Boart Longyear Ltd., a global supplier of drilling services, drilling equipment and performance tooling for mining and drilling companies, reported that it has entered into an agreement with Centerbridge Partners L.P. to implement a comprehensive recapitalization of the company. The recapitalization, which has been completed in part, represents the conclusion of a strategic review process initiated by the company in February.

Under the terms of the recapitalization, effective as of October 23, Centerbridge—a private investment firm with offices in New York and London—replaced Boart Longyear’s former bank revolving credit facility with more flexible, “covenant-lite” financing and also has subscribed to a $5.6 million equity placement, which raises its shareholding in the company to 19.9% of voting shares. Subject to shareholder approval at a meeting expected to occur in December, Centerbridge will provide additional equity capital through a further share placement, the equitization at par of its holdings of the company’s unsecured bonds and a fully underwritten rights offering, which will be open to shareholders. The recapitalization is designed to stabilize Boart Longyear’s capital structure and provide sufficient liquidity to sustain its operations until the markets for drilling services and products recover.

Richard O’Brien, president and CEO of Boart Longyear, said, “This recapitalization is an important step forward for Boart Longyear and its shareholders. We are preserving our existing shareholders’ opportunity to participate in the future prospects of the company and the improving future margin potential to be realized when our markets do improve and we reap the benefit of the significant cost and efficiency actions the company has taken over the past 18 months.

“Additionally, we anticipate the recapitalization will provide the company with significant liquidity to weather the challenges of the current depressed markets for our drilling services and products and the financial strength to allow more time for those markets to recover. The financial flexibility and resources provided by the recapitalization will allow us to further build on our existing strengths in customer service and to make tactical investments in incremental, customer-focused product development.”

Centerbridge is currently Boart Longyear’s largest shareholder, with close to 20% ownership. As a result of its current ownership, it has been provided one seat on the board of directors.

In addition, upon shareholders approving the remaining recapitalization transactions, Centerbridge will be granted additional board representation proportionate to its ownership of voting stock after completion of the recapitalization. Its maximum board representation at closing, however, may not equal or exceed half of the board, which Boart Longyear said reflects the fact that this expanded partnership with Centerbridge is not a change of control transaction.

Major benefits of the recapitalization, as described by Boart Longyear, include:

  • Fully committed equity injection of $119 to $127 million;
  • New term loans of up to $225 million;
  • Total liquidity increased to approximately $240 million;
  • Net debt reduced by approximately $120 million;
  • Company is better positioned to sustain operations through to market recovery;
  • Extends debt maturity and improves flexibility; and
  • Existing shareholders can participate through existing investment and, by exercising rights, may choose to further invest alongside Centerbridge.