Seventy Seven Energy reaches prepackaged bankruptcy agreement
Seventy Seven Energy Inc. said Tuesday it plans to file for Chapter 11 bankruptcy protection after reaching a $1.1 billion financing plan that includes most of its lenders.
Under terms of the restructuring support agreement, the Oklahoma City-based oil-field services company will convert $1.1 billion of debt into common stock of the new, restructured company and Seventy Seven will continue operating without interruption, paying creditors, suppliers and contractors through the ordinary course of business, the company said.
“Today’s announcement is a clear endorsement by the stakeholders of Seventy Seven Energy in the future of this company,” CEO Jerry Winchester said. “The exchange of debt for equity will provide us with a significantly deleveraged balance sheet, and we will emerge from this process as a stronger company.
“After a thorough evaluation of our options, we are confident this is the correct path that will enable us to take advantage of our operational strengths and strong asset base to proactively grow our business as market conditions improve.”
The prepackaged bankruptcy plan would reinstate Seventy Seven’s $400 million secured-term loan on identical terms. Seventy Seven spun off from Chesapeake Energy Corp. in 2014.
“This is another casualty among a playing field strewn with lots of other carnage,” Jake Dollarhide, president of Longbow Asset Management Co. in Tulsa, said of Tuesday’s bankruptcy plan announcement. “There’s going to be a lot more of this. The price of oil can’t go up high enough or fast enough, and natural gas hasn’t been any help whatsoever.”
The bankruptcy plan was announced even as oil prices have soared 58 percent over the past two months. Despite the gains, Tuesday’s domestic benchmark closing price of $41.08 a barrel is still well below levels necessary to restart oil drilling throughout the U.S. A Seventy Seven spokesman said the company expects to begin its prepackaged Chapter 11 proceedings about the end of May, and it plans to emerge from bankruptcy in mid-July.
“They want to emerge from bankruptcy as quickly as possible because they don’t want to lose customers or employees,” Dollarhide said. “But even the best-laid bankruptcy plans run into some common hurdles.”
Seventy Seven shares on Tuesday tumbled 41 cents, or 63 percent, to less than 24 cents a share.
“Bondholders usually get the new common shares, and old common shareholders are left to use their stock certificates as wallpaper,” Dollarhide said. “Common shareholders rarely get any compensation. They’ll most likely get completely wiped out.”