott exits Chapter 11 before then.

In October 2019, senior management got $7 million in bonuses

Freeman, Mukherjee and Prescott also got retention bonuses in October, similar to the targets above. Then-CFO Stuart Spence got $1.3 million, only to leave the company two weeks later. He got to keep his bonus, of course. If Mr Krummel got a bonus at that time, it wasn’t disclosed.

What’s particularly galling to me, is that, in October, when McDermott got their expensive financing and gave out the retention bonuses, the company was forecasting adjusted EBITDA for 2019 of $474 million. By the time they filed for bankruptcy three months later, that figure had been reduced to $183 million. They did meet their 2019 free cash flow forecast – an outflow of $1.2 billion – but only because they held back $300 million in payments to vendors.

There’s no real details on the key employees scheme, other than payments will be in fixed amounts, paid quarterly.

[UPDATE 02-16-20 Having reviewed the document filed with the bankruptcy court there are 13 employees in the senior executive plan. In the key employee plan there are 1,112 employees expected to receive a retention bonus worth a total of $79.4 million, an average of $71,403 each].

A reminder of how the company got into this mess

The bankruptcy stems from McDermott’s disastrous acquisition of fellow Houston company, CB&I in May 2018 for $4.1 billion ($2.4 billion cash, $1.7 billion stock). CB&I had a lot of legacy Engineering & Construction projects that have turned out to be much less profitable than McDermott expected at acquisition.

The costs to complete estimated at acquisition on just 3 projects (Cameron LNG, Freeport LNG and Calpine Power) increased by over $1 billion. As a result, the goodwill on CB&I ended up being $4.8 billion. McDermott wrote down $2.1 billion in goodwill 7 months after acquisition. That’s a quick destruction of shareholder value!

After the deal closed, Mr Dickson received a 25% increase in base salary to $1.125 million and a $1.125 cash bonus for completing the acquisition.

SEC filing – McDermott bankruptcy bonuses

20-30336 doc 367 – McDermott incentive scheme filed with Bankruptcy court

McDermott files for bankruptcy – Management cashes in

Photo: Nandu Chitnis

McDermott International has filed for a pre-packaged Chapter 11 bankruptcy after months of deteriorating business prospects.



The key highlights of the restructuring are;

  • elimination of $4.6 billion of debt. The secured lenders will get 94% of the new equity, unsecured bondholders the remaining 6%.
  • Unsecured trade creditors will be paid in full
  • Existing shareholders are wiped out
  • Lummus to be sold for $2.725 billion

However, worry not, the senior management have looked after themselves. Back in October McDermott announced they had obtained $1.7 billion in additional new financing (at 12% interest rates).

At the same time, the senior management were awarded large retention bonuses. David Dickson, CEO, got $3.375 million. Samik Mukherjee, COO (the one who acknowledged taking TechnipFMC trade secrets) got $1.4 million. The funding and the bonuses were to be paid in tranches. So far, two-thirds of the bonus have already been paid out. The Board of Directors have decided to pay the remaining one third to Dickson and Mukherjee as a gesture of ‘good faith’ even though Tranche C of that financing agreement never got paid.

CFO Stuart Spence resigned in November. He got to keep all his retention bonus of $1.3 million.

Business prospects have deteriorated considerably in the second half of 2019 due to the uncertainties surrounding the company. Bookings were only $3 billion in the second half, versus $14 billion in the first half. Customers have canceled contracts or placed McDermott on the disqualified to bid list. Vendors have placed liens and withdrawn from job sites.

 

https://www.prnewswire.com/news-releases/mcdermott-international-inc-announces-comprehensive-prepackaged-restructuring-transaction-to-de-lever-balance-sheet-and-immediately-position-company-for-long-term-growth-300990241.html

Halcon Resources files for Chapter 11 (again)

Halcon Resources finally files for Chapter 11 (again). It’s a pre-packaged deal in which $750 million of debt will be eliminated. The debt holders will own 91% of the equity after the re-organization.



Note that in Q1, the company paid $11.3 million in severance to the former senior executives who resigned on mass.

SEC Filing – Halcon bankruptcy

CFO Quentin Hicks resigns after 4 months

 

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.