Filing Bankruptcy, Key Energy Expects to Remain Public Company

Under a prepackaged reorganization plan, Key Energy Services has filed for Chapter 11 bankruptcy – the latest oilfield services company to succumb to the ravages of the oil price downturn.

The reorganization isn’t expected to impact the company’s 3,800 workers in the United States, who, along with vendors and trade creditors, will be paid in full in the ordinary course of business, according to the company’s news statement.

Los Angeles-based private equity firm, Platinum Equity, will become Key’s largest shareholder upon completion of the restructuring.

In its 10-Q filing Aug. 15 with the U.S. Security and Exchange Commission, Key said the company is at risk of missing debt payments, which could allow creditors to force a bankruptcy and result in little to no recovery for unsecured shareholders.

As part of the plan support agreement (PSA), Key will conduct an $85 million rights offering for reorganized Key common stock. Those proceeds will repay principal and interest on a term loan, which will reduce the balance to $250 million and give Key some working capital, according to the company’s news statement. If shareholders approve the plan, it will leave 95 percent of the reorganized common stock in Platinum’s hands, with current common equity holders owning 5 percent.

Key said in a May earnings conference call with analysts that the company’s liquidity had dropped to $182 million – that’s compared to its $231 million in liquidity at the end of the fourth quarter 2015. Key President Robert Wayne Drummond said a 42 percent drop of activity in California heavily influenced the business. And, despite oil prices rebounding by almost 70 percent since February, operators had not yet picked up their activity.

“We believe that our customers need some level of confidence that oil will stay in a reasonable economic range in order to materially resume activity,” he said.

A company’s liquidity – or ability to generate cash from its assets – is fundamental to surviving the downturn, analysts and bankers have told Rigzone. 


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