Key Energy Services has engaged Moelis & Company as its financial advisor and Sullivan & Cromwell as its legal advisor to assist the company in analyzing various strategic alternatives to address its capital structure and to position the company for future success.
In connection with this strategic review, the company elected not to make a scheduled interest payment due October 18, 2019 under the term loan and security agreement December 15, 2016 by and among Key, Cortland Products as agent, and the lenders party relating to the company’s senior secured term loan.
The company’s failure to make the October interest payment resulted in a default under the term loan agreement and a cross default under the loan and security agreement, dated April 5, 2019 (as further amended, restated, supplemented or otherwise modified from time to time, the “ABL Credit Agreement”) by and among Key, as borrower, the ABL lenders party and Bank of America as administrative agent and sole collateral agent.
On October 29, 2019, the company entered into forbearance agreements with term loan lenders collectively holding over 99.5% of the principal amount of the outstanding term loans and all of the ABL lenders. Pursuant to the forbearance agreements, the lenders party have agreed that, until the earlier of December 6, 2019 or the occurrence of certain specified early termination events, such lenders will forbear from exercising any default-related rights and remedies with respect to the Specified Defaults.
The forbearance agreements contain certain representations and warranties of the company and covenants with which the company must comply during the forbearance period, including a requirement to maintain aggregate bank and book cash balances of at least $10 million as measured on a weekly basis. The failure to comply with such covenants, among other things, would result in the early termination of the forbearance period.
The company is in active discussions with the Lenders regarding the company’s capital structure and the potential to reduce its debt level in light of challenging market conditions.
“Addressing our capital structure is a top priority for Key, and our management and Board are working constructively with our Lenders to reach a good outcome for our company. As we explore various strategic alternatives, we remain focused on providing our customers with the same high level of safety and service quality to which they are accustomed. While the outlook for North American oilfield services remains challenging, we believe that the conclusion of this process will position Key for future success,” said Rob Saltiel, president and chief executive officer.
Key Energy Services is the largest onshore, rig-based well servicing contractor based on the number of rigs owned.
