FTS International, Inc. – Forth Worth-based Provider of Fracking Services Files Prepackaged Chapter 11 with $535mn of Liabilities; RSA Has Prepetition Creditors Exchange $400mn (plus) of Debt for 90% of Emerged Company

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September 22, 2020 – FTS International, Inc. and two affiliated Debtors (NYSE American: FTSI; “FTSI” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-34622 (Judge David R. Jones). The Debtors, one of the largest well completion companies in North America and a provider of customized hydraulic fracturing solutions, are represented by Brian Schartz of Kirkland & Ellis LLP. Further board-authorized engagements include (i) Winston & Strawn LLP as general bankruptcy co-counsel, (ii) Alvarez and Marsal North America, LLC as restructuring advisors, (iii) Lazard Frères & Co., LLC  as financial advisors and investment banker and (iv) Epiq Corporate Restructuring  LLC as claims agent. 

The Debtors’ lead petition notes between 200 and 1,000 creditors; estimated assets of $517.2mn and estimated liabilities of $535.3mn ($446.7mn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) U.S. Bank N.A. (as trustee for $215.3mn of 2022 senior notes deficiency claim), (ii) Wilmington Savings Fund Society, FSB (as trustee for $38.4mn 2021 term loan deficiency claim) and (iii) Mississippi Sand ($10.0mn trade claim).

In a September 21st press release announcing the execution of a restructuring support agreement and the impending filing of its prepackaged Chapter 11 cases, FTSI advised that: “it has entered into a restructuring support agreement (the 'Agreement') with approximately 75 percent of the holders of the Company’s 6.250% senior secured notes due 2022 (the 'Secured Notes') and approximately 64 percent of the Company’s secured debt claims. The Agreement outlines a comprehensive restructuring that will deleverage the Company’s balance sheet by $437.3 million and provide it with the financial flexibility to deliver results-oriented and innovative well completion solutions to its customers. Importantly, the Agreement contemplates that the Company’s vendors, suppliers, and customers will remain unaffected by the transaction. 

The Agreement provides that holders of the Secured Notes and lenders under the Term Loan will exchange their debt claims for $30.6 million in cash consideration and 90.1% of the equity of a reorganized FTSI. Existing holders of FTSI equity will receive the remaining 9.9% of the equity. Additionally, the consenting creditor parties to the Agreement have agreed to allow the Company to use existing cash to fund the chapter 11 cases and continue operations in the ordinary course, thereby preserving critical value for all stakeholders. The Company’s cash balance was $192.7 million as of August 20, 2020. Upon execution of the Agreement, consenting creditors will also receive a cash payment equal to 3% of the principal amount of secured debt claims held by the applicable consenting creditor, subject to the terms and conditions described in the Agreement. Upon completion of the transaction, the Company intends to enter into a new revolving exit facility on terms acceptable to the consenting creditors to provide working capital to support operations.”

The Debtors have requested an October 30th Plan confirmation hearing.

RSA and Plan Overview

Under the terms of the Debtors' restructuring support agreement (the "RSA," attached to the Disclosure Statement at Exhibit B), consenting term loan lenders and noteholders have agreed to exchange their debt for pro rata shares in (i) $30.6mn in cash and (ii) 90.1% of the the emerged Debtors' equity (the "New FTS Equity").  

More specifically, the RSA and Plan contemplate the following:

  • the Consenting Creditors’ consent to the use of cash collateral [$192.7 million as of August 20th] securing the Secured Debt Claims to fund the Chapter 11 Cases consistent with the terms set forth in the Plan and as otherwise acceptable to the Required Consenting Creditors; 
  • on the Effective Date, the Reorganized Debtors may enter into the New Revolving Exit Facility on terms acceptable to the Required Consenting Creditors;
  • on the Effective Date, in full and final satisfaction, settlement, release, and discharge of and in exchange for each Allowed Secured Debt Claim, each Holder of an Allowed Secured Debt Claim shall receive its Pro Rata share of and interest in (i) the Cash Consideration and (ii ) 90.1% of the New FTS Equity, subject to dilution on account of the Management Incentive Plan and the Warrants, minus the Class 4 Recovery Deduction
  • each Holder of an Allowed Other Unsecured Claim shall receive its Pro Rata share of and interest in the Unencumbered Plan Recovery at the applicable Debtor;
  • each Holder of an Allowed Ongoing Business Claim shall receive, as applicable, either: (i) Reinstatement of such Allowed Ongoing Business Claim pursuant to section 1124 of the Bankruptcy Code; (ii) payment in full in cash on the later of (A) the Effective Date or as soon as reasonably practicable thereafter, or (B) the date such payment is due in the ordinary course of business in accordance with the terms and conditions of the particular transaction giving rise to such Allowed Ongoing Business Claim; or (iii) such other treatment rendering such Allowed Ongoing Business Claim Unimpaired; 
  • at the option of the Reorganized Debtors, Intercompany Claims and Intercompany Interests shall be either Reinstated or cancelled and released without any distribution; and
  • FTS Common Interests will receive their Pro Rata share of and interest in (i) 9.9% of the New FTS Equity, subject to dilution on account of the Management Incentive Plan and the Warrants, minus the Class 4 Recovery Deduction and (ii) the Warrants. 

The RSA contains milestones, including 60 days from filing to confirm the Plan and Plan effectiveness within 15 days thereafter.  

