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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