CAL­FRAC BAT­TLE LINES DRAWN

Texas-based Wilks Bros. sub­mits what it calls a ‘su­pe­rior al­ter­na­tive’ offer

National Post (National Edition) - - FINANCIAL POST - GE­OF­FREY MOR­GAN

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.

JEFF MCIN­TOSH / THE CANA­DIAN PRESS

A com­pet­ing offer for Cal­frac Well Ser­vices sets up a show­down be­tween Texas-based Wilks Bros. and a bid by Cal­frac co-founder and ex­ec­u­tive chair­man Ron­ald Mathi­son.

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