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan or Disclosure Statement; see also the Liquidation Analysis, below):

  • Class 1A (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 1B (“ABL Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 3 (“Secured Debt Claims”) is impaired and entitled to vote on the Plan.  Estimated aggregate claims are $192,977,500 and expected recovery is 84%. Each Holder of an Allowed Secured Debt Claim shall receive its Pro Rata share of and interest  in (i) the Cash Consideration and (ii) 90.1% of the New FTS Equity, subject to dilution on account of the Management Incentive Plan and the Warrants, minus the Class 4 Recovery Deduction. The estimated recovery on account of Secured Debt Claims reflected herein estimates a $13.32 million adequate protection lien. Actual distributions may vary depending upon the value of adequate protection liens granted. 
  • Class 4 (“Other Unsecured Claims”) is impaired and entitled to vote on the Plan. Estimated aggregate claims are $307,524,801 and expected recovery is 30.1%. Each Holder of an Allowed Other Unsecured Claim shall receive, as applicable, its Pro Rata share of and interest in the Unencumbered Plan Recovery, at the applicable Debtor. The estimated recovery on account of Other Unsecured Claims reflected herein estimates a $13.32 million adequate protection lien. Actual distributions may vary depending upon the value of adequate protection liens granted.
  • Class 5 (“Ongoing Business Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 6 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Estimated aggregate claims are $954,701,274 and estimated recovery is 100% /0%.
  • Class 7 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Estimated aggregate claims are N/A and estimated recovery is 100% /0%.
  • Class 8 (“FTS Common Interests”) is impaired and entitled to vote on the Plan. Estimated aggregate claims are N/A and expected recovery is $30.9mn. Each Holder of an FTS Common Interest, shall receive its Pro Rata share of and interest in (i) 9.9% of the New FTS Equity, subject to dilution on account of the Management Incentive Plan and the Warrants, minus the Class 4 Recovery Deduction and (ii) the Warrants. The Warrants include Black Scholes protection in the amount of: (a) for Tranche 1, the lesser of (i) the fair market value of Tranche 1, to be determined by independent bank, based on the Black Scholes option price with a 42.5% volatility and remaining life as determined by Bloomberg, and (ii) $10.0 million; and (b) for Tranche 2, the lesser of (i) the fair market value of Tranche 2, to be determined by independent bank, based on the Black Scholes option price with a 42.5% volatility and remaining life as determined by Bloomberg, and (ii) $17.5 million.

Events Leading to the Chapter 11 Filing

The Debtors' Disclosure Statement provides: “In recent years, the markets for oil and natural gas have been especially volatile, which has been exacerbated in recent months by current geopolitical and economic conditions. Among the contributing factors are the domestic and foreign supply of oil and natural gas, the ability of members of the Organization of Petroleum Exporting Countries (‘OPEC’) to comply with the agreed upon production cuts (and the cooperation of other producing countries to reduce production levels), social unrest and political instability, particularly in major oil and natural gas producing regions outside the United States, and the levels and growth of domestic and global economic activity. In particular, the U.S. ‘Shale Revolution’—the implementation of horizontal drilling and hydraulic fracking techniques to unlock oil and natural gas from previously non-producible shale formations—has resulted in a dramatic increase in U.S. crude oil and natural gas production, greatly increasing supplies at a time of uncertain demand. 

The current volatility in the commodity markets has made it difficult for some companies to execute on out-of-court restructuring alternatives and has rendered typical cost-management techniques insufficient to manage outstanding liabilities.

Ultimately, the Debtors recognized that cost savings and operational efficiency improvements, without pricing improvement, would not insulate them from market compression and the struggling commodities market, which was exacerbated by the COVID-19 pandemic. Projected reductions in drilling activity, combined with diminished access to new-money capital, strained the Debtors’ ability to meet their obligations, leading to an examination of more comprehensive solutions.”

Prepetition Indebtedness

As of the Petition date, the Debtors have approximately $446.7mn (principal and accrued interest) in total funded debt. This consists of $67.4mn under the Term Loan Facility and $369.9mn in aggregate principal amount of Secured Notes. The Debtors’ aggregate debt is as below:

Funded Debt

Maturity

Outstanding Principal Amount as of June 30, 2020

ABL Facility

February 22, 2023

N/A

Secured Notes

May 1, 2022

$369.9mn

Term Loan Facility

April 16, 2021

$67.4mn

 

Total Funded Debt

$437.3mn

The following documents were attached to the Disclosure Statement:

  • Exhibit A: Plan of Reorganization
  • Exhibit B: RSA
  • Exhibit C: Financial Projections
  • Exhibit D: Valuation Analysis
  • Exhibit E: Liquidation Analysis
  • Exhibit F: Cash Collateral Items

Significant Shareholders

  • Maju Investments (Mauritius) Pte Ltd : 38.9%
  • Chesapeake Energy Holdings Inc : 20.1%
  • Senja Capital Ltd: 11.1%

Liquidation Analysis (see Exhibit E to Disclosure Statement for notes)

About the Debtors

According to the Debtors: "FTS International is one of the largest well completion companies in North America. Exploration and production companies rely on FTSI’s deep expertise and customized hydraulic fracturing solutions to enhance their recovery rates from oil and gas wells, primarily in unconventional plays. With 1.6 million hydraulic horsepower along with cutting-edge technology and an industry-elite safety record, we have a unique ability to answer the challenging demands facing customers today."

Corporate Structure Chart

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