June 24, 2019
It stands to reason that businesses centered upon servicing mining and oil and gas drilling rigs may be suffering a bit in the current — and by “current,” we mean the last five-or-so years — macroeconomic environment. HDR Holding Inc., a Pennsylvania-based company started in 1900(!), along with certain debtor affiliates, produces “a variety of mobile, top-head hydraulic rotary drilling rigs that are mounted on trucks, tracks and trailers.” The company makes money by (i) manufacturing and selling their various rig models to drillers, (ii) selling consumable drill parts that naturally deteriorate over time, and (iii) servicing their equipment. For reasons that are, by now, blatantly obvious to anyone following the distressed world, oil and gas drilling hasn’t exactly been an obscenely profitable endeavor these last few years (or, in the case of certain drilling regions, EVER, really).
And so demand for the debtors’ wares is down. Per the debtors:
Given its strong connections to the oil and gas industry, the Company has faced significant challenges pervasive in the industry over the past three to five years. Numerous oil and gas producers have significantly curtailed, if not entirely ceased, drilling new wells in response to declines in commodity prices that make such projects uneconomical. The result of this trend for the Company has been a reduced demand for both new rigs and for the related consumable drill parts as existing rig assemblies are idled, which has led to the Debtors failing to meet revenue projections and maintain compliance with the covenants under their prepetition credit facilities.
Ah, yes, the debt. The debtors have approximately $20mm in debt spread out across three different term loan facilities. In an attempt to better service this debt, the debtors have pivoted their sales efforts “to a steadier mining sector” (Bitcoin, maybe? We kid, we kid), now sell aftermarket equipment, and have “managed” their workforce and expenses to preserve cash with the hope that oil and gas might cover. Spoiler alert: it hasn’t. Nevertheless, the debtors purport to have increased performance over the last few years. Just not enough to service their capital structure.
Accordingly, over the last eight months, the debtors and their advisors have pursued a sale process with the hope of selling the business as a going concern. No third-party purchaser came forward pre-petition, unfortunately, and so the debtors seek to pursue a sale to their largest pre-petition equityholder…which also happens to be their largest pre-petition lender…AND which also happens to be their proposed DIP lender (GenNx360 Capital Parters LP). The committed DIP is $6mm at 12% and the proposed purchase price is $10.3mm plus a credit bid of the $6mm DIP amount. Pursuant to the terms of the DIP, the debtors seek to have a sale hearing on or about August 19 to have some cushion in advance of the August 28 sale order milestone under the proposed DIP.
We’ll, therefore, have at least one data point by the end of summer to show us how bullish folks are vis-a-vis a recovery in the oil and gas market.
Jurisdiction: D. of Delaware (Judge Walrath)
Capital Structure: $5.3mm Term Loan A (Hark Capital I LP), $6.5mm Term Loan B (GenNx360), $6mm Term Loan C (Citizens Bank NA)
Legal: Young Conaway Stargatt & Taylor LLP (Sean Greecher, Pauline Morgan,
Investment Banker: FocalPoint Partners LLC (Michael Fixler)
Claims Agent: Epiq Bankruptcy Solutions LLC (*click on the link above for free docket access)
Other Parties in Interest:
Largest EquityHolder & Stalking Horse Purchaser: GenNx360 Capital Partners L.P.
DIP Lender ($6mm at 12%): Schramm II Inc. (an acquisition vehicle created by GenNx360)
Legal: Winston & Strawn LLP (Carey Schreiber) & (local) Robinson+Cole LLP (Jamie Edmonson)
Term Loan A Lender: Hark Capital I LP
Legal: Perkins Coie LLP (Jordan Kroop) & (local) The Rosner Law Group LLC (Frederick Rosner)
Updated 7/7 #65