Superior Energy Services, Inc. – Seeks $120mn of in DIP Financing (Letter of Credit Facilities) from Prepetion Lenders with DIP Financing to Convert to Exit Financing

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December 7, 2020 – The Debtors requested Court authority to (i) access $120.0mn of debtor-in-possession (“DIP”) financing, with $47.7mn (in the form of letters of credit, or "LOC") to be rolled into the proposed DIP facility (and hence providing an equivalent amount of liquidity) with the entry of an interim DIP order and (ii) use cash collateral [Docket No. 5].

The proposed DIP facility (the “DIP Facility, with LOCs written under it, the “DIP Letters of Credit”) is being made available by the Debtors' prepetition secured ABL lenders and when combined with an estimated $94.0mn of cash on hand is expected to see the Debtors through their stay in Chapter 11. The Debtors break down their funding needs as (i) $100.0mn of letters of credit to fund the business, (ii) a further $100.0mn cushion to maintain LOC liquidity and (iii) amounts necessary to fund their Chapter 11 cases. 

On emergence, the DIP Facility converts into a substantially identical exit facility provided by the same group of lenders.

The Debtors’ requesting motion provides, “…the Debtors’ proposed DIP Facility targets one critical business need: continuity of letter of credit availability throughout the Debtors’ Chapter 11 Cases and upon exit. 

The Debtors require approximately $100 million in letter of credit availability for ongoing business purposes. The proposed DIP facility provides such availability and, just as importantly, will also convert in to an exit facility funded by the same lenders on substantially similar terms. The Debtors have approximately $47 million in letters of credit outstanding under the Prepetition ABL Facility. The vast majority of these letters of credit are posted in favor of non-U.S. customers to secure the Debtors’ bid and performance obligations to those parties. Those non-U.S. parties generally are not in a position to accept, nor are the Debtors in a position to offer to such foreign parties, alternative forms of security, such as direct posting of cash. The Debtors also have posted approximately $50 million in cash directly to U.S. counterparties in lieu of recently cancelled letters of credit. These letters of credit, and the direct cash posting that temporarily replaces them, largely secure obligations to the Debtors’ insurers. Securing these obligations through a bank facility is preferable for all parties to direct posting of cash. 

As a result, the Debtors have an ongoing need for approximately $100 million in letter of credit capacity (as well as a cushion on top of that $100 million to maintain minimum liquidity under any letter of credit facility). 

As set forth in the Budget, the Debtors have approximately $94 million in unrestricted cash on hand as of the Petition Date. All of this cash is, and all cash generated by operations during the pendency of these cases will be, collateral of the ABL Secured Parties ('Cash Collateral')."

The motion continues: "The ‘roll’ of the Prepetition Letters of Credit alone provides sufficient relief to permit successful funding of these Chapter 11 Cases through exit: As shown in the Budget, without pressure to cash collateralize letters of credit, the Debtors have liquidity to meet all budgeted expenses as they come due, and to exit these cases on the anticipated timeline. In addition, the DIP Facility provides capacity for an additional approximately $50 million in new letters of credit, which capacity will be maintained in the exit facility. As noted, the Debtors currently have approximately $50 million of cash posted directly with counterparties in lieu of recently cancelled letters of credit. While the Debtors do not request to reinstate these letters of credit under the DIP Facility, the Debtors anticipate reinstating these letters of credit under the exit facility at or following emergence from chapter 11. The ‘DIP-to-Exit’ nature of the facility ensures that the Debtors can satisfy their ongoing letter of credit need of approximately $100 million, and maintain sufficient liquidity to meet go-forward obligations. In addition, the automatic transition of the DIP Facility to an exit facility will avoid risks associated with refinancing the DIP Facility with a new credit facility, such as demands from uneasy letter of credit counterparties.

Given the Debtors’ letter of credit and liquidity needs and the current state of debt markets, alternative sources of financing are not readily available to the Debtors (whether unsecured or secured) on better or comparable terms than the DIP Facility. First, the features of the DIP Facility are tailored to the Debtors’ current situation and unlikely to be matched by a third-party facility. The DIP Facility provides for the Prepetition Letters of Credit to be deemed issued under the DIP Facility, for the issued Prepetition Letters of Credit to be renewed during the pendency of the Chapter 11 Cases to the extent necessary, and for the issuance of new DIP Letters of Credit if necessary. In addition, the DIP Lenders have agreed to convert the DIP Facility into a continuing post-emergence facility for the reorganized Debtors, providing the seamless financing necessary to facilitate the Debtors’ fast exit from bankruptcy. Second, even if a matching facility were available in the market, a third-party would be highly unlikely to lend on a non-priming basis, because there are insufficient unencumbered assets to secure post-petition financing of the size needed to permit the Debtors to successfully operate their businesses throughout the pendency of these Chapter 11 Cases. The DIP Lenders, who already have a significant economic interest in the Debtors, were themselves unwilling to lend on an unsecured or junior secured basis, and are not willing to have their prepetition interests primed. Third, a third-party would be highly unlikely to finance a nonconsensual, nonpriming post-petition financing (as would be required here given the prepetition secured parties’ unwillingness to consent to priming), as such an attempt would be expensive to litigate and would be unlikely to succeed.”

