Item 1.01
|
Entry into a Material Definitive Agreement.
|
Plan Support Agreement
On August 24, 2016, Key Energy Services, Inc. (Key) and certain of its subsidiaries (together with Key, the Company), entered into a
plan support agreement (the Plan Support Agreement) with Platinum Equity and certain of the other holders (the Supporting Noteholders) of its 6.75% Senior Notes due 2021 (the Senior Notes), representing an
aggregate of 89.1% in principal amount of the Senior Notes and with certain of the lenders (the Supporting Term Lenders, and together with the Supporting Noteholders, the Supporting Creditors) under Keys Term Loan
Credit Agreement dated June 1, 2015 (the Term Loans), representing an aggregate of 87.9% of the principal amount of loans outstanding thereunder. The Plan Support Agreement contemplates the financial reorganization of the Company
pursuant to a prepackaged plan of reorganization (the Plan) and that the Company will file for voluntary relief under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court in the District of Delaware (the
Bankruptcy Court) on or before November 8, 2016 in order to confirm the Plan.
The Plan Support Agreement contemplates that Key will remain a
public company and that the Senior Notes and all existing Key equity interests will be cancelled and each holder of Senior Notes shall receive such holders pro rata share of 5,000,000 shares of common stock of reorganized Key. In
addition, (i) certain qualifying holders of Senior Notes and certain qualifying equity holders will be offered rights to purchase up to 95% and 5%, respectively, of the common stock of reorganized Key to be offered in an $85,000,000 rights offering,
which rights offering may be increased based on the liquidity of reorganized Key, and (ii) Key equity holders will receive a ratable portion of (a) 543,927 shares of common stock of reorganized Key and (b) warrants to purchase a number of
shares of common stock of reorganized Key that will be determined at a later date, but prior to Keys emergence from bankruptcy. Holders of Keys common stock will also be eligible to elect to participate in a potential cash-out option
under the Plan, which may be funded by Key equity holders that participate in the rights offering described above. Upon confirmation of the Plan, holders of the Senior Notes are expected to own approximately 95% of the common stock of reorganized
Key and holders of Keys equity interests are expected to own approximately 5% of the common stock of reorganized Key, in each case subject to (a) the results of the rights offering referred to above, (b) the exercise of the warrants
referred to above, (c) shares issued to certain parties to the Plan Support Agreement that also have committed to backstop the full amount of the rights offering and (d) potential further dilution as a result of a new proposed management incentive
plan.
The Plan Support Agreement contemplates that each holder of the Term Loans will receive its pro rata share of (i) an immediate payment of
approximately $10 million to be applied against principal and accrued interest; (ii) an additional payment upon consummation of the plan to reduce the outstanding balance of Terms Loans to $250 million and (iii) $250 million in principal amount of
new term loans under an amended term loan credit agreement.
The Plan Support Agreement contains certain covenants on the part of the Company and the
Supporting Creditors, including that the Supporting Creditors vote in favor of the Plan and otherwise facilitate the restructuring transaction and forbear from exercising remedies against the
Company in respect of certain defaults that may occur prior to implementation of the Plan. The Plan Support Agreement also provides for customary conditions to the obligations of the parties and
for termination by each party upon the occurrence of certain events, including without limitation the failure of the Company to achieve certain milestones.
The foregoing is a summary and reference is made to the Plan Support Agreement, which is filed herewith as Exhibit 10.1 and is incorporated herein by
reference, for a complete description of its terms.
Limited Consent and Second Amendment to Loan Agreement
On August 24, 2016, in connection with entering into the Plan Support Agreement, the Company entered into the Limited Consent and Second Amendment to Loan and
Amendment No. 3 to Limited Consent to Loan Agreement and Forbearance Agreement (the Second Amendment) in connection with its revolving credit facility pursuant to the Loan and Security Agreement dated June 1, 2015 (the ABL
Facility). Pursuant to the Second Amendment, the lenders party thereto (the Lenders) consented to the term loan payment described above and agreed to forbear from exercising remedies with respect to certain defaults expected to
occur under the ABL Facility prior to implementation of the Plan, including defaults in respect of the minimum liquidity covenant contained therein. Additionally, the Second Amendment terminated the Lenders commitments under the ABL Facility
to make any further extensions of credit, although letters of credit outstanding under the ABL Facility as of such date will remain outstanding and may be extended pursuant to the terms of the Second Amendment. As a result, the Company will no
longer have access to the liquidity provided by the ABL Facility.
The foregoing is a summary and reference is made to the Second Amendment, which is
filed herewith as Exhibit 10.2, and the Cash Collateral Term Sheet, which is filed as an exhibit to the Plan Support Agreement, each of which is incorporated herein by reference, for a complete description of its terms.