Pioneer Energy files pre-packaged bankruptcy to swap notes for equity

By Caroline Salls

Pittsburgh, March 2 – Pioneer Energy Services Corp. made a pre-packaged Chapter 11 bankruptcy filing Sunday in the U.S. Bankruptcy Court for the Southern District of Texas to implement a financial restructuring agreement reached with key stakeholders that includes the elimination of its existing notes through a debt-for-equity conversion, according to a news release.

The company said its Chapter 11 process does not include its international entities, the majority of which are located in Colombia.

In addition, Pioneer said it expects to continue to operate in the normal course during the court-supervised process, and the terms of the restructuring call for payment of all customer, vendor, and other trade obligations in full in the ordinary course of business.

Pioneer said its balance sheet restructuring will significantly reduce long-term debt and related interest costs, provide access to additional financing and establish a strong capital structure. In addition to equitizing roughly $300 million of existing notes, the company will raise up to $125 million of new capital through a rights offering of new convertible debt from eligible noteholders and shareholders, a substantial portion of which will be backstopped by existing holders, and $78 million of new senior secured notes to be provided by existing noteholders.

Upon emergence, this new capital will be used to refinance Pioneer’s existing term loan debt, make distributions under the plan and add cash to the balance sheet.

The company said its pre-packaged plan is overwhelmingly supported by its secured lenders and noteholders.

According to an 8-K filed with the Securities and Exchange Commission, the restructuring will result in a $260 million reduction of the company’s funded debt.

Plan terms

Under the pre-packaged plan of reorganization, general unsecured creditors will be paid in full in the ordinary course of business.

The company’s existing asset-based revolving credit facility will be refinanced with a debtor-in-possession revolver with a borrowing limit of $75 million and a $30 million letter-of-credit facility.

The company will issue a total of $78.12 million in new senior secured notes to some consenting noteholders. The new secured notes will mature five years from issuance and bear cash interest at Libor plus 950 bps, plus a 100 bps step-up if the notes remain outstanding in year five.

Existing senior unsecured notes will be cancelled and exchanged for 94.25% of the common stock of reorganized Pioneer and the right to participate in a rights offering for the purchase of 94.25% of the unsecured convertible bonds to be issued by reorganized Pioneer along with stapled special voting stock.

Up to $123.2 million of new convertible bonds will be issued, and 9.2 million shares of stapled special voting stock will be issued.

The existing secured term loan facility will be refinanced with the proceeds of the new convertible bonds and the new secured notes.

Existing equity will be cancelled and exchanged for 5.75% of the new equity, subject to the class of holders of existing equity voting to accept the plan, and the right to participate in the rights offering for the purchase of 5.75% of the new convertible bonds and stapled special voting stock.

The consenting noteholders have committed to backstop $118 million of new convertible bonds and the corresponding shares of stapled special voting stock, and some members of Pioneer’s senior management will purchase $1.8 million of new convertible bonds and corresponding shares.

The new convertible bonds will mature in 5.5 years from issuance and bear payable-in-kind interest at 5%. Up to 10.1 million stapled special voting shares will be issued.

The new convertible bonds will be convertible into 75 shares of new equity per $1,000 principal amount of the new bonds at any time in whole or in part at the option of the holder and mandatorily on the maturity date.

Upon completion of its financial restructuring, Pioneer said it expects to emerge in a stronger financial position, capable of accelerating future growth and better able to serve customers.

“Over the course of the last several years, Pioneer has been challenged by the difficult economics of the oil and gas industry. We have continued to adapt to the challenging market environment in which we operate, but our strong underlying business has continued to labor under a heavy debt burden,” president and chief executive officer Wm. Stacy Locke said in the release.

DIP financing

In conjunction with the bankruptcy filing, Pioneer received a commitment for $75 million in DIP financing from PNC Bank. Upon court approval, the new financing and cash generated from ongoing operations will be used to support the business during the reorganization process.

The DIP facility will mature on the earliest of five months from the bankruptcy filing date, 45 days after the filing date if final approval has not been obtained, the earlier of the plan effective date and the sale of all or substantially all of the collateral securing the DIP facility and the acceleration of the facility.

The DIP facility will “roll” into an asset-based revolving credit facility upon emergence from the Chapter 11 cases. The new revolver will have a five-year maturity and bear interest at a rate between Libor plus 175 basis points and Libor plus 225 bps, depending on use.

Pioneer also filed several customary motions seeking approval to operate its business in the normal course during the Chapter 11 process, including the continued payment of employee wages and benefits without interruption.

Debt details

According to court documents, Pioneer had $689.69 million in both assets and debt as of Sept. 30.

The company’s largest unsecured creditors are Hunting Titan, Inc. of Houston, with a $2.55 million trade payable claim; SWM International Holdings, LLC of Alpharetta, Ga., with a $2.53 million trade payable claim; DynaEnergetics US, Inc. of Lakeway, Tex., with a $1.19 million trade payable claim; and National Oilwell Varco of Houston, with a $1.01 million trade claim.

Paul, Weiss, Rifkind, Wharton & Garrison LLP and Norton Rose Fulbright US LLP are serving as legal counsel to Pioneer, Lazard is acting as financial adviser, and Alvarez & Marsal is serving as restructuring adviser.

Pioneer Energy is a San Antonio-based drilling services company. The Chapter 11 case number is 20-31425.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.