National Post (National Edition)
CALFRAC BATTLE LINES DRAWN
Texas-based Wilks Bros. submits what it calls a ‘superior alternative’ offer
CALGARY • Two opposing groups of shareholders and debtholders are poised for a fight to restructure heavily indebted fracking company Calfrac Well Services Ltd.
Wilks Brothers LLC, a Cisco, Tex. based holding company owned by billionaire brothers Dan and Farris Wilks, announced Tuesday it had submitted a “superior alternative recapitalization transaction” to the board of Calgary-based Calfrac. Wilks said its proposal is better than the transaction the company’s management team has pursued and would provide a superior return to all shareholders and debtholders with the exception of Calgary-based Matco Investments Ltd.
Calfrac had filed for restructuring under the Canada Business Corporations Act (CBCA) and for Chapter 15 in the U.S. in July, and had noted that two-thirds of its unsecured bondholders support its recapitalization transaction. But the competing offer sets up a showdown between Wilks, which owns 19 per cent of Calfrac, and Matoc Investments, led by Calfrac co-founder and executive chairman Ronald Mathison.
Under the terms of Wilks’ offer on Tuesday, Matco Investments would receive $4 million rather than the $7 million expected under the recapitalization transaction Calfrac announced on July 14.
Wilks said its offer would give unsecured note holders $96 million as opposed to $27 million under the company’s previously announced recapitalization transaction. Furthermore, Wilks would also give existing shareholders $16 million, compared with $2 million in the management-approved deal.
“The initial management transaction, if it proceeds, would instead result in a continuing highly leveraged Calfrac, provide inferior recoveries to stakeholders, and is designed to unfairly enrich certain key insiders and a small select group of stakeholders of the company,” Wilks said.
Wilks’ proposal would reduce the company’s total debt to under $95 million, compared with $286 million under the existing restructuring proposal.
“It significantly de-levers Calfrac, and provides enhanced value and recovery to all affected stakeholder groups, as Wilks has committed to provide significantly more consideration for a smaller equity stake,” the holding company said in a press release.
The transaction favoured by Calfrac management leaves a “high probability of near term bankruptcy” for Calfrac as it would leave the company with $286 million in secured debt, Wilks argued.
Calfrac management was meeting with its lawyers and financial advisers on Tuesday to discuss the offer and would not comment until the review is complete, the company’s vice-president, capital markets and strategy Scott Treadwell said.
The company has twice declined offers from Wilks Brothers in recent weeks.
Wilks Brothers offered to buy Calfrac’s U.S. fracking business on June 22 and June 29, but the company declined both offers saying the deal “significantly undervalued Calfrac’s U.S. business.”
Treadwell had previously told the Financial Post that the company would consider selling its overseas business units, but is not interested in breaking up its North American operations.
Still, Calfrac is under pressure to reduce its debt in a market where demand for oilfield services and fracking has fallen sharply.