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Current KEG Stock Info

Key Energy Services (ticker: KEG) announced the reorganization of its credit facility on June 2, 2015, replacing its previous $400 million senior revolving facility that was set to expire in 2016.

Under the terms of the new facility, Key closed on a $100 million asset-based revolver (ABL) due February 2020 and a $315 million term loan facility due June 2020. Per the agreement, the loan facility requires KEG to maintain $100 million in liquidity, including cash and availability of the ABL. Other terms, including ratios and interest rates, are included in the drop-down box below.


Closing the Deal

Management of Key Energy Services mentioned in its Q1’15 conference call that the company was nearing the completion of the new structure. Marshall Dodson, Chief Financial Officer of Key Energy Services, admitted the new facility would be more expensive than the previous $400 million senior revolver, but believed the arrangements would provide “sufficient liquidity and flexibility to work through the current challenges.”

Dick Alario, President and Chief Executive Officer of Key Energy Services, agreed with the assessment.  “We believe that with the consummation of the refinancing of Key’s existing revolving credit facility, we have secured sufficient liquidity with a favorable covenant structure to navigate the current industry downturn,” he said in the news release.

The move was met positively by analysts, with Capital One Securities saying liquidity won’t be an issue for the small-cap service provider. Its 2015 capital expenditure plan is expected to be below $80 million, and the company currently holds $270.6 million in liquidity.

Firms like Johnson Rice & Co. and Raymond James Equity Research both mentioned the high interest rates but concluded it was a much needed and necessary move by KEG. “The financing gives Key some breathing room, with its next maturity now not due until 2020,” said a note from Raymond James. “We believe this is a net positive for Key as concerns of the company meeting its obligations in 2016 are now alleviated.”

KEG’s Take on the Market:  A Knife Fight

At a conference on May 20, Dodson said Key continues its transition to focus purely on development in North America and is scaling down its involvement internationally. The company holds a contract with Pemex and believes the number of existing producing wells and shallow oil reserves offers plenty of upside. Management said the market is showing signs of stabilization and price declines are slowing, but nobody is out of the woods at this point in time.

“The signs of stabilization are there, but this is still a very competitive business with lots of competitive pressures,” Dodson explained. “This is one where you have many small players and we’ll be going through the phase of, in essence, a knife fight in this business as we all seek to maintain and grow our market share.”

Key has 8,500 people providing oilfield services—rigs, coiled tubing, frac stack, fluid services, onshore and deepwater fishing, etc.—for oil and gas operators in the Americas, Russia and the Middle East.

KEG Credit Facility Details

The Facilities also require Key to maintain the ratio of the net orderly liquidation value of its assets and certain term loan proceeds to term loan borrowings of 1.5x. As of the date of closing, this ratio was 2.15x. The ABL also includes a fixed charge coverage ratio of 1.0x, which is tested only if excess availability under the ABL falls below a specified threshold or upon the occurrence of certain other events. The term loan was issued at an OID of 3.0% with an annual rate of LIBOR plus 9.25% with a 1.00% LIBOR floor. The ABL bears interest at an annual rate on outstanding borrowings of LIBOR plus 4.5%, with a fee on unused commitments ranging from 1.00% - 1.25% based on utilization.  

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