Boart Longyear has had its financial future secured following Centerbridge Partners’ decision to increase its investment in the company tot he tune of $324 million.
The future of the drilling contractor and machinery manufacturer was in doubt earlier this year
following another round of negative financial results.
The company recorded a massive fall in revenue in its latest first half results, seeing a fall of nearly US $300 million year on year.
The situation for the company was grim, with Boart Longyear CEO Richard O’Brien stating “as indicated in our most recent market updates, we feel we are at, or approaching, the bottom of the market”.
In the results, the company added that “the ability of [Boart Longyear] to continue as a going concern is likely to depend on the company successfully concluding its strategic review of recapitalisation options with completion of a recaptialisation transaction no later than 30 June 2015”.
“Without such a transaction, in order to continue as a going concern, the company would need to either experience a significant and rapid improvement in market conditions and the financial performance of the company, or secure a future amendment to the terms of the credit agreement to provide additional head room at 30 June 2015, none of which is being assumed at present.”
Now its largest shareholder, Centrebridge Partners, has stepped in to rescue the company.
It is carrying out “a comprehensive recapitalisation plan that improves the debt structure and liquidity of the company,” Centrebridge said in a statement.
“We are delighted to announce this agreement with Centerbridge, which has a successful record in helping reposition companies that face financial challenges but whose underlying business is strong,” Boart Longyear CEO Richard O’Brien said.
“This recapitalisation provides significant liquidity to weather the challenges of the current depressed markets for our drilling services and products and the financial strength to allow more time for those markets to recover,” he added.
“We can now redouble our efforts on customer service, product development and overall marketing while we continue to improve the efficiencies and costs of our business model, which we believe to be strong.”
According to Fairfax, Centerbridge will increase its shareholding from 12.7% to 19.9%, after investing US$6 million in equity.
The deal will see it provide a US$120 million which has no financial covenants, under a term loan, according to O’Brien, and a feature that defers cash interest under the loan until its maturity in six years.
Part of this loan has already been used to pay down Boart’s bank facilities.
Centerbridge is also providing an additional US$105 million term loan that can be drawn to retire Boart Longyear’s senior secured notes, allowing it o defer cash interest.
Boart Longyear added that “the recapitalisation reflects a partnership between the Company and Centerbridge and is not a change of control transaction”.
However a member of Centrebridge, Jonathon Lewinsohn, will be promoted to the board, with the potential for Centerbridge to hold four out of ten positions on the board.