Did we hear shouts of joy from long suffering shareholders in struggling drilling services group Boart Longyear (BLY) in the wake of a $US352 million recapitalisation plan revealed before trading on the ASX kicked off yesterday?
Judging by the 53% surge in the price of Boart shares, you’d have to say there was an immense sense of relief among those investors who have hung in there for the past couple of years of rising losses and a plunging share price.
The shares closed at 23c yesterday in response to the recapitalisation plan which will cut Boart’s debt and in reality is a bailout of the struggling drilling group. That was up from 15c at the close on Wednesday and an all time low earlier this year of 8.5c.
US distressed debt investor Centrebridge Partners will take a 49.9% stake in Boart by way of injecting $US127 million in debt and lending the company up to $US225 million.
Boart’s existing shareholders keep their existing shares and Centerbridge’s ownership will jump from the current 12.7%.
Under the deal, a new US$120 million “covenant-lite” term loan will replace cash-pay covenant-laden bank debt, a "covenant-lite" term loan of as much as $US105 million will be available to fund a senior secured notes tender offer and there will be an equity injection of $US119 million to $US127 million.
And that equity injection will include a US$76 to US$84 million fully underwritten renounceable Rights Offer in which shareholders can participate.
BLY 2Y – Small relief for Boart shareholders
Boart chief executive Richard O’Brien described the recapitalisation as "an important step forward" for the company.
“We are preserving our existing shareholders’ opportunity to participate in the future prospects of the company and the improving future margin potential to be realised when our markets do improve and we reap the benefit of the significant cost and efficiency actions fo the company has taken overf the past 18 months," he said.
He says the deal "Will increase total liquidity to approximately US$240 million, with net debt reduced by approximately US$120 million (before transaction costs) and better positions the Company to sustain operations until the market recovers".
The company’s shares, which have hovered between 8.5¢ and 50.5¢ in the past year, closed at 15¢ on Wednesday.
Boart says its “Independent Directors unanimously recommend that shareholders vote in favour of the resolutions required to give effect to the remaining Recapitalisation transactions, in the absence of a superior proposal and subject to the Independent Expert, KPMG, concluding that the Recapitalisation is reasonable to shareholders not associated with Centerbridge".