November 19, 2020 – The Debtors notified the Court that their Chapter 11 Plan had become effective as of November 19, 2020 [Docket No. 316]. The Court had previously confirmed the Debtors’ Plan on November 4, 2020 [Docket No. 297].

On 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). At filing, the Debtors, one of the largest well completion companies in North America and a provider of customized hydraulic fracturing solutions, noted estimated assets of $517.2mn and estimated liabilities of $535.3mn ($446.7mn of funded debt).

The Debtors were 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 administrative claims and professional claims bar date dates were not provided in the effectiveness notice.

In a November 19th press release announcing the emergence, Michael Doss, FTSI's Chief Executive Officer, commented, “We have quickly and efficiently completed our financial restructuring and emerge with sufficient cash and revolving credit capacity to deploy stacked fleets, invest in new technology, rebuild working capital and create long-term value for our stakeholders….

The new owners, which include Amundi Pioneer Asset Management, Glendon Capital Management, Wexford Capital and the Wilks Brothers, have deep industry experience and understand the value of FTSI and the proposition to our customers and the industry. We expect them to be active partners, who are strongly committed to supporting our company.  The proactive transaction agreed to by our equity and debt holders enhances value for all stakeholders and solidifies the company’s prospects for the future – I am proud that FTSI now has one of the cleanest balance sheets of any public, pure-play pressure pumping company.”

Pursuant to the Confirmed Plan, FTSI said  it deleveraged its balance sheet by equitizing all prepetition funded debt, resulting in holders of FTSI’s legacy senior notes and term loan collectively holding over 90% of FTSI’s new common stock. Holders of FTSI’s legacy equity interests received approximately 9.4% of FTSI’s new common stock under the Confirmed Plan.

Upon emergence, FTSI expects to have approximately $90 million cash on hand and has entered into a new $40 million asset-based revolving credit facility with Wells Fargo Bank, N.A., as administrative agent and lender, to support working capital needs.

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.”

A revised prepackaged Plan was filed on November 4, 2020 [Docket No. 285], the same day the Plan was confirmed.

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 9.4% of the New FTS Equity. 

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:

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

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

Voting Results

On October 28, 2020, the Debtors' claims agent notified the Court of the Plan voting results [Docket No. 239] which were as follows:

• Class 3 ("Secured Debt Claims") 275 claim holders, representing $171,027,603.40 in amount and 98.92% in number, accepted the plan. 2 claim holders, representing $8,416.61 (or 0.005%) in amount and 1.08% in number, rejected the plan.
• Class 4 ("Other Unsecured Claims") 276 claim holders, representing $234,818.089.78 in amount and 98.92% in number, accepted the plan. 3 claim holders, representing $11,062.85 (or 0.005%) in amount and 1.08% in number, rejected the plan.
• Class 8 ("FTS Common Interests") Holders of 2,621,425 in interests, representing 99.44% in amount, accept the plan. Holders of 14,658 in interests, representing 0.56% in amount, rejected the plan.

Prepetition Corporate Structure Chart

About the Prepetition 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."

Read more Bankruptcy News