3 April 2017

Boart Longyear Reaches Recapitalisation Agreement with Key Stakeholders to Reduce Debt, Extend Maturities and Improve Liquidity

Boart Longyear Limited (ASX:BLY) - Boart Longyear announces that it has entered into a binding recapitalisation agreement with its key creditors, affiliates of Ares Management, L.P. ("Ares"), Ascribe II Investments, LLC ("Ascribe") and affiliates of Centerbridge Partners, L.P. ("Centerbridge"), who collectively represent over 75% of its secured lenders and 90% of its unsecured lenders ("Recapitalisation"). The Recapitalisation will reduce the Company's debt and interest costs, improve liquidity and extend debt maturities, which will provide the Company with a more sustainable capital structure and is critical to supporting its operations and future growth. In conjunction with the Recapitalisation, lenders affiliated with Centerbridge, Ares and Ascribe also have entered into an agreement with the Company for an incremental, short-term US$15 million loan facility to provide additional working capital to support the Company until the Recapitalisation is completed. Subject to shareholder and other approvals, the Recapitalisation is expected to be completed in June 2017.

Important Recapitalisation outcomes include:
  • Deleveraging: Current outstanding debt will be permanently reduced by exchanging US$196 million of 7% Senior Unsecured Notes for 42% of the Company's post-Recapitalisation ordinary equity before the issue of warrants. The remaining US$88 million of the Senior Unsecured Notes will be reinstated with an interest rate of 1.5%.
  • Additional Liquidity: A new US$75 million ABL facility to be fully backstopped by lenders affiliated with Centerbridge, Ares and Ascribe provides the Company US$35 million of additional debt capacity. It will replace the existing ABL facility and the short-term facilities provided by lenders affiliated with Centerbridge, Ares and Ascribe to support the completion of the Recapitalisation.
  • Extension of Debt Maturities: The maturities on Term Loan A, Term Loan B, the 10% Senior Secured Notes and the 7% Senior Unsecured Notes will be extended until December 2022 (from their original maturity dates: October 2020, October 2018, October 2018 and April 2021, respectively).
  • Adjustment to Interest Rates and Payments: Through December 2018, interest payments on all debt facilities (excluding the ABL Revolver) may be paid-in-kind rather than in cash. Thereafter, interest on the 10% Senior Secured Notes and the ABL Revolver will be paid in cash. (See additional information on debt facility terms provided below.) Additionally, the paid-in-kind interest rates on Term Loan A and Term Loan B will be reduced from 12% to 10% per annum through the end of 2018 and to 8% thereafter. As a result of the modification, the Centerbridge Term Loan A and Term Loan B lenders are foregoing up to US$83 million of interest over the life of the term loans. In return for this and other modifications, those Centerbridge entities will receive 52.3% of the Company's ordinary equity post-Recapitalisation (before the issue of warrants). Existing equity interests held in entities affiliated with Centerbridge, including their Convertible Preference Shares,

will be diluted to 3.7% of the Company's ordinary equity post-Recapitalisation. Accordingly, the Centerbridge entities will have a total equity position of 56% of the Company's ordinary shares post-Recapitalisation and before the issue of warrants.

  • Shareholder Recoveries: Due to equity being issued for the deleveraging and reduced interest costs secured from lenders, the percentage of ordinary shares held by parties other than Centerbridge will decrease from approximately 35% today to 2% post-Recapitalisation. Shareholders (excluding Centerbridge) will also receive warrants for 2.5% of the Company's ordinary equity post-Recapitalisation.
  • Share Purchase Plan: Eligible shareholders also will be offered the opportunity to purchase up to a total of AUS$5,000 worth of shares in the Company at a price per share of AUS$0.02, with the total amount to be raised by the Company under the Share Purchase Plan to be capped at AUS$9 million.

Marcus Randolph, Chairman of the Board, commented, "Boart Longyear is an excellent company with a good business model. The sustained market downturn we have faced has meant our current debt load cannot be sustained, both in terms of the Company continuing to meet future interest payments and the prospects for refinancing our debt at maturity. The Recapitalisation creates the opportunity for the Company to move forward in a sustainable, positive way for the Company's employees and other stakeholders. The situation the Board faces is the choice between this Recapitalisation, which maximises value for its stakeholders, and a potential insolvency; there are no competing offers, and none are expected. Given this choice, the Independent Directors unanimously recommend that shareholders vote in favour of the Recapitalisation, subject to no superior proposal emerging and the independent expert concluding the Recapitalisation is reasonable to the non-associated shareholders. In making this recommendation, I note the Independent Directors have significant shareholdings in the Company and experience the same outcome as ordinary shareholders."

Chief Executive Officer Jeff Olsen added, "We are continuing to position the Company and its stakeholders to benefit from an eventual recovery in our core mining markets and from the significant operational improvements we have implemented. Over the past four years, we have worked tirelessly to take cost out of the business, improve productivity and operate more efficiently. These fundamental improvements have led to steadily improving margins despite continued pressure on revenues.

