How fast the greedy frac’ers fall: Privately held Sanjel broken up and sold to rivals, will only recover fraction of what it owes lenders

Alberta court denies attempt to block Sanjel sale by bondholders claiming ‘bad faith’ by Geoffrey Morgan, April 29, 2016, Financial Post

CALGARY – Bondholder attempts to stop insolvent Sanjel Corp.’s blockbuster sale of its fracking business in Canada and the U.S. have been denied.

In a motion filed in Alberta’s Court of Queen’s Bench, the bondholders alleged that Sanjel, one of the largest fracking companies in Canada, “used the guise of good faith negotiations as a means of depriving bondholders of their opportunity to protect their interests.”

They said they were “shocked” to learn of the sale of Sanjel’s fracking business after multiple attempts to restructure the company’s debts.

The creditors had also signalled their intention to go after Sanjel’s landlord, which is owned by Sanjel’s shareholders, to recoup some of the US$300 million they say they are owed.

But the creditors attempt to block the sale was denied in court on Thursday, according to people with knowledge of the case.

The bondholders had claimed that if the sale to STEP and Liberty were approved, “There will be nothing left to restructure.”

Out of concern that bondholders would not be repaid, U.S. investment firms Ascribe Capital LLC’s and Clearlake Capital Group LP’s had attempted to the stop the sale of Calgary-based Sanjel’s fracking business to Calgary-based STEP Energy Services Ltd. and Liberty Oilfield Service.

Ascribe Capital’s chief investment officer and managing director Lawrence First said in an affidavit that, after the fracker missed a US$11-million interest payment on Dec. 11, his firm and Clearlake made multiple offers to restructure Sanjel’s debt by sending over new term sheets.

Instead of accepting the offers or negotiating the terms, First said Sanjel and its banking syndicate postponed meetings with bondholders and appointed a debt monitor without the bondholders’ knowledge over the course of the winter. Meetings were postponed until the sale was announced in April.

The bondholders’ motion also demanded that Sanjel’s former CEO Darin MacDonald, son of founder Don MacDonald, swear an affidavit describing payments paid by Sanjel, which is owned by the MacDonald family, to a company called MacBain Properties Ltd.

Alberta government records show Calgary-based MacBain Properties is also owned