Key Energy hopes to reduce debt by "opportunistic" purchase of outstanding notes

By Sara Rosenberg

New York, April 25 - Key Energy Services Inc. said it aims to reduce debt by opportunistically buying back its outstanding notes. Currently, the company's debt to capitalization is around 40%.

"We've got a very clear business plan which will involve continuing to reduce leverage for the company," said Francis John, chairman and chief executive officer of the company, during Key Energy's third quarter 2002 conference call Thursday. "Our target was to get to 35% to 40% debt to capex by the end of June. Obviously, we're well on our way to do that."

In addition, he said, as market conditions continue to improve, the company expects to go back to the rating agencies to discuss the possibility of another debt upgrade.

Key Energy reported approximately $373 million of debt at the end of the fiscal third quarter. The breakdown of debt is a $100 million undrawn revolver, $94 million in 14% notes, $50 million in 5% convertible notes due October 2004 and $276 million in 8 3/8% senior unsecured notes. In fiscal 2002, the company reduced the amount of its 14% notes from $150 million to $94 million. According to John, it is a "clear objective to us to reduce that instrument that had such a high interest rate."

The company recorded a non-recurring extraordinary charge relating to the early retirement of $35.4 million of its 14% senior subordinated notes, according to a company press release. Net earnings before extraordinary items for the quarter were approximately $0.6 million, compared to $17.6 million for the year earlier period. EBITDA for the March 2002 quarter was approximately $31 million while the EBITDA margin was approximately 18.1%.

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