The motion also adds: “In addition to the challenges noted above, the circumstances in which the Debtors would have to raise third-party financing has been severely disrupted by both the COVID-19 pandemic and the dramatic decline in the price of crude oil and drilling activity, which compounds the difficulty, risk, and cost of third party financing, even if such financing was available. The Debtors therefore viewed the existing Prepetition ABL Secured Parties as the parties most likely to consider and consummate a post-petition financing transaction with the Debtors, and the Debtors and their advisors devoted substantial energy to negotiating the best terms available from the Prepetition ABL Secured Parties. The Debtors therefore focused on negotiating with the Prepetition ABL Secured Parties to obtain the best post-petition financing terms available. Those negotiations were extended, arm’s-length, good-faith negotiations resulting in the currently proposed DIP Facility. The DIP Facility is the best post-petition financing available to the Debtors.”

The Debtors’ declaration in support of the DIP financing motion  [Docket No. 7] adds: “Given the state of the oilfield services and capital markets, there are very few lenders willing to provide such a facility, and in all likelihood none willing to provide such a facility on terms more favorable than proposed by the Prepetition ABL Lenders. Indeed, a key benefit that the Prepetition ABL Lenders provide is a seamless transition from the Prepetition ABL Facility to the DIP Facility, and from the DIP Facility to the proposed exit facility. That seamlessness reduces costs and offers maximum assurance to counterparties that the Debtors are operating, and will continue to operate, business as usual notwithstanding these Chapter 11 Cases. 

As a condition to providing the necessary exit facility, and to providing the DIP Facility that provides the bridge thereto from the Prepetition ABL Facility, the Prepetition ABL Lenders have requested that approximately $47 million in outstanding Prepetition Letters of Credit be deemed reissued as DIP Letters of Credit immediately upon closing of the DIP Facility. As a result, and in order to obtain the exit facility and the DIP Facility, the Debtors require immediate approval of such deemed reissuance on an emergency basis, as a component of the Interim Order.

Key Terms of the DIP Facility:

  • DIP Borrower: SESI, L.L.C.
  • Guarantor(s): Superior Energy Services, Inc. and Subsidiary Guarantors.
  • Administrative Agent: JPMorgan Chase Bank, N.A.
  • DIP Lenders: The lenders from time to time party to the DIP Credit Agreement.
  • Terms: From the Closing Date (anticipated to be the date of entry of the Interim Order) through the earliest of (a) six months following the Closing Date of the DIP Facility; (b) the effective date of the Debtors’ plan of reorganization; (c) the date of the sale of all or substantially all of the assets of the DIP Loan Parties; and (d) the date on which all Aggregate Commitment are reduced to zero or otherwise terminated pursuant to the DIP Credit Agreement.
  • Commitment: $120.0mn ($47.7mn on Interim)
  • Roll-Up: $47.7mn of prepetition letters of credit
  • Use of Proceeds: Use of the DIP Letters of Credit for general corporate purposes of the DIP Borrower and its subsidiaries.
  • Fees: 
    • Letter of Credit Fee: A fee is equal to the Applicable Letter of Credit Fee Rate per annum on aggregate amount of outstanding DIP Letters of Credit
    • Commitment Fee: A fee is equal to the Commitment Fee Rate per annum on aggregate amount of unused Commitments;
    • Fronting Fee: A fronting fee of not less than 0.25% per annum on the face amount of the Letter of Credit and issuance and processing fees payable to the applicable Issuing Lender;
    • Additional Fees set forth in the Engagement Letter attached as Exhibit A;
    • Additional Fees set forth in the DIP Fee Letter attached as Exhibit B.

Applicable Letter of Credit Fee Rate and Commitment Fee Rate are as follows:


Fixed Charge Coverage Ratio

Commitment Fee Rate

Letter of Credit Fee Rate


> 2.0x




> 1.5x and < to 2.0x




< 1.5x




The expected effect of the Restructuring on the Debtors’ capital structure is summarized as follows:

FN3 While there are no outstanding loans under the Prepetition Credit Agreement, the Debtors have approximately $47,357,274.86 in letters of credit outstanding under the Prepetition Credit Agreement.

Initial DIP Budget (See Schedule 1 to Docket No. 5)

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