C&J Energy files for Chapter 11
September 2016 | DEALFRONT | BANKRUPTCY & RESTRUCTURING
Financier Worldwide Magazine
In late July, C&J Energy Services Ltd filed for Chapter 11 bankruptcy protection having reached an agreement with its lenders to exchange $1.4bn of outstanding debt for an ownership stake in the newly reorganised company. The company’s lenders include Ascribe Capital, Blue Mountain Capital Management, GSO Capital Partners, Silver Point Capital, Solus Alternative Asset Management and Symphony Asset Management, according to securities filings.
According to C&J’s court documentation, the company listed assets between $500m and $1bn, and liabilities between $1bn and $10bn. Furthermore, C&J noted that it has between 200 and 999 creditors. The company hopes to emerge from Chapter 11 within six months, and expects that it will continue to operate as normal throughout the restructuring process.
In a statement, Hamilton, Bermuda based C&J noted that it had filed for Chapter 11 protection in Houston in order to implement the agreement that had been reached with lenders who held 83 percent of its credit facility debt. The debt-for-equity swap will see the company’s lenders convert C&J’s entire debt into a 100 percent ownership stake in the restructured company. This agreement won the backing of more than 50 percent of C&J’s existing debt holders. The restructuring deal will see C&J receive $100m in bankruptcy financing, a $100m bankruptcy-exit facility and a $200m rights offering.
C&J’s president, chief executive and chief operating officer, Don Gawick, said: “Today’s Chapter 11 filings represent a significant milestone in our financial restructuring process to significantly strengthen our financial condition by reducing debt, enhancing liquidity and best positioning our Company to proactively respond as the market begins to recover. After thoroughly evaluating our options and strategic alternatives with our advisors and Board of Directors, we are confident that this is the best path forward for C&J and all our stakeholders.
“During the reorganization proceeding, all of our day-to-day operations will continue in the normal course, and we will maintain ample liquidity and resources to support our business and continue providing safe, reliable and efficient services to all of our customers. We appreciate the continued, strong support demonstrated by our lenders, which will hopefully enable us to move quickly and smoothly the restructuring process.”
More than 150 energy producers and service companies have now filed for bankruptcy protection over the course of the last two years. The difficulties experienced in the industry have been brought about, in no small part, by the rapid decline in oil prices since summer 2014. The collapse of oil prices has laid low many companies that pursued debt-fuelled takeovers in order to grow their business during the height of the shale boom. When oil prices were at record highs – more than $100 a barrel – many companies, including C&J, enjoyed high share prices and thrived. C&J in particular grew by utilising mergers and debt, but once the price of oil began spiralling downwards, the company was on borrowed time.
One of the most notable deals completed by C&J was its acquisition of the well production and completion businesses of Houston, Texas based Nabors Industries. At the time the deal was announced, oil was trading at more than $106 a barrel. By the time the deal closed in early 2015, however, prices had slid to about $47 per barrel.
The company’s difficulties over the last few years were magnified in March 2016, when C&J’s founder and chief executive Josh Comstock passed away suddenly from acute bacterial pneumonia, aged 46. The loss of Mr Comstock hit the company hard and created a leadership void. Randy McMullen, who had served as chief financial officer under Mr Comstock was appointed as CEO, though he was abruptly removed in June. Mr Gawick was quickly appointed and will be leading the company through its bankruptcy procedure.
In 2015, the company posted losses of $872.5m, followed in the first quarter of 2016 by a record loss of $428.4m. As a result, C&J was non-compliant with its debt agreements, which triggered restructuring talks with its lenders.
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