CASE PROFILE: Superior Energy files for Chapter 11 with reorg plan and USD 120m DIP

07 December 2020

Superior Energy Services, Inc today entered bankruptcy in order to consummate a prepackaged reorganization plan that would provide an option for either cash or equity to holders of the company’s USD 1.3bn in notes.

 

Along with its prepackaged plan, the company has USD 120m in debtor-in-possession (DIP) financing from prepetition lenders. Judge David Jones of the US Bankruptcy Court for the Southern District of Texas has scheduled a first-day hearing for 1pm CT on Tuesday (8 December).

 

 

Debtwire Dockets: Superior Energy Services, Inc 

 

The company 

 

The debtors and their indirect subsidiaries are oilfield services providers based in Houston, Texas, with operations spanning Africa, the Asia Pacific region, Europe, the Middle East, North America, and Latin America, according to a first-day declaration from Chief Financial Officer Westervelt Ballard, Jr.

 

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The debtors’ businesses serve the drilling, completion, and production-related needs of oil and gas companies through a diversified portfolio of specialized oilfield services and equipment that are used throughout the life cycle of oil and gas wells.

 

In particular, the debtors manufacture, rent, and sell specialized equipment and tools for use with well drilling, completion, production, and workover activities, and offer fluid handling and well servicing rigs. The debtors also provide coiled tubing services, electric line, slickline, and pressure control tools and services, as well as snubbing and hydraulic workover services.

 

The debt

 

Superior’s capital structure consists of about USD 1.3bn of funded debt in the form of unsecured notes. Ballard said the current capital structure is the result of a large strategic merger in 2012 with Complete Production Services. The debtors also have access to an asset-based revolving facility that, while undrawn as of the petition date, supports about USD 47.4m in outstanding letters of credit.

 

 

 

 

The descent 

 

Beginning in early 2015, Ballard said, business conditions in the oil and gas industry began to deteriorate, which has negatively impacted Superior's capital structure. Despite numerous successful operational and strategic initiatives in recent years, resulting in increased cash balances and a more streamlined, efficient, and resilient operating model, the company's cash flow profile has remained constrained by its substantial debt service.

 

To address this and to continue to enhance stakeholder value, Ballard said the company announced in December 2019 its intention to combine its accommodation rentals and well services businesses with Forbes Energy Services – an independent oilfield services contractor – and to simultaneously refinance its USD 800m 7.125% 2021 senior notes.

 

However, due to the global coronavirus pandemic, the company had to discontinue its planned merger with Forbes and the corresponding senior notes restructuring. Ballard said under current conditions, the debtors have no reasonable prospects of being able to fully repay their debt.

 

In June, he said the debtors and their advisors acted “swiftly” to develop a comprehensive restructuring solution. In July, Debtwire reported that Superior had hired banker Ducera to help pursue a balance sheet fix.

 

The debtors and their advisors engaged in consensual restructuring discussions with an ad hoc group of noteholders who collectively now hold about 72% of the unsecured notes. Ballard said the debtors also engaged in discussions with revolving credit lenders.

 

On 29 September, the debtors and the consenting noteholders entered into the original RSA, which contemplated that holders of existing interests in the parent company would have received 2% of the equity of the parent company issued upon emergence from the Chapter 11 case.

 

However, Ballard said, after executing the original RSA, the ad hoc noteholder group learned that there may be substantial liabilities at the parent company level. The group then informed the debtors that they were no longer willing to discharge and fully equitize their claims as contemplated under the initial RSA.

 

Because the legacy parent guarantee claims exist only against the parent and there are virtually no assets at the parent that would permit a recovery to any of its creditors, the original RSA was amended to eliminate any recovery to holders of existing parent interests. This allows for a recovery to and discharge of claims held by creditors of the parent, including holders of legacy parent guarantee claims, Ballard said.

 

After months of “tireless” negotiating, he said, the debtors agreed to the terms of the amended RSA on 4 December, with holders of about 85% of the outstanding principal amount of the senior unsecured notes, including the ad hoc noteholder group. The parties also reached agreement on the plan on 5 December. Also on 5 December, the debtors commenced solicitation of votes on the plan and disclosure statement.

 

The Chapter 11 case 

 

Under the terms of the RSA, the debtors and the ad hoc noteholder group agreed to a series of deleveraging transactions that will eliminate about USD 1.3bn of funded debt obligations through the plan. Specifically, the restructuring contemplates the discharge of all amounts outstanding under the prepetition notes indenture and the refinancing of the prepetition credit agreement through a USD 200m exit facility.

 

In exchange for agreeing to the discharge of all of their funded debt, holders of prepetition notes will receive 100% of the equity of the reorganized company and certain subscription rights to an equity rights offering, with a cash-out option. 

 

General unsecured creditors holding claims at the parent company level would get a pro rata share in a USD 125,000 cash pool, while general unsecured creditors holding claims at the operating level, with subsidiary debtors, would remain unimpaired and be paid in the ordinary course of business.

 

Under the terms of the RSA, the ad hoc noteholder group and other holders of prepetition notes claims have agreed to vote to accept the plan. The restructuring would also eliminate potentially millions of dollars in contingent liability consisting of the legacy parent guarantee claims.

 

Business-wise, the restructuring will allow Superior's management team to focus on operational performance and value creation, Ballard said. A significantly improved balance sheet will provide the reorganized debtors with increased financial flexibility and the ability to pursue value-maximizing opportunities that will strengthen customer service offerings. However, Ballard said, to be able to achieve all of this, the debtors must emerge from bankruptcy as quickly as possible.

 

Without a quick exit, the company risks being “mired” in an expensive process that causes customers to lose confidence in its ability to emerge as a healthier, more sustainable business partner, Ballard said.

 

Along with the RSA and plan, the company has entered bankruptcy with a USD 120m DIP, including the replacement of USD 47.4m in prepetition letters of credit. JPMorgan Chase Bank is the DIP agent.

 

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Under case milestones, the debtors need to obtain plan approval by 25 January, and consummate the plan by 1 February. They have proposed an 18 January confirmation hearing.

 

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The advisors 

 

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by Taylor HarrisonSarah Foss and Rong Ren