Key Energy to sell stock to redeem $35.4 million of 14% senior subordinated notes

New York, Dec. 14 - Key Energy Services, Inc. said it will issue 5.4 million shares of common stock and use the proceeds to exercise the remainder of the equity clawback on its 14% senior subordinated notes due 2009.

The Midland, Texas well service company said the net proceeds of $43.2 million from the stock offering will cover $35.4 million principal amount of the notes plus the redemption premium, accrued interest and transaction costs.

Once complete, Key Energy will have $97.5 million notes still outstanding of the original $150 million issued. The company said these notes will be callable beginning Jan. 15, 2004.

"Utilizing the cash proceeds from this small equity offering will allow the Company to reduce a significant portion of its high-cost 14% debt," said Francis D. John, chairman and chief executive officer, in a news release. "This transaction reduces the company's fixed charges by approximately $5 million per year, significantly strengthens its balance sheet approaching investment grade and positions Key to explore growth opportunities on an accretive basis."

"Having reduced debt by approximately $458 million in three years, the Company is positioned to remain cash flow positive even under the severe conditions seen in 1998-1999. We expect our debt ratings will soon catch up with our strong cash flow performance and substantial balance sheet improvement."

Key Energy also said that during the quarter it has reduced the amount outstanding of its 5% convertible subordinated notes due 2004 to $50.4 million.

The company estimates long-term debt will be $385 million at Dec. 31 and its debt to capitalization ratio will be 39.5%.

Key said the action is designed to "significantly lower" its annual cash interest expense and "substantially improve" its balance sheet.

It also announced management changes effective Jan. 1, 2002, intended to prepare the company "for a period of business expansion and growth."

James Byerlotzer will become executive vice president and chief operating officer and will be responsible for all domestic well servicing, drilling and ancillary operations. Thomas K. Grundman will become executive vice president - M&A and international, assuming responsibility for corporate development, merger and acquisition efforts and international operations. Royce W. Mitchell, currently a partner at KPMG LLP, Key's auditors, will join the company as executive vice president, chief financial officer and chief accounting officer where he will be responsible for accounting, information technology and treasury.

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