Additionally, we have continued to invest in new product development, including down-hole instrumentation technologies, which will keep us at the forefront of future opportunities in the drilling services and products spaces. We believe that, cumulatively, these improvements and the Recapitalisation provide a stable platform for the business.

"In summary, we believe the Recapitalisation will significantly contribute to Boart Longyear, which has been operating for more than 125 years, remaining fundamentally strong."

Recapitalisation Overview

The Company's primary objectives in its evaluation of recapitalisation alternatives were to reduce debt (both principal and interest costs), secure additional liquidity and extend debt maturities while maintaining the best possible outcome for shareholders. The Company also noted in its recent communication to

shareholders concurrent with the announcement of its 2016 full-year financial results on 27 February 2017 that a recapitalisation was likely to be highly dilutive to shareholders and that lenders were likely to obtain significant equity interests, governance rights and control given the deleveraging, liquidity and reduced interest costs the Company requires. The Recapitalisation the Independent Directors are recommending is consistent with those objectives and comments.

The Company and lenders affiliated with Centerbridge, Ares and Ascribe have entered into a Restructuring Support Agreement ("RSA") to effectuate the Recapitalisation, subject to certain conditions precedent being satisfied or waived (as applicable). While a detailed summary of the RSA is attached as Appendix A, the key features and terms of the Recapitalisation are, as follows:

ABL Revolver

  • Size: US$75 million new revolving ABL facility (which will replace the existing US$40 million ABL facility, US$20 million Delayed Draw Term Loan ("DDTL") and US$15 million short-term Second-Out ABL facility referenced below)

  • Backstop: If third party financing is not available, the new ABL will be fully backstopped by lenders affiliated with Centerbridge, Ares, and Ascribe, reduced by the amount raised by the Company under the Share Purchase Plan

  • Maturity / Interest / Fees: Will be determined in conjunction with the implementation of the new ABL

Centerbridge Term Loan A and Term Loan

B

  • Term Loans A and B reinstated

  • Reduction of the current interest rate of 12% per annum to the rates below, providing US$83 million in savings over the life of the loans

  • As consideration for the above interest savings, the Centerbridge lenders will receive 52.3% of the Company's ordinary equity post-Recapitalisation (subject to warrant dilution and in addition to 3.7% of ordinary shares held by other Centerbridge entities on account of the shares they currently hold and issued on conversion of the Convertible Preference Shares)

  • Intellectual property subsidiary that guarantees Term Loans A and B will also provide a junior unsecured guarantee to the Senior Secured Notes

  • Amended Terms:

    • Interest Rate: Payable in kind at 10% until December 2018, then payable in kind at 8% thereafter

    • Call Schedule: Non-call protection prior to December 2018; callable at par thereafter

    • Secured Debt Cap: An amount not less than US$420 million plus additional amounts to permit (a) accrued interest and principal amounts in respect of the 10% Senior Secured Notes, (b) the incurrence of the increased ABL Revolver, and (c) a potential additional $40 million of additional ABL capacity

o Maturity: 12/31/2022

  • Covenants:

    • Covenants will be amended to be generally consistent with 10% Senior Secured Notes and ABL Revolver will share Term Loan A collateral package

    • Change of control put waived

10% Senior Secured Notes

  • Reinstated at US$199.875 million plus accreted interest (at a rate of 12% per annum) from 1 January 2017 through the day before the Recapitalisation is completed

  • Amended Terms:

    • Interest Rate:

      • First four coupon payments (beginning with June 2017 payment) may be paid in kind at 12% at the Company's option

      • All coupons thereafter will be paid in cash at 10%

    • Interest Payment Dates: Amended to June and December annually from April and October

    • Secured Debt Cap: An amount not less than US$420 million plus additional amounts to permit (a) accrued interest and principal amounts in respect of the 10% Senior Secured Notes, (b) the incurrence of the increased ABL Revolver, and (c) a potential additional $40 million of additional ABL capacity

    • Covenants:

      • Change of control put waived

      • Minimise or remove significant restricted payment and permitted investment baskets

    • New guarantees: Junior unsecured guarantee on the Company's intellectual property subsidiary for entire 10% Senior Secured Note claim (principal + future paid-in-kind interest)

o Maturity: 12/31/2022

7% Senior Unsecured Notes

  • Together with the coupon payment due on 1 April 2017, US$196 million equitized in exchange for 42% of the Company's ordinary equity post-Recapitalisation (subject to warrant dilution)

  • Receive warrants as set forth below

  • Receive US$88 million face value Subordinated Unsecured Notes

    • Interest Rate: Payable in kind at 1.5%

    • Ranking: Subordinated to unsecured interest accrued on Term Loans A and B

    • Secured Debt Cap: An amount not less than US$420 million plus additional amounts to permit (a) accrued interest and principal amounts in respect of the

o Maturity: 12/31/2022

Boart Longyear Limited published this content on 03 April 2017 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 02 April 2017 23:51:19 UTC.

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