Weatherford International plc (NYSE: WFT) ("Weatherford" or the "Company") announced today that it has executed a restructuring support agreement (the "Restructuring Agreement") with a group of its senior noteholders (the "Ad Hoc Noteholder Group") that collectively holds or controls approximately 62% of the Company's senior unsecured notes.
The proposed comprehensive financial restructuring would significantly reduce the Company’s long-term debt and related interest costs, provide access to additional financing and establish a more sustainable capital structure.
The transaction results in pro forma net leverage at or below 2.7x at year-end 2019. The Company’s business plan implies significant free cash flow generation under the new capital structure, resulting in reduction of net leverage to 1.8x in 2020 and 1.2x in 2021.
Weatherford expects to implement the Restructuring Agreement through a “pre-packaged” Chapter 11 process and expects to file U.S. chapter 11 and Irish examinership proceedings (collectively, the “Cases”). As part of this process, Weatherford intends to continue engaging in discussions with, and begin soliciting votes from, its creditors in connection with a proposed Plan of Reorganization prior to filing.
“During the past year, we have been executing a company-wide transformation to fundamentally improve the way we operate our business and to strengthen Weatherford for the long run,” said Mark A. McCollum, President and CEO of Weatherford. “Despite the challenging market dynamics our industry continues to face, we believe that our transformation strategy, which is designed to improve our execution capabilities, lower our cost structure and create efficiency to allow us to better price our products and services, will position Weatherford for long-term success. However, we still face a high level of debt that affects our ability to make investments in our Company and implement further elements of our transformation plan. We are pleased that our noteholders recognize the long-term value Weatherford can create with an improved balance sheet as we work to achieve the full potential of our business transformation. We expect that the new capital structure will allow us to continue to capitalize on our momentum and build a truly integrated service company with sustainable profitability and long-term growth potential.”
FINANCIAL RESTRUCTURING TERMS
Under the terms of the Restructuring Agreement, the Company’s unsecured noteholders would exchange approximately $7.4 billion of senior unsecured notes for approximately 99% of the equity in the Company and $1.25 billion of new tranche B senior unsecured notes (the “Tranche B Notes”).
The Restructuring Agreement contemplates that Weatherford will receive commitments for approximately $1.75 billion in the form of debtor-in-possession (DIP) financing comprised of an approximately $1.0 billion DIP term loan that would be fully backstopped by certain members of the Ad Hoc Noteholder Group and an undrawn $750 million revolving credit facility provided by certain of Weatherford’s bank lenders, which would be available as part of the chapter 11 process and be led by Citigroup subject to conditions to be agreed.
The Restructuring Agreement also contemplates a commitment of up to $1.25 billion in new tranche A senior unsecured notes (the “Tranche A Notes”), backstopped by certain members of the Ad Hoc Noteholder Group, that would be funded at emergence to repay the DIP financing, pre-petition revolving credit debt, case costs, and to recapitalize the Company at exit.
Pro forma for the transaction, the Company would have up to $2.50 billion in total funded debt, which could be reduced based on several factors at exit. The size of the Tranche A Notes issuance can be adjusted downward by the Company based on expected cash needs at exit and could result in a smaller issuance than the $1.25 billion Tranche A Notes backstopped by certain members of the Ad Hoc Group of Noteholders. Additionally, up to $500 million of the $1.25 billion of Tranche B Notes can, at the discretion of individual holders prior to emergence, be converted to equity at the midpoint of the chapter 11 plan equity value.
Based on $2.50 billion of funded debt at emergence and year-end expected cash of approximately $500 million, $750 million and $1.18 billion in 2019, 2020 and 2021, the Company forecasts net leverage of 2.7x, 1.8x and 1.2x, respectively.
BUSINESS AS USUAL
The Restructuring Agreement contemplates the Company will continue operating its businesses and facilities without disruption to its customers, vendors, partners or employees and that all trade claims against the Company (whether arising prior to or after the commencement of the Chapter 11 Cases) will be paid in full in the ordinary course of business.
Mr. McCollum said, “I would like to thank all of our valued employees, customers, vendors and partners for their ongoing commitment and support. We are taking these actions to ensure we can do an even better job of meeting our commitments to all of our key stakeholders by creating the strongest Weatherford possible. We do not anticipate any operational disruptions as a result of this announcement. Our customers, partners, employees and vendors should not experience any changes in the way we do business, and we expect their experience will improve after a restructuring is complete. We expect a restructuring will provide us with improved liquidity and greater financial stability and flexibility to make investments to enhance our platform while we continue to invest in the resources necessary for our business to grow. We are confident that these steps will allow us to continue our transformation journey and position Weatherford for long-term success.”
Lazard is acting as financial advisor for the Company, Latham & Watkins, LLP as legal counsel, and Alvarez & Marsal as restructuring advisor. Evercore is acting as financial advisor for the Ad Hoc Noteholder Group and Akin Gump Strauss Hauer & Feld LLP as legal counsel.
Source: Company Press Release