Trican Announces Agreement in Principle with Its Lender and Operational Update
CALGARY, ALBERTA--(Marketwired - Sept. 25, 2015) - Trican Well Service Ltd. (TSX:TCW) is pleased to announce that it has reached an agreement in principle with its bank lenders under its revolving credit facility ("RCF") and the holders of its senior notes to make certain amendments to the applicable credit documentation.
Dale Dusterhoft, Chief Executive Officer, commented, "We are very pleased to announce the terms of our agreement in principle and thank our lenders and noteholders for their commitment to Trican's business. The recent sale of our Russian pressure pumping business and the improvement in our operating results, together with this covenant relief package, put us in a financial position to focus on the key business, strategic and operational targets that contribute to the ongoing success of the Company. I am confident in the progress we are making to ensure long term success for Trican."
The proposed amendments include, among others, the following amendments to Trican's financial covenants:
-- no financial covenants will be applicable for the third and fourth
quarters of 2015;
-- maximum Debt to Capitalization test will no longer apply;
-- a minimum quarterly EBITDA of CAD$20 million for the first quarter of
-- a minimum cumulative EBITDA of CAD$50 million for the third quarter of
2015, fourth quarter of 2015 and first quarter of 2016 to be applied at
the end of the first quarter of 2016;
-- on April 27, 2016, a minimum liquidity test of CAD$110 million after
giving pro forma effect to the payment of the April 28, 2016 senior note
-- the ratio of Senior Consolidated Debt to EBITDA shall not exceed 5.0x
for the second quarter of 2016; 4.5x for the third quarter of 2016; 4.0x
for the fourth quarter of 2016; 3.5x for the first quarter of 2017; and
3.0x for the second quarter of 2017 and thereafter; and
-- a minimum Consolidated EBITDA to Consolidated Interest Expense Ratio
shall not be less than: 2.5x for the second quarter of 2016; 2.75x for
the third quarter of 2016; and 3.0x for the fourth quarter of 2016 and
Under the proposed amendments, Trican would also agree to certain other amendments and additional terms, including as follows:
-- to reduce the availability under the RCF from CAD$575 million to CAD$410
-- to increase the interest rate on its senior notes and its RCF by 300
basis points during the covenant relief period, which is expected to
continue to June 30, 2017, provided that certain conditions are met, and
50 basis points thereafter;
-- to provide floating charge security over all of its North American
-- in addition to the scheduled November 2015 and April 2016 maturities,
Trican is required to offer to repay an additional CAD$75 million of its
senior notes and an additional CAD$75 million of its RCF by October 28,
2016, otherwise, the interest rate on its senior notes and RCF will
increase by a further 200 basis points;
-- a subordinated note based on make-whole amounts calculated in accordance
with the note purchase agreements and bearing a coupon at the Treasury
bill rate plus 450 basis points will be delivered to the senior
noteholders upon execution of the definitive agreements. Approximately
55% of the subordinated note will be released and voided after the 2015
and 2016 maturities are paid in full and the CAD$75 million is offered
to repay the senior notes by October 28, 2016; and
-- no distributions will be made until after the second quarter of 2017and
at such time may only be considered if certain deferred obligations are
paid at that time and the ratio of Senior Consolidated Debt to EBITDA is
less than or equal to 3.0x.
The amendments described above are expected to come into force prior to the end of October 2015 and are subject to execution and delivery of definitive amendment agreements in forms mutually satisfactory to the parties thereto and receipt of final internal approvals of lenders under the RCF and the holders of senior notes. Concurrently with execution of the definitive agreements, Trican will make pro rata payments to the lenders under the RCF and the holders of senior notes allocating the net proceeds, less transaction costs, from the recent sale of its Russian pressure pumping business. Trican's current total long-term debt net of cash balance is $482 million.
We currently anticipate that our third quarter financial results will be substantially better than the first half of 2015. The improved financial results have largely been a result of adjusting Trican's cost structure to the activity and pricing levels experienced in the markets we operate in today. Our Canadian Operations have been right-sized to current activity levels and profitability levels have improved considerably. Our US Operations have aggressively cut costs and improved profitability substantially over second quarter levels; however, as anticipated, third quarter results will still result in negative operating income for this region. Trican's international footprint has been significantly reduced since the sale of our Russian Operations and suspension of operations in Colombia, Saudi Arabia and Australia. As a result, we are currently reviewing our Corporate cost structure and expect additional cost reductions as we right-size our operations to be aligned with a more North American focused business.
Third quarter results in Canada to date are exceeding expectations. While the active rig count in July and August has declined approximately 33% relative to the first quarter 2015 rig count, Trican's monthly average revenue for July and August has only declined 15% relative to first quarter 2015, and as a result of cost reductions, operating income for Canada is expected to be substantially higher than that realized in the first quarter. We are expecting a modest pull back in activity in September due to the drop in oil prices experienced during the third quarter and customer scheduling delays. Trican's existing customer base continues to be supportive and we have increased market share since the end of spring break-up. July and August operating income margins have increased substantially relative to first quarter 2015, largely as a result of our cost reduction initiatives implemented to date. Our current expectations are that October and November activity will marginally decline relative to the third quarter and a pronounced seasonal slowdown will likely occur in December due to customers slowing their activity at year end.
