Macquarie-backed oil and gas servicer files for bankruptcy

Under a pre-agreed reorganisation plan, Macquarie will receive a gift of 2% equity in Express Energy Services once it reemerges from bankruptcy. The $627m deal in which Macquarie and its partners bought 65% of the Texas-based company closed in July 2008, when oil prices stood at a historic high.

Express Energy Services, a Macquarie-backed oilfield services provider based in Texas, filed a bankruptcy petition late last week with a pre-agreed reorganisation plan.

Under the plan, senior secured creditors, who provided a $325 million term loan and $22.5 million revolving credit facility toward Express’s Macquarie-led buyout last year, will have their debt converted into 100 percent of the equity of the reorganized company, according to a person familiar with the plan’s negotiations. Existing shareholders' equity will be cancelled. However, lenders have agreed to give Macquarie a gift of 2 percent of the new equity, according to the person.

Oil and gas:
risky bet for

Macquarie and its equity partners originally purchased 65 percent of Express – which helps companies that extract oil and gas from the ground drill, operate, plug and abandon their extraction sites – in a June 2008 transaction valued at $627 million, according to a press release from credit rating agency Moody’s.

The equity partners included Macquarie Capital Group, Wachovia Capital Partners and Express’s management team, according to the release.

At the time, Moody’s assigned a below-investment grade rating of B2 to Express’ senior-term loan and revolver facility. Moody’s said that while Express’ leverage level of 3.1 times earnings before interest, tax, depreciation and amortisation was lower than that of its B2-rated peers, “it would be uncomfortably high heading into a sector downturn given Express' relatively small scale”.

That sector downturn came shortly after the transaction closed in July 2008. At the time, oil was trading at its 2008 high of nearly $148 per barrel, but began to fall shortly thereafter and cratered in the wake of the bankruptcy of investment bank Lehman Brothers in September 2008.

“The dramatic reduction in oil and gas prices led to a 50 percent decline in the US land drilling rig count during the past year. This caused a significant reduction in demand and pricing for the company’s services,” Express said in a statement announcing the bankruptcy filing.

Earlier this year, the company missed interest payments on its debt and entered into six months of negotiations with its lenders to agree to a debt restructuring, according to the statement.

Express added that it has secured $20 million in debtor-in-possession financing to cover its expenses during the Chapter 11 bankruptcy reorganisation process. The financing is being provided by Orix Finance Corporation, according to bankruptcy filings.

The filings also indicate that Macquarie's interest in Express is now held by afilliate Macquarie Energy Holdings.

Express said it expects a quick approval of the reorganisation plan. The plan already has the support of the senior lenders, according to the person familiar with the negotiations.

A hearing is scheduled for 7 December and if the plan is approved, Express could quickly reemerge from bankruptcy, the person added.

Asked whether business is coming back, Express chief financial officer Jim Davis said the recovery’s been “spotty” and “localized”, with oil-related revenues rising and gas-related revenues essentially staying flat. But he added that “the nice thing about oil and gas is it gets used every day . . . so that means there will always be a requirement for exploration and production and therefore demand for our company’s services”.

Credit Suisse is acting as the agent for Express’ senior lenders. The senior lenders have not been publicly disclosed, Davis said.