Key Energy Services Plans to File for Chapter 11 Bankruptcy Protection

Recently, Key Energy Services, one of the largest onshore rig-based well-servicing contractors in the U.S., announced that it will plan to file for Chapter 11 bankruptcy protection. According to a Fuel Fix report, the company’s creditors have agreed to a reorganization plan where debtholders will take control of the firm as part of a debt-for-equity exchange to cut liabilities from $725 million to $250 million.

Key Energy Services’ debt loan mounts

The company’s financial struggles began with the collapse of oil prices that started in 2014. Key Energy Services had agreed to several loan agreements while sales of shale oil were high, but fell into insolvency by the end of last year. In fact, Fuel Fix reported that Key Energy had $1 billion in debt along with $1 billion in operating losses in 2015. According to Bloomberg, its troubles continued into this year as Key listed revenues of $95 million in the second quarter, down from $197.5 million the same time in 2015.

As a result, the company began negotiations with creditors in June on a pre-packaged bankruptcy agreement.

Key Energy Services’ reorganization plan

The restructuring agreement calls for senior note bondholders to receive 95 percent of the newly formed company’s shares. Bloomberg reported that Key Energy’s current shareholders will see their equity stake in the company drop to 5 percent because common stock shareholders will receive 543,927 shares with the ability to purchase additional shares.

Its refinancing agreement also calls for an $85 million rights offering for common stock shares in the new company. These proceeds will be leveraged to pay down the principal and interest on the company’s current term loan. Furthermore, an asset-backed lending facility will be instituted to replace the current $100 million revolving credit facility.

In bankruptcy documents, the Key Energy Services also stated that it plans to remain a publicly traded company because it intends to emerge from the bankruptcy process as a viable business model. Throughout the process, the company will remain operational so all employees, creditors and vendors will continue to be paid.

Significance of the Key Energy Services filing

To date, over 150 oil companies in North America have filed for Chapter 11 bankruptcy protection, including more than 70 oil servicing firms. Fuel Fix reported that like its peers, Key Energy Services felt the brunt of the two-year slide in oil prices.

Are you a creditor in a bankruptcy?  Have you been sued by a bankrupt?  If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.