Distressed Debt: Key Energy Cut to CC on Proposed Restructuring, Likely Ch.11Fiiling

S&P Global Ratings has cut Key Energy Services to CC, from CCC+, after the oilfield services company today announced that it has entered into confidential agreements with certain holders of its 6.75% senior notes due 2021 and certain lenders of the term loans regarding a proposed financial restructuring.

The outlook is negative, reflecting the high likelihood that Key will seek to restructure its debt through a prepackaged Chapter 11 proceeding once it comes to terms with creditors, S&P said in its report.

Key Energy said in an 8-K filing that the discussions with its creditors remain ongoing, with both sides presenting proposals.

Based on the disclosures filed, the creditors’ proposal contemplates, among other things, an exchange of all outstanding notes for 100% of the equity of the reorganized Key Energy, subject to dilution as a result of a $75 million rights offering, the proceeds of which would be used together with other available funds to repay $63 million in aggregate principal and interest of the term loans at par, with the remaining $250 million principal balance of the term loans to remain in place, subject to certain modifications agreed upon among the creditors. Also, under the creditors’ proposal, vendors and other general unsecured creditors would be paid in full. Further, eligible Key Energy shareholders would receive the ratable right to acquire up to 8% of the equity of the reorganized company pursuant to the rights offering and ineligible shareholders would be entitled to a ratable share of a $100,000 payment.

Key’s counter proposal addresses, among other things, calls for existing shareholders to receive 5% of the reorganized equity.

Total senior debt at the company was roughly $988 million as of March 31, including $675 million of 6.75% senior notes due 2021 and $312 million outstanding under its term loan due 2020 (L+925, 1.00% LIBOR floor.)

Houston–based Key Energy Services operates as an onshore rig-based well servicing contractor in the U.S. and internationally. The company trades on the NYSE under the ticker KEG and has a market capitalization of approximately $47.2 million. —Rachelle Kakouris

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Avaya Bonds Slump After co. Hires Goldman, Centerview to Assess Capital Structure

Bonds backing Avaya dropped two points in the afternoon session after the company announced it has retained Goldman Sachs and Centerview Partners as financial advisors to assist in addressing its capital structure.

The 7% secured notes due 2019 traded down two points to 65.5, trade data show.

Over in the loan market, Avaya’s B-7 term loan due 2020 (L+525, 1% LIBOR floor) was little changed following the news, marked at 66.5/68.5, sources said.

The company’s debt has been volatile in recent weeks on rumors of the hire.

In terms of its results, revenue declined $54 million to $904 million year-over-year as demand for unified communications products continued to contract.

Adjusted EBITDA was up near flat at $205 million year-on-year.

Avaya, which is controlled by Silver Lake and TPG, was downgraded to CCC by S&P Global Ratings last month on what S&P described as a“significant debt risk” at the company.

S&P Global Ratings said it expects the company’s performance to remain weak in 2016 and 2017 as it contends with managing its $2.321 billion secured B-3 (L+450) and B-4 term loans due October 2017, of which $617 million is outstanding, and its $1.138 billion secured B-6 term loan due March 2018 (L+550, 1% floor), of which $537 million is outstanding.

The telecom equipment company ended the quarter with a cash balance of $312 million.

Avaya last tapped the loan market in April 2015 for the $2.125 billion B-7 term loan (L+525, 1% floor), proceeds of which were used to repay a portion of the outstandings under its B-3 and B-6 term loans. Citi is administrative agent.

Together with its subsidiaries, Avaya provides contact center, unified communications, and networking products and services worldwide. The company operates through three segments: Global Communications Solutions (GCS), Avaya Networking (Networking), and Avaya Global Services (AGS). — Rachelle Kakouris

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Swift Energy emerges from Chapter 11

Swift Energy today emerged from Chapter 11, the company announced this morning, adding that it closed on a new $320 million senior secured credit facility in connection with the emergence.

As reported, proceeds of the exit facility were used to repay holders of the company’s prepetition $330 million RBL. The company did not provide further details of the exit facility.

