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Key Energy Services Enters Into PSA for Consensual Deleveraging

August 26, 2016, 07:06 AM
Filed Under: Bankruptcy

Key Energy Services, Inc. and certain of its subsidiaries (the "Company") have entered into a plan support agreement ("PSA") with Platinum Equity and certain other holders of its 6.75% Senior Notes due 2021 ("Senior Notes"), collectively holding more than 89% of its outstanding Senior Notes, and with certain lenders holding more than 87% of the principal amount of loans outstanding under Key's Term Loan Credit Agreement dated June 1, 2015 ("Term Loan").

Platinum Equity, a Los Angeles-based global investment firm with a unique focus on operations and extensive experience helping businesses in transition, as holder of a majority of the Company's Senior Notes, will become Key's largest shareholder upon completion of the anticipated restructuring.

The PSA contemplates a comprehensive recapitalization of the Company, and will be implemented pursuant to a prepackaged chapter 11 plan of reorganization (the "Plan").  It is expected that the Company will commence the prepackaged proceeding in Delaware by November 8, 2016, following the official solicitation of votes on the Plan and the expiration of the rights offering described below.   Under the contemplated Plan, the Company's employees, vendors and trade creditors will be paid in full in the ordinary course of business.  Upon completion of the restructuring, reorganized Key will remain a publicly traded company.

Robert Drummond, Key's President and Chief Executive Officer, commented, "By significantly reducing Key's debt from almost $1 billion to $250 million, we believe that Key will be well positioned to take advantage of opportunities that emerge as the market recovers. I am pleased with and appreciate the support of Platinum and the other supporting creditors, as well as our employees, in working to reach an agreement that we believe is in the best interest of the Company and all of its stakeholders."

Platinum Equity Partner Jacob Kotzubei said he is excited about the Key Energy investment and believes the Company will benefit from Platinum Equity's financial, operational and M&A resources. "Key Energy is a market leader in North American production services and will emerge from this process as a stable, well-capitalized business with all the tools needed to thrive long term," said Kotzubei. 

The principal components of the Plan include:

  • Concurrently with the official solicitation of votes on the Plan, the Company will conduct an $85 million rights offering (subject to increase by $25 million) for reorganized Key's shares of common stock.  The proceeds of the rights offering will be used to repay principal and interest on the Company's existing Term Loan to reduce the principal balance to $250 million and provide reorganized Key with incremental working capital.  95% of the rights offering will be available to certain qualifying holders of Senior Notes and 5% will be available to certain qualifying equity holders.  Certain parties to the PSA have agreed to backstop the full amount of the rights offering. The Company expects that solicitation of votes on the Plan and the rights offering will commence by mid-September.
  • Replacing the Company's existing $100 million asset-based revolving credit facility with a new ABL facility.
  • Reducing the Company's Term Loan obligations to $250 million.
  • Exchanging 100% of the Company's existing Senior Notes for 5 million shares of reorganized Key plus rights to acquire additional shares of reorganized Key.
  • Cancelling all of the Company's existing common stock in exchange of 543,927 shares of reorganized Key plus rights and warrants to acquire additional shares of reorganized Key.

It is anticipated that holders of Senior Notes, including Platinum Equity as the largest holder, will own approximately 95% of reorganized Key's common stock and Key's current common equity holders will own approximately 5%, upon the effectiveness of the Plan but in each case prior to giving effect to the results of the rights offering referred to above, exercise of the warrants referred to above, shares issued to certain parties to the Plan Support Agreement that also have committed to backstop the full amount of the rights offering, and potential further dilution as a result of a new proposed management incentive plan.

The PSA and other transaction agreements to be executed by the Company, include certain covenants on the part of the Company to solicit and seek court approval of, and the other parties to the agreements to vote in favor of the Plan, support the restructuring transactions and forbear from exercising remedies against the Company with respect to certain defaults.

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