Superior Energy, holders agree to amend exchange offer terms

By Sarah Lizee

Olympia, Wash., Jan. 28 – Superior Energy Services, Inc. announced that wholly owned subsidiary SESI, LLC and holders of its $800 million outstanding 7 1/8% senior notes due 2021 (Cusip: 78412FAP9) reached an agreement to amend some terms of the exchange offer for the notes.

SESI, a steering committee made up of holders of 34.21% of the notes and an ad hoc group made up of holders of 61.369% of the notes worked together to reach the agreement.

The offer will be amended to

• Provide that SESI will offer to exchange up to $635 million of the 7 1/8% senior notes due 2021 for up to $635 million of new 7 1/8% senior notes due 2021. The total consideration per $1,000 of original notes will be $1,000 of new notes. Eligible holders who validly tender their original notes prior to the expiration time will be entitled to receive an aggregate cash payment of $6.35 million divided by the total amount of original notes validly tendered and accepted for exchange;

• Provide for an extension of the expiration time to the 10th business day after the date of the expected amendment;

• Provide that the offer is conditioned upon the valid tender, by the expiration time, of at least $635 million of original notes and the receipt of consents from holders of over a majority of the original notes to amend the liens covenant in the indenture governing the original notes to permit the issuance of the superior secured notes;

• Provide that at the settlement of the combination exchange, assuming the exchange offer is fully subscribed, eligible holders will receive, in exchange for $635 million aggregate principal amount of new notes held by holders at the combination exchange date and accepted for exchange on a pro rata basis $250 million of senior second-lien secured notes to be issued by Spieth Newco, Inc., $250 million of senior second-lien secured notes to be issued by SESI, $135 million in cash and $6.35 million in cash constituting the total consent payment;

• Increase the interest rate of the Newco secured notes in connection with the combination exchange to 9¾% from 8%, decrease the tenor of the Newco secured notes to five years from seven years and provide that the aggregate principal amount of Newco secured notes to be issued in connection with the combination exchange is $250 million;

• Increase the interest rate of the superior secured notes in connection with the combination exchange to 8¾% from 8%, decrease the tenor of the superior secured notes to six years from seven years and provide that the aggregate principal amount of superior secured notes to be issued in connection with the combination exchange is $250 million;

• Provide that, subject to some exceptions and exclusions, so long as the aggregate principal amount of outstanding Newco secured notes exceeds $150 million, and in the event that during any semiannual period starting on July 1, excess cash flow for such period is positive, Newco will be required on March 15 and Sept. 15 of each year beginning with March 15, 2021, to make an offer to all holders of Newco secured notes to purchase the maximum principal amount of Newco secured notes that may be purchased with an amount equal to 75% of excess cash flow for the semiannual period then ended until the aggregate principal amount of outstanding Newco secured notes is less than $150 million and Spieth Newco has a total leverage ratio of less than 2 to 1; and

• Provide that if any of SESI's 7¾% senior notes due 2024 are outstanding 91 days prior to Sept. 15, 2024, the springing maturity date, then the superior secured notes will mature on that date.

In addition, the amended offer will provide for some amended restrictive covenants related to the Newco and superior notes, including the debt covenants, restricted payments, permitted liens and asset sales.

Other material terms of the offer are unchanged, the company said.

Original offer

As previously reported, SESI was offering to exchange up to $500 million of its $800 million outstanding 7 1/8% senior notes due 2021 for up to $500 million of newly issued 7 1/8% senior notes due 2021 and cash.

The early participation date is 5 p.m. ET on Jan. 29, pushed back from 5 p.m. ET on Jan. 22 and, before that, from 5 p.m. ET on Jan. 17.

As reported on Jan. 6, the company was offering for each $1,000 principal amount of original notes tendered at or prior to the early participation date, an exchange consideration of $950 principal amount of new notes, subject to proration, an early participation premium of $50 principal amount of new notes, subject to proration, and a cash consent payment of $2.50.

Holders tendering after the early participation date will not be eligible to receive the early participation payment or the consent payment.

The offer was set to expire at 11:59 p.m. ET on Feb. 3. The offer is expected to settle on the second business day after the expiration date.

In connection with the exchange offer, SESI is also soliciting consents from holders to amend the Dec. 6, 2011 indenture governing the original notes. The company is seeking to amend the lien covenant to permit the issuance of superior secured notes.

In order for the proposed amendment to be adopted, holders of a majority of the outstanding principal amount of notes must consent to the change and those consents must be received by the earlier of the early participation date and the date on which the necessary consents are received and a supplemental indenture is executed.

The exchange offer was conditioned on the tender of at least $250 million of original notes; however, the company had the option to reduce that threshold to $200 million.

The offer is not conditioned, though, on receiving the required consents.

However, if the needed consents are not received, the maximum aggregate principal amount of original notes that will be accepted and exchanged will be limited to $250 million, subject to proration, and the consent payment will not be made.

The exchange offer and consent solicitation is being conducted in connection with Superior Energy’s previously announced entry into a definitive agreement to divest its U.S. service rigs, coiled tubing, wireline, pressure control, flowback, fluid management and accommodations service lines and combine them with Forbes Energy Services Ltd.’s complementary service lines. The exchange offer is conditioned on the combination, but the combination is not conditioned on the exchange offer and consent solicitation.

With the combination, the new notes will automatically exchange into up to $250 million of 8% senior second-lien secured notes due 2027 to be issued by Spieth Newco; and, only to the extent that the necessary consents are received in the consent solicitation, in an amount equal to the difference between the aggregate amount of new notes issued in the exchange and $250 million, up to an additional $250 million of 8% senior second-lien secured notes due 2027 to be issued by SESI, which would be the superior secured notes.

However, if the needed consents are not received, no superior secured notes will be issued.

The indenture governing the Speith Newco notes will contain restrictive covenants customary for issuances of high-yield secured notes of this type, and the indenture governing the superior secured notes will contain restrictive covenants similar to those contained in the indenture governing SESI’s 7¾% senior notes due 2024.

Following the combination, and assuming the exchange offer is fully subscribed, SESI expects to keep the remaining $300 million of original notes outstanding. However, if the combination is not completed by May 31 or Superior Energy determines in good faith that it will be more likely than not that it will be required to treat Newco as a consolidated subsidiary following the combination, the new notes issued in the exchange offer will be automatically exchanged for an equal principal amount of original notes to be issued as add-on notes.

D.F. King & Co., Inc. (attn.: Andrew Beck, 212 269-5550, 800 431-9633, spnv@dfking.com) is the information agent for the Rule 144A and Regulation S exchange offer and consent solicitation.

Based in Houston, Superior Energy provides oilfield services and equipment.

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