As also reported, the Wilmington, Del., bankruptcy court overseeing the company’s Chapter 11 confirmed the company’s reorganization plan on March 30.

Under the plan, senior notes will be exchanged for about 96% of the reorganized company’s equity, subject to dilution on account of the equitization of the company’s $75 million DIP facility via a rights offering.

According to court documents, the DIP equitization will dilute the distribution to senior noteholders by 75%. Consequently, after giving effect to the rights offering backstop fee of 7.5% of the equity, the final equity distribution to noteholders on account of their claims will be 22.1%, resulting in a recovery rate of 4.6–12.8%, depending upon plan equity value.

At a midpoint value of $680 million, court documents show, the senior notes recovery rate stands at 8.7%.

Existing equityholders retained 4% of the reorganized company’s equity, subject only to a proposed new management-incentive program. In addition, existing equityholders are also to receive warrants for up to 30% of the post-petition equity exercisable upon the company reaching certain benchmarks. — Alan Zimmerman


S&P cuts Hercules Offshore to CCC– on forbearance agreement

Standard & Poor’s has lowered its corporate credit rating on Hercules Offshore to CCC–, from CCC+, after the Houston-based offshore-drilling contractor announced that it entered into a forbearance agreement and first amendment to its credit agreement with the agent and certain lenders.

The rating outlook is negative, reflecting S&P’s belief that that there is a high likelihood of default or restructuring over the next six months, according to the report. Recall, Hercules emerged from Chapter 11 less than six month ago following a Chapter 11 reorganization that converted approximately $1.2 billion of unsecured debt to equity and provided for a new $450 million first-lien term loan to fund the remaining construction cost of the Hercules Highlander.

During the forbearance period, the company will be unable to access the $200 million portion of the term loan proceeds placed in escrow, which could potentially delay delivery of the new build and impact the company’s contract for the Hercules Highlander rig. Also, the cash flows of Hercules Offshore are highly dependent upon the delivery of the Highlander rig, to wit the company expects the rig to go into operation during the third quarter 2016, according to S&P.

As part of the amendment, lenders have agreed to forbear from exercising their rights stemming from the alleged a failure by Hercules Offshore to comply with certain specified affirmative covenants under the credit agreement, including failure of Hercules Offshore Nigeria Ltd. to deliver a certificate of registration on the vessel mortgage, and the failure of Hercules Offshore to use its best efforts to cause the Gibraltar Guarantor to dissolve, merge or consolidate with or into another loan party within the required time period.

During the forbearance period, which expires April 28, the company has agreed with lenders to negotiate in good faith an agreement with respect to a potential recapitalization, business combination or other alternative strategic transaction, including a potential restructuring of the loans. — Rachelle Kakouris


Logan’s Roadhouse Skips Bond Interest Payment, Continues Talks with Noteholders

Logan’s Roadhouse has entered into a 30-day grace period after it failed to make interest payments due April 15 on its 10.75% senior secured notes due 2017.

The company said it intends to continue to engage in discussions with holders of the notes and other stakeholders regarding strategic alternatives to improve liquidity.

Recall, Logan’s on March 29 disclosed that it would delay its 10-K annual report filing for the period ended December 30, 2015, as a result of the “significant amount of time” devoted to its discussions with stakeholders regarding strategic alternatives to reduce the company’s debt and the recent amendment to its credit facility.

LRI Holdings, a subsidiary of Roadhouse Parent Inc., did not file the annual report within the 15-day extension, the company said today.

Recall, Standard & Poor’s late last month cut its corporate credit rating on Logan’s Roadhouse by two notches to CCC–, citing its belief that the company is likely to default again in the coming months, absent an unexpected source of liquidity.

S&P also lowered its issue-level ratings on the company’s $143.9 million of 10.75% second-lien notes and $112.5 million of series 2015-1 and $109.7 million of series 2015-2 notes due October 2017 to CCC–, from CCC+. The recovery rating is 4H, indicating S&P’s expectations for the high end of average recovery (40–50%) in the event of default.

