On Monday, the oil well-servicing company out of Houston, Key Energy Services filed for chapter 11 bankruptcy protection after many months of devising the perfect bankruptcy plans with the company creditors.
In the filing, Key Energy reported $1.1 billion in assets and $1.2 billion in debt. Liabilities would be cut to just $250 million under the bankruptcy’s guidelines so the company can arise from the setback with a “manageable debt load.” The company’s biggest creditor, with a handle on $675 million in senior notes, is listed as the Bank of New York Mellon. According to the filings, firms connected to Mark H. Rachesky, a billionaire Hollywood investor, own the greatest share of voting securities.
Phone calls seeking comment were made to both the Bank of New York Mellon and MHR Fund Management, but neither phone call was immediately returned.
During the shale boom, Key Energy was lent hundreds of millions of dollars. In 2014, oil prices sank and the well services provider failed to keep up with its loan commitments. According to the filings, Key Energy accumulated almost $1 billion in long-term debts by the end of 2015 and managed to build up over $1 billion in operation losses.
In June, Key Energy revealed that it was talking with creditors about structured bankruptcy. A regulatory filing made Thursday that an agreement had finally be reached.
Court papers reveal that Key energy filed a “prepackaged restructuring.” The plan to restructure would alter debt into stock, hand over control of the company to creditors, and all but eliminate existing shareholders. According to John Penn, partner at Perkins Coie out of Dallas said, “The objective of the prepackaged plan is to get in and out as quickly as possible so you can get back to business.” Penn is not involved in the deal with Key Energy.
Key referred to the “challenging” energy environment as the reason for its decision to restructure. Penn also said, “The pre-negotiated plan gives you the ability to file with the story that you will survive, emerge and be able to continue providing services,” he continue, “If you just file without any agreements about how you’re going to reorganize, you inject an incredible amount of uncertainty into your customers.”
Under the plan support agreement (PSA), Platinum Equity, a private equity firm out of California, is Key Energy’s biggest shareholder and has pledged to support the restructuring plan. “The PSA contemplates a comprehensive recapitalization of the company,” which would be put into effect under a prepackaged Chapter 11 reorganization that would start by Nov. 8. Once finished, Key would still be a publicly traded company.
Key Energy has around 2,900 employees, mostly located in the United States. Its clients include major oil firms, foreign national oil companies, and independent oil and gas producers. The company also has operations in every major onshore producing region of the continental U.S. and internationally in Mexico and Russia.
A phone call made to Key Energy seeking comment was not immediately returned, however in filings, Key Energy said it that it hopes to rise out of the ashes of the chapter 11 situation in under three months because a lengthy case “could severely damage its ongoing business operations and going-concern value.”