US private equity group Centerbridge Partners has gained a 49.9 per cent stake in Boart Longyear after shareholders in the struggling drilling company largely ignored a rights issue. As part of a $US342 million ($419 million) bailout package announced in October, Boart sought to raise $103.4 million through the issue of 624 million new shares. But shareholders shied away from the offer, with just 191 million ordinary shares issued at a price of 16.5¢ to raise about $31 million. The remaining funds were chipped in by Centerbridge, which was issued 434 million convertible preference shares to generate $72 million. Prior to the rights issue, Centerbridge held a 36.9 per cent stake in Boart and 12.7 per cent before the packaged was announced in October.
The completion of the rights issue, a share buyback offer and an unsecured notes equitisation concludes Boart’s recapitalisation, putting it on a firmer footing but leaving Centerbridge with just under half its issued share capital as well as the 434 million convertible preference shares. The preference shares were issued to prevent Centerbridge becoming a majority stockholder in Boart but allow the distressed debt firm certain privileges, including being paid a preferential dividend and receiving a payment priority in the incidence of a “winding up".
The complex recapitalisation included both debt and equity components, including an up to $US120 million “covenant-lite" term loan, and was overwhelmingly approved by shareholders at a vote held in December.
However, the deal was criticised for its dilutionary impact, including from independent expert KPMG, which found it was not fair because a control premium was not being paid to Boart shareholders. However, KPMG ruled it to be reasonable because it was the best option available to shareholders as the troubled mining services company faced a steep drop in demand and the prospect of failing to meet debt covenants.
The Utah-based, Australian-listed driller’s balance sheet has been improved by the deal but broader sector conditions continue to pummel the former market darling. Last month, Boart lowered its earnings guidance below analyst expectations, citing continued market woes for the sector. Boart said continued erosion in pricing and higher-than-anticipated rig maintenance and mobilisation costs within its drilling services division, had forced it to lower its estimates, flagging that net debt would fall in the “higher end of the range of analyst estimates", which range between $US424 million and $US561 million.
BLY Price at posting:
11.0¢ Sentiment: None Disclosure: Not Held
