Forbes Energy Services Ltd. (“Forbes” or the “Company”) (OTCPK: FLSS) today announced that it entered into a definitive agreement to combine with the U.S. service rig, coiled tubing, wireline, pressure control, flowback, fluid management and accommodations service lines business of Superior Energy Services, Inc. (“Superior Energy”) (OTCQX: SPNV) to create a new, publicly traded, consolidation platform for U.S. completion, production and water solutions (referred to in this press release as Newco).
Under the terms of the merger agreement, holders of Forbes common stock and holders of Forbes’ outstanding convertible PIK notes, which have an outstanding balance, inclusive of accrued interest, of approximately $54 million, will receive, in the aggregate, 50.1% of the voting Class A common stock of Newco (“Class A Stock”), representing a 35% economic interest in Newco, subject to potential adjustment within certain parameters based on the net debt position of Forbes. An aggregate of 1.5% of the shares of common stock of Newco to be received by holders of Forbes common stock and convertible PIK notes will be allocated to the outstanding shares of common stock and 98.5% will be allocated to the convertible PIK notes. The transaction, which is expected to close in the first quarter of 2020, has been unanimously approved by a special committee of Forbes directors and by the boards of directors of each of Forbes and Superior Energy.
It is anticipated that Newco’s Class A Stock will initially trade in the over-the-counter market. Superior Energy has agreed that Newco will list on NASDAQ at such time as Newco satisfies NASDAQ listing criteria.
In connection with the transaction, Ascribe Capital LLC and Solace Capital Partners, L.P., which collectively hold approximately 40% of the outstanding Forbes common stock and approximately 92% of Forbes’ convertible PIK notes, have entered into a voting agreement with Superior Energy, pursuant to which, subject to the terms of the voting agreement, they have agreed to exchange a portion of their convertible PIK notes for Forbes common stock and, after giving effect to this exchange, to vote shares of common stock representing 51% of the outstanding Forbes common stock in favor of the merger. In addition, in connection with the closing of the transaction, Ascribe Capital LLC and Solace Capital Partners, L.P. agreed to contribute approximately $30 million of Forbes term debt held by them to Newco in exchange for preferred stock of Newco that is convertible into Newco common stock.
The transaction is expected to close in the first half of 2020, subject to the approval by Forbes’ stockholders and other customary regulatory approvals, the consummation of an exchange offer by SESI, L.L.C. (“SESI”), a wholly owned subsidiary of Superior Energy, including the acceptance of at least $250 million of its $800 million aggregate principal amount of outstanding 7.125% Senior Notes due 2021, the entering into of an asset-based loan facility of Newco, and other customary closing conditions.
Following the closing of the transaction, Dave D. Dunlap, Chief Executive Officer and President of Superior Energy, will act as Chairman and Chief Executive Officer of Newco, and Brian Moore, Executive Vice President of Corporate Services of Superior Energy, will act as Chief Operating Officer of Newco. The Board of Directors of Newco will consist of Mr. Dunlap plus three independent directors, two of whom will be designated by Superior Energy and one of whom will be designated by Forbes.
John Crisp, Chairman, President and CEO of Forbes, commented: “The combination of Forbes with Superior Energy’s US on-shore oilfield services business will provide Forbes stockholders and convertible noteholders with a meaningful equity ownership position in a U.S. land service consolidation vehicle that will have significantly greater balance sheet flexibility and increased free cash flow generation. We share the conviction of Superior Energy that there are exceptional opportunities to reduce corporate costs, improve asset management, and increase free cash flow generation through increased industry consolidation.”
Source: Company Press Release