Calfrac can be an acquisition vehicle, Wilks Brothers say as restructuring battle looms
CALGARY — Twice spurned in attempts to break up Calfrac Well Services Ltd., a major shareholder now says it intends to keep the Calgary-based fracking company together and use it as an acquisition vehicle.
“We want to keep this company together. All of our attempts in the past have been solving for specific issues,” said Matt Wilks, chief financial officer of Pro Frac, which is owned by Cisco, Tex.-based Wilks Brothers LLC.
Wilks Brothers, which owns more than 19 per cent of Calfrac’s shares and a significant portion of its debt, made two offers to buy the pressure pumping company’s U.S.-based fracking business on June 22 and June 29 after it missed an interest payment due June 15 on a portion of its debt.
“When we’ve looked (at) and worked with the company in the past, it did involve some dispositions of some of the business,” Wilks said in an interview with the Financial Post, but added his company’s view has changed now that Calfrac has entered into a restructuring process.
“We think there’s a great deal of value in keeping it together but at the time we felt the debt issue was a greater issue,” he said. “Now that we’re here, it’s easier in our opinion to address the debt problem without breaking up the company.”
In a wide-ranging interview about his company’s alternative restructuring proposal for embattled Calfrac, Wilks said he believes his proposal could enable Canada’s second-largest hydraulic fracturing company to survive and potentially become an aggregator in a fractured and struggling North American oilfield services market.
“If we’re successful here, we’re going to see that this is really a consolidation vehicle and the acquisitions will exceed dispositions,” Wilks said. “I believe they would primarily be in the U.S.”
At this point, Wilks said he has had no formal indication from the company on how it views the alternative restructuring plan.
Wilks Brothers publicly announced its alternative restructuring plan for Calfrac on Aug. 4, which it said would boost the payout to existing shareholders by $14 million, to unsecured note holders by $69 million and to second-lien debt holders by $1 million.
Later that day, Calfrac announced it had formed a special committee made up of independent board members Gregory Fletcher, James Blair and Kevin Baker to review the Wilks Brothers’ proposal and would comment on the restructuring plan after the committee fully reviews the proposal.
The proposal also contains a provision that would allow Wilks Brothers to nominate two independent directors to the company’s board and one non-independent director. It also stipulates that executive chairman and Calfrac co-founder Ron Mathison would continue in his role.
Mathison is chairman and founder of Matco Investments Ltd., which is also a major investor in Calfrac, but one that would be better compensated by about $3 million, if the Wilks Brothers’ offer was spurned and the company continued its previously announced restructuring plan.
However, Matt Wilks said his company’s restructuring proposal contains significant equity compensation for Mathison through an executive compensation plan.
“We wanted to keep him on as the executive chairman,” he said. “Much like the rest of the executive officers, there is a management incentive plan that’s included in here. There’s a fair amount of equity that’s included as the management incentive plan.”
Wilks Bros’s plan would also lead to it owning 60 per cent of a restructured Calfrac. The Texas holding company would inject $80 million in cash into the company in exchange for equity, and acquire the remaining second-lien debt it doesn’ already own.
Analysts said the plan would leave Calfrac with $39 million in net debt, compared to $219 million under the company’s previous proposal.
“In our view, the new Wilks Bros restructuring proposal is unambiguously superior to the original proposal for equity holders and second-lien noteholders,” Raymond James analyst Andrew Bradford said in a research note this week, adding he expects shareholders and second-lien noteholders will support the plan.
“But as it is, the Wilks proposal is more ambiguous for unsecured noteholders and since their approval is a condition precedent for the Wilks restructuring, the outcome of the two competing restructuring proposals is uncertain,” he wrote.
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