Seventy Seven Energy has signed a restructuring support agreement with certain lenders representing 92.0% of the outstanding principal amount.
The agreemrnt has been signed under the Company’s Incremental Term Supplement (Tranche A) loan and certain noteholders (the "Consenting 2019 Noteholders") collectively owning or controlling in excess of 57.7% of the aggregate outstanding principal amount of the Company’s 6.625% senior notes due 2019.
The terms of the Agreement provide for a substantial deleveraging of the Company’s balance sheet by converting approximately $1.1 billion of the Company’s bond debt into new common equity without interrupting the Company’s daily operations. The Agreement outlines an expected restructuring through a prepackaged plan of reorganization (the "Plan").
"Today’s announcement is a clear endorsement by the stakeholders of Seventy Seven Energy in the future of this company," Chief Executive Officer Jerry Winchester said. "The exchange of debt for equity will provide us with a significantly deleveraged balance sheet, and we will emerge from this process as a stronger company. After a thorough evaluation of our options, we are confident this is the correct path that will enable us to take advantage of our operational strengths and strong asset base to proactively grow our business as market conditions improve."
A key component of the Plan is that all trade creditors, suppliers and contractors will be paid in the ordinary course of business. All of the Company’s commercial and operational contracts will remain in effect in accordance with their terms preserving the rights of all parties, and customer relationships will continue uninterrupted. Employees can expect that operations will continue as usual and they will be paid in the ordinary course. The Company intends to commence a prepackaged Chapter 11 proceeding on or before May 26, in order to implement the Plan. The pre-packaged Chapter 11 filing will follow a solicitation process that is expected to commence on April 22.
The Company’s 8-K filing today outlines certain terms of the Plan. Significant elements of the Plan include:
payment in full in the ordinary course of all trade creditors and other general unsecured creditors;
the exchange of the full $650.0 million of the 2019 Notes into either 96.75%, if the holders of the 2022 Notes vote as a class to accept the Plan, or 98.67%, if the holders of the 2022 Notes vote as a class to not accept the Plan, of the Company’s new common stock to be issued in the reorganization ("New Common Stock");
the exchange of the full $450.0 million of the 2022 Notes for (i) 3.25% of the New Common Stock as well as warrants exercisable for 15% of the New Common Stock at predetermined equity values (the "2022 Warrants"), if the holders of the 2022 Notes vote as a class to accept the Plan, or (ii) 1.33% of the New Common Stock, if the holders of the 2022 Notes vote as a class to not accept the Plan;
the issuance by the Company, if all classes of claims entitled to vote accept the Plan, to existing common stockholders of the Company of two series of warrants exercisable for an aggregate of 20% of the New Common Stock at predetermined equity values;
the reinstatement of the Company’s existing $400 million secured term loan on identical terms; and
the payment of a consent fee equal to 2% of the Incremental Term Loan plus $15 million of the outstanding Incremental Term Loan balance, together with the reinstatement of the remaining $84 million balance of the Incremental Term Loan on identical terms other than the suspension of any prepayment premium for a period of 18 months.
Baker Botts LLP is serving as legal counsel and Lazard Freres & Co. LLC has been engaged as financial advisor to Seventy Seven Energy. Alvarez & Marsal is restructuring advisor to the Company.