The 10.75% notes were originally issued as a $355 million series in late 2010 to back a sponsor-to-sponsor sale of Logan’s Roadhouse to Kelso & Company from Bruckmann Rosser Sherrill & Co., Black Canyon Capital, Canyon Capital Advisors, and company management. Pricing was at par via J.P. Morgan and Credit Suisse. Recent odd-lot trades were reported around a 28 context. Last fall, investors were engaged in a private bond swap, wherein the two other series were put in place. See “Logan’s Roadhouse secured notes cut to D after private bond swap,” LCD News, Oct. 20, 2015.

LRI Holdings, Inc., together with its subsidiaries, develops and operates Logan’s Roadhouse restaurant chain in the United States. As of November 2, 2015, it operated 230 company-owned restaurants and 26 franchised restaurants in 23 states. The company was founded in 1991 and is headquartered in Nashville, Tennessee. — Staff reports

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Global 2016 Corporate Default Tally Rises to 46, with 5 Additions this Week

global corporate defaults

The 2016 global corporate default tally climbed to 46 this week, the most at this point in a year since 2009, according to S&P.

The five companies defaulting during the week:

  • Vertellus Specialties (US – chemicals)
  • Cliffs Natural Resources (US – mining)
  • UrklandFarming (Ukraine)
  • Government Development Bank of Puerto Rico (technically based in NY)
  • Norske Skogindustrier (Norway – paper)


Norske Skog was Europe’s first corporate default of the year, while Vertellus and Cliff’s helped bring the U.S. default tally so far in 2016 to 37, S&P says.

The full default report, including an xls of corporate default stats, is available to Global Credit Portal subscribers here.




Breitburn Energy Skips Interest Payments, Enters Grace Period

Breitburn Energy Partners has elected to defer interest payments due today of approximately $33.5 million on its 7.875% notes due April 2022 and approximately $13.2 million on its 8.625% senior notes due October 2020, entering into a customary 30-day grace period as the company explores “strategic alternatives to strengthen its balance sheet.”

The aforementioned Breitburn 7.875% notes due 2022 are down almost four points, in a 7 context, trade data show, while the 8.625% notes due 2020 are nearly unchanged, with trades reported at 10–11.

If Breitburn decides not to make the interest payments by the end of the grace period, an event of default will also result in a cross-default under Breitburn’s revolving credit facility and its 9.25% senior secured second-lien notes due May 2020, the company said in a press release today.

Breitburn further disclosed that it has initiated discussions with its secured debtholders “related to alternatives to improve Breitburn’s long-term capital structure.”

The company has retained Lazard as its financial advisor and Weil, Gotshal & Manges as its legal advisor to assist with the strategic review process. In addition, Jefferies LLC will provide Breitburn with corporate and financial advisory services, the company said.

Los Angeles–based Breitburn is an independent oil-and-gas company with properties in Michigan, California, Wyoming, Florida, and Kentucky. — Rachelle Kakouris

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Distressed Debt: Affinion, Linn Energy, Peabody, W&T Offshore join Restructuring Watchlist

Four issuers joined LCD’s Restructuring Watchlist last week, bringing the total number of issues on the list to 40, according to S&P Global Market Intelligence LCD.

Joining the list:

  • Customer loyalty concern Affinion Group, which posted a drop in fourth-quarter revenue and forecasted a decline for 2016. Affinion is controlled by Apollo Management.
  • Linn Energy, which delayed filing an annual report, saying it needed additional time to disclose concerns about debt covenants
  • Coal miner Peabody Energy, which issued a going-concern warning
  • W&T Offshore, which drew down most of what was remaining on the company’s revolving credit line, prompting a downgrade by S&P to CCC-

Three of those names might sound familiar: Affinion, Linn, and Peabody already have been on the list at one time or another, each returning this week.

Nearly half of the Watchlist – 19 issuers – comprises energy companies proper (such as oil & gas), while three are mining/commodities concerns.

