MorrisAnderson Debt Restructuring and Refinancing in a Distressed Industry
20M
Annual Sales
120M
in Debt
Petroplex Acidizing, Midland Texas
Challenge
Permian Basin Oil Field service provider of acidizing to major oil field developers. Acidizing is a well maintenance activity to restock well productivity. Annual sales $20 million; down from peak of $70 million.Company had $120 million of secured debt.
- EBITDA plummeted from nearly $30 million/year to $2 million/year as oil price fell from $100 to $30 a barrel
- Oil industry price decline had significantly reduced well drilling activity such that the Company’s job volume and pricing levels both plummeted by over 50%
- Management did a good job of adjusting cost structure so company was able to stay EBITDA positive
- Oil prices were starting to normalize around $50/barrel
- PE firm owner was willing to inject additional capital if lenders would provide debt restructure with multi-year turnaround runway
Solution
- MorrisAnderson created valuation based upon a 3-year forward looking and industry gradually recovering assumptions
- Negotiated a consensual debt restructuring which converted secured debt into a performing Tranche A and non-performing Tranche B
- New PE capital inserted pari passu with performing Tranche A debt and lender received minority warrants
Results
- Recapitalization was done out of court
- Company’s EBITDA has increased to $6 million/year
- Company is adequately servicing secured debt
- Company has 3-year runway which provides opportunity for oil industry to recover and secured lender to recoup their full investment and PE firm to recover their pari passu debt and have a longer term potential equity recovery
- $15 million revolver refinanced