The US remains a highly competitive market as the rig count continues to decrease due to low commodity prices. As a result, we are seeing increased bidding activity and pricing pressure in the markets where we are currently operating. As anticipated, revenue and operating income have improved in July and August relative to the second quarter and positive operating income was recorded in August. However, we are now experiencing a meaningful slowdown in activity and expect an operating loss in September. The activity slowdown is largely a result of scheduling issues experienced in the Marcellus during the month. The expected operating loss is partially a result of the activity slowdown combined with some one-time costs that have negatively impacted the bottom line. We expect the Marcellus scheduling delays to be resolved in October; however, we do not see any meaningful increase in industry activity during the fourth quarter due to low commodity prices and continued competitiveness in the market.
Our US management team has aggressively reduced costs and is continuing to reduce our cost structure during the third quarter. These cost reductions continue to improve profitability and resulted in positive operating income in August. Management will continue to identify opportunities to increase revenue and reduce our cost structure in an effort to improve profitability and generate positive cash flow in the US Operations.
Cautionary Statements Regarding Forward-Looking Information
This news release contains "forward-looking information" within the meaning of applicable securities laws. Forward-looking information is frequently characterized by words such as "expect", "intend", "anticipate", and other similar words, or statements that certain events or conditions "may" or "will" occur. The forward-looking information in this news release relates, but is not limited to: (i) completion of the transactions described in this news release, including the execution and delivery of definitive agreements, as well as timing thereof, and payment of net proceeds from the sale of Trican's Russian pressure pumping business to the lenders under the RCF and the holders of senior notes and the expected outstanding amount of debt remaining after such payments are made, (ii) Trican's anticipated third quarter results, including with respect to its Canadian and US operations and customer activity level, expected cost reductions, expected operational levels, and the expected resolution of certain scheduling delays affecting operations.
The forward-looking information set out in this news release, is based on certain expectations and assumptions regarding, among other things, the ability of Trican to negotiate, enter into and execute definitive agreements with the bank lenders under the RCF and the holders of senior notes, substantially on the terms and within the timeline described in this press release; the ability of Trican to make payments to the lenders under the RCF and the holders of the senior notes in the aggregate amount equal to the amount of the net proceeds from the sale of Trican's Russian pressure pumping business; the effect of market conditions on demand for the Company's products and services; the Company's ability to achieve further cost reductions; future oil and natural gas prices; currency, exchange and interest rates; the ability of the Company to successfully market its products and services; the general stability of the economic and political environment, and the absence of further changes and further economic conditions which may adversely affect Trican.
Forward-looking information is subject to known and unknown risks and uncertainties and other factors which may cause actual results, events and achievements to differ materially from those expressed or implied in such forward-looking information. Such risks, uncertainties and factors include, among others, the risks that Trican will not be able to negotiate definitive agreements with the lenders under the RCF and the holders of the senior notes, substantially on the terms and within the timeline described in this press release, satisfy all conditions to execution of definitive agreements, or that the actual third or further quarter results will be different than currently anticipated. Additional risks and uncertainties include fluctuating prices for crude oil and natural gas; currency, exchange and interest rates; changes in drilling activity; changes in customer budgets; the Company's ability to successfully negotiate price reductions for key input costs; general global economic, political and business conditions; the regulatory framework regarding royalties, taxes and environmental matters in which the Company operates; competitive and business conditions in the markets where the Company operates; and weather conditions. The foregoing risk factors are not exhaustive. There is no guarantee that Trican will be able to negotiate and complete definitive amendment agreements with the lenders under the RCF and the holders of the senior notes on the terms described in this press release or at all. Actual results could differ materially from those described in this press release as a result of the risk factors set forth under the section entitled "Risks Factors" in our Annual Information Form dated March 25, 2015 and under the heading "Business Risks" in our management's discussion and analysis for the six months ended June 30, 2015. Readers are also referred to the risk factors and assumptions described in other documents filed by Trican from time to time with securities regulatory authorities.
Trican undertakes no obligation to update forward-looking information if circumstances or management's estimates or opinions should change except as required by law. Readers are cautioned not to place undue reliance on forward looking information.
Headquartered in Calgary, Alberta, Trican provides a comprehensive array of specialized products, equipment and services that are used during the exploration and development of oil and gas reserves.
FOR FURTHER INFORMATION PLEASE CONTACT:
Trican Well Service Ltd.
Chief Executive Officer
(403) 237-7716 (FAX)
Trican Well Service Ltd.
Senior Vice President, Finance & CFO
(403) 237-7716 (FAX)
Trican Well Service Ltd.
2900, 645 - 7th Avenue SW
Calgary, Alberta T2P 4G8