Source Energy Services Ltd. has proposed a recapitalization transaction to provide the company with a stronger, long-term capital structure to withstand current industry challenges and build on its position as the largest frac sand provider in the Western Canadian sedimentary basin (WCSB).
The recapitalization transaction is supported by holders of approximately 74% of the principal obligations under the company’s 10.5% senior secured first lien notes due 2021 and shareholders holding approximately 45%of Source’s common shares.
The recapitalization transaction will, among other things:
• Pro-actively address the maturity and obligations (including all accrued and unpaid interest) under the notes through an exchange of the notes for a combination of new senior secured first lien notes due March 15, 2025, resulting in a $32.7-million decrease of the principal amount and the issuance of new common shares of Source, constituting approximately 62.5 per cent of the common shares outstanding on a fully diluted basis, immediately following completion of the recapitalization transaction.
• Enable Source to access new financing under a $20.0-million term loan facility from Business Development Bank of Canada (BDC), with participation from the company’s existing lending syndicate, as contemplated under a non-binding term sheet executed between the company and BDC.
• Provide enhanced liquidity and financial flexibility as a result of the terms of the new secured notes and the BDC facility, which enable the company to pay interest in kind, rather than in cash, on the new secured notes for all quarterly interest payments up to and including Feb. 15, 2022, and on the BDC facility for all interest payments during its first 12 months.
• Enable Source to obtain the support of its lending syndicate through an amendment to Source’s revolving credit facility providing the company with an extended maturity date, continuing financial flexibility and access to liquidity under the amended credit facility.
• Result in existing shareholders retaining approximately 37.5% of the outstanding common shares on a fully diluted basis following completion of the recapitalization transaction; thereby allowing shareholders to participate in the anticipated future growth of Source’s business as market conditions improve in the WCSB.
• Lower the company’s annual lease payments by approximately 45% when compared with 2019 through renegotiation of its equipment and rail car leases.