Bankrupt Key Energy reaches deal with lenders


Bankrupt Key Energy Services Inc. in Houston and its lenders have reached a restructuring support agreement that aims to reduce the company’s long-term debt by about 80 percent.

The RSA was reached with lenders that hold over 99.5 percent of the principal amount of the company’s outstanding term loans, according to a Jan. 27 press release. Although such agreements often include the debtor filing for Chapter 11 bankruptcy protection, Key’s RSA calls for a series of out-of-court transactions. The restructuring is expected to be complete by the end of February.

About $241.9 million aggregate outstanding principal of Key’s term loans, plus accrued interest, will be converted into newly issued shares of Key common stock plus $20 million of term loans under a new approximately $51.2 million term loan facility for the company that has operations throughout Oklahoma.

Once the restructuring is complete, lenders that signed onto the RSA are expected to own 97 percent of the company’s common stock, with holders of existing equity interests holding the remaining 3 percent. Both stakes are subject to potential dilution due to certain new warrants and a new management incentive plan, the release notes.

Additionally, the agreement calls for certain changes to Key’s governance, including changes to its board of directors, amendments to governing documents and a new stockholders’ agreement between Key and the supporting term lenders.

Soter Capital LLC, which currently owns about 50.2 percent of Key’s outstanding shares, has agreed to vote its shares in favor of the restructuring. Key has yet to call the special meeting for existing shareholders to vote on proposals related to the restructuring.

“This agreement marks an important milestone in our process of addressing Key’s capital structure, reducing our debt and improving the company’s liquidity,” said Marshall Dodson, Key’s interim CEO. “I would like to thank Key’s dedicated employees, who through this period of uncertainty, have continued to provide safe and excellent service to our customers. While the market conditions we face in 2020 are expected to remain challenging, I believe that with the improved capital structure this transaction affords Key, our great employees will be able to take advantage of the opportunities present in today’s market and continue on our path to improved financial performance.”

Key had been negotiating with creditors over the past few months, and the parties most recently extended their forbearance agreement until the end of January. When Key first put the forbearance into place, the company said it was actively discussing options for debt reduction with its lenders. Key started a strategic review to try to find a solution to problems with its capital structure in late October, and it decided not to make an interest payment due earlier in the month as part of that.

Key’s press release did not include advisers on the RSA. However, the company previously said it was working with Moelis & Company LLC as its financial adviser and Sullivan & Cromwell LLP as its legal adviser to assist with the strategic review. As part of the review, Key planned to focus on its core areas of operations and exit certain low-margin markets, the company said when it first announced the forbearance agreements Oct. 31.

Key CEO Robert Saltiel resigned from his post on Dec. 30, leaving the interim CEO spot to Dodson, the company’s CFO. Saltiel also vacated his seat on the company’s board of directors.

Key is one of several companies associated with the upstream space — on the well services side, this time — that have recently run afoul of exchange listing standards. Over the summer, the New York Stock Exchange notified Key that its market capitalization and stockholders’ equity value had both fallen below $50 million, which put the company outside the exchange’s listing standards.

The NYSE notified the company on Nov. 27 that it decided to begin proceedings to delist Key’s stock because the company failed to maintain an average global market capitalization of at least $15 million over 30 consecutive trading days. Trading of the stock was suspended immediately.

Key reported 2018 revenue of $521.70 million, ranking it No. 96 on the Houston Business Journal’s 2019 Largest Houston-Based Public Companies List. The company reported a net loss of nearly $88.78 million for 2018 and companywide employees of 2,825.


Source: Houston Chronicle