This distressed debt activity comes as the U.S. leveraged loan default rateincreased to a still relatively low 1.45% in February, from 1.33% in January, according to LCD’s Steve Miller. Noranda Aluminum and Paragon Offshore were the two leveraged loan issuers to default last month, according to LCD.

loan v bond distress ratio

More broadly, S&P puts the 2016 Global corporate default count at 22 issuers through February, compared to 17 by that time in 2015.

LCD’s Restructuring Watchlist tracks companies with recent credit defaults or downgrades into junk territory, issuers with debt trading at deeply distressed levels, as well as those that have recently hired restructuring advisors or entered into credit negotiations. It is compiled by Matt Fuller. It is published each week in LCD’s Distressed Weekly.

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Warning of Bankruptcy, Goodrich Pete Skips Interest Payments, Eyes Debt Swap

Goodrich Petroleum today announced that it will not make its March 15 and April 1 coupon payments and again warned it may seek bankruptcy protection if its distressed exchange offers are not successful.

As reported, Goodrich last week extended the deadline on its offer to exchange its 8.875% notes due 2019 and four series of convertible notes into common shares to March 16 after participation by noteholders remained practically unchanged.

The company today said is exercising the grace period on its $5.2 million interest payment due on the 8.875% notes due 2019, $4 million interest payment due on its 8% second-lien senior secured notes due 2018 and $3 million interest payment due on its 8.875% second-lien senior secured notes due 2018. These interest payments are due March 15, 2016.

Goodrich has also elected to exercise its right to a grace period with respect to a $0.2 million interest payment due on its 5% convertible notes due 2029, a $2.4 million interest payment due on its 5% convertible notes due 2032 and a $0.2 million interest payment due on its 5% convertible exchange notes due 2032. These interest payments are due on April 1, 2016.

The company will hold a conference call on March 9, 2016, at 10 a.m. CST to discuss the proxy materials filed Feb. 12 and exchange offers.

As reported, Goodrich is the latest in a growing number of struggling E&P credits attempting financial engineering through distressed bond exchanges. Rather than an uptier swap, however, Goodrich is offering to swap its 8.875% notes due 2019 and four series of convertible notes for common shares, according to a company statement.

As at the March 2 deadline, approximately 60% of existing unsecured notes eligible for exchange have been tendered, from 59.7% as of Feb. 24.

Goodrich is also offering to exchange its preferred shares into common shares and both its 8% second-lien notes due 2018 and 8.875% second-lien exchange notes due 2018 for similarly structured bonds, but with PIK toggle payment or payment-deferral options. The transaction follows a previous debt swap completed in September that produced the 8.875% second-lien notes via an uptier swap from a portion of its 8.875% unsecured notes.

As at March 2 deadline, approximately 36% of existing preferred stock eligible for exchange has been tendered, up slightly from 34.7% as of Feb. 24.

As reported, Goodrich warned in its exchange offer that its ability to make the interest payments “is at significant risk as a result of the sustained continuation of the current commodity price environment.”

“If the company is unable to complete the recapitalization plan, including the exchange offers, and address its near-term liquidity needs, it may need to seek relief under the U.S. Bankruptcy Code,” the company warned in the exchange offer.

Lazard, as restructuring advisor, and Vinson & Elkins L.L.P., as restructuring counsel, are working on a plan of reorganization that the company expects to implement if the exchange offers are unsuccessful, the company said.

Details of the multi-tiered transaction, with a pro forma capital structure after the exchange and liquidation preference tiers, can be found here. Georgeson is the information agent and American Stock Transfer & Trust Company is the exchange agent. —Rachelle Kakouris

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S&P: 22 Corporate Defaults Globally in 2016; Commodities Still Lead Pack

global defaults

Two corporate issuers defaulted this week, a Russia-based bank and U.S. oil and gas co. Chaparral Energy, raising the global corporate default tally to 22 issuers so far in 2016, according to S&P Global Fixed Income Research.

By contrast, there were 17 defaults at this time in 2015. The full report is available here (S&P Global Credit Portal subscriber link).