Enservco signed a non-binding letter of intent with East West Bank to amend its existing senior revolving credit facility to reduce bank debt by $16 million, amend the current facility into a term loan and provide a new working capital revolving line of credit in exchange for equity.
Under the LOI, the parties will seek to enter into a definitive agreement providing that:
- East West Bank would reduce the current loan balance by $16 million in exchange for 8 million shares of Enservco restricted common stock and 15 million common stock purchase warrants.
- The current credit facility would be amended to reflect a term loan with a balance of approximately $17 million and a new working capital revolving line of credit with no initial balance and a limit of $1 million, both bearing interest at an annual rate of 8.25%, of which 3% will accumulate and be paid at maturity on October 15, 2021.
- The term loan would be interest only with potential for principal payments in the event Enservco reaches certain profit metrics and would mature in October 2021.
- The revolving line of credit would be based on Enservco’s eligible receivables.
The restricted common stock issued to EWB will be registered for resale by Enservco with the SEC to be tradeable within six months. The warrants will be exercisable beginning Oct. 15, 2021, at a price of $0.25 per common share, an approximate 92% premium to Enservco’s closing stock price on Sept. 16, 2020.
Enservco and East West Bank will seek to close the debt restructuring in October.
The financial impact on Enservco of this proposed amendment and the recent Cross River conversion of half of its subordinated debt and accrued interest into equity is expected to be substantial. Upon completion, based on its balance sheet as of June 30, 2020, Enservco will have reduced its total debt by nearly 52% from $35.5 million to $18.5 million. In addition, the company’s stockholders’ equity would experience a positive swing of approximately $17.5 million.
“We are delighted to announce this progress with East West Bank, which has been a great partner for us over the years and has worked diligently with us to improve the financial strength and viability of the company during these challenging times,” Rich Murphy, executive chairman of Enservco, said. “We believe that reducing total debt by half and realizing a significant positive swing in stockholders’ equity will represent a meaningful boost in value for the company and its stockholders. The conversion of debt into equity by both East West Bank and Cross River will demonstrate confidence in the future of our business. We are excited to focus our time and attention on building our business.”
Murphy’s investment firm, Cross River Partners, is Enservco’s largest shareholder.
Enservco is a provider of specialized well-site services to the domestic onshore conventional and unconventional oil and gas industries.