Superior Energy holders eye higher consent fee, changes to note terms

By Sarah Lizee

Olympia, Wash., Jan. 27 – Bayside Capital, Inc. disclosed information relating to Superior Energy Services, Inc.’s previously announced exchange offer and consent bid for its 7 1/8% senior notes due 2021, including a counterproposal from noteholders to the existing terms of the offer.

As previously reported, Superior Energy is offering to exchange up to $500 million of its $800 million outstanding 7 1/8% senior notes due 2021 for up to $500 million of newly issued 7 1/8% senior notes due 2021 and cash.

As reported on Jan. 6, the company is offering for each $1,000 principal amount of original notes tendered at or prior to the early participation date, an exchange consideration of $950 principal amount of new notes, subject to proration, an early participation premium of $50 principal amount of new notes, subject to proration, and a cash consent payment of 25 basis points.

According to a term sheet, holders are proposing that the consent fee be lifted to 200 bps.

Holders tendering after the early participation date will not be eligible to receive the early participation payment or the consent payment.

The early participation date is 5 p.m. ET on Jan. 29, pushed back from 5 p.m. ET on Jan. 22 and, before that, from 5 p.m. ET on Jan. 17. The offer expires at 11:59 p.m. ET on Feb. 3. The offer is expected to settle on the second business day after that.

In connection with the exchange offer, SESI is also soliciting consents from holders to amend the Dec. 6, 2011 indenture governing the original notes. The company is seeking to amend the lien covenant to permit the issuance of superior secured notes.

In order for the proposed amendment to be adopted, holders of a majority of the outstanding principal amount of notes must consent to the change and those consents must be received by the earlier of the early participation date and the date on which the necessary consents are received and a supplemental indenture is executed.

The exchange offer is conditioned on the tender of at least $250 million of original notes; however, the company may choose to reduce that threshold to $200 million.

The offer is not conditioned, though, on receiving the required consents.

However, if the needed consents are not received, the maximum aggregate principal amount of original notes that will be accepted and exchanged will be limited to $250 million, subject to proration, and the consent payment will not be made.

The exchange offer and consent solicitation is being conducted in connection with Superior Energy’s previously announced entry into a definitive agreement to divest its U.S. service rigs, coiled tubing, wireline, pressure control, flowback, fluid management and accommodations service lines and combine them with Forbes Energy Services Ltd.’s complementary service lines. The exchange offer is conditioned on the combination, but the combination is not conditioned on the exchange offer and consent solicitation.

With the combination, the new notes will automatically exchange into up to $250 million of 8% senior second-lien secured notes due 2027 to be issued by Spieth Newco, Inc.; and, only to the extent that the necessary consents are received in the consent solicitation, in an amount equal to the difference between the aggregate amount of new notes issued in the exchange and $250 million, up to an additional $250 million of 8% senior second-lien secured notes due 2027 to be issued by SESI, which would be the superior secured notes.

According to the term sheet, holders are proposing that the new notes would be exchanged into up to $250 million of 9% senior second-lien secured notes due 2025 issued by Spieth and $250 million of 10% senior second-lien secured notes due 2025 issued by SESI.

If the needed consents are not received, no superior secured notes will be issued.

The indenture governing the Spieth Newco notes will contain restrictive covenants customary for issuances of high-yield secured notes of this type, and the indenture governing the superior secured notes will contain restrictive covenants similar to those contained in the indenture governing SESI’s 7¾% senior notes due 2024.

Holders of the notes have also proposed some changes to the covenants of the new notes.

Following the combination, and assuming the exchange offer is fully subscribed, SESI expects to keep the remaining $300 million of original notes outstanding. However, if the combination is not completed by May 31 or Superior Energy determines in good faith that it will be more likely than not that it will be required to treat Newco as a consolidated subsidiary following the combination, the new notes issued in the exchange offer will be automatically exchanged for an equal principal amount of original notes to be issued as add-on notes.

D.F. King & Co., Inc. (attn.: Andrew Beck, 212 269-5550, 800 431-9633, spnv@dfking.com) is the information agent for the Rule 144A and Regulation S exchange offer and consent solicitation.

Based in Houston, Superior Energy provides oilfield services and equipment.

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