Key Energy Services plans to make pre-packaged Chapter 11 filing

By Angela McDaniels

Tacoma, Wash., Aug. 24 – Key Energy Services, Inc. plans to implement a recapitalization of the company through a pre-packaged Chapter 11 plan of reorganization, according to a company news release.

The company and some of its subsidiaries have entered into a plan support agreement with the holders of more than 89% of its 6¾% senior notes due 2021, including Platinum Equity, and the holders of more than 87% of the principal amount of its term loan.

Platinum Equity will be Key's largest shareholder once the anticipated restructuring is completed.

The company expects to begin the pre-packaged proceeding in Delaware by Nov. 8.

Under the contemplated plan, the company's employees, vendors and trade creditors will be paid in full in the ordinary course of business. Reorganized Key will remain a publicly traded company.

Concurrently with the official solicitation of votes on the plan, the company will conduct an $85 million rights offering for reorganized Key's common stock. The rights offering may be increased by $25 million.

The proceeds of the rights offering will be used to repay principal and interest on the company's term loan to reduce the principal balance to $250 million and provide reorganized Key with incremental working capital.

Ninety-five percent of the rights offering will be available to certain qualifying noteholders, and 5% will be available to certain qualifying equityholders.

Some parties to the plan support agreement have agreed to backstop the full amount of the rights offering.

The company expects to begin the solicitation of votes on the plan and the rights offering by mid-September.

In addition to the rights offering, the other principal components of the plan include the following:

• Replacing the company's existing $100 million asset-based revolving credit facility with a new ABL facility;

• Exchanging 100% of the company's 6¾% notes for 5 million shares of reorganized Key plus rights to acquire additional shares of reorganized Key;

• Cancelling all of the company's existing common stock in exchange of 543,927 shares of reorganized Key plus rights and warrants to acquire additional shares of reorganized Key.

The company expects that the noteholders will own about 95% of reorganized Key's common stock and Key's current common equityholders will own about 5% once the plan becomes effective.

The plan support agreement and other transaction agreements to be executed by the company include covenants on the part of the company to solicit and seek court approval of, and the other parties to the agreements to vote in favor of the plan, support the restructuring transactions and forbear from exercising remedies against the company with respect to certain defaults.

“By significantly reducing Key's debt from almost $1 billion to $250 million, we believe that Key will be well positioned to take advantage of opportunities that emerge as the market recovers,” Key president and chief executive officer Robert Drummond said in the news release.

Key Energy is Houston-based onshore, rig-based well servicing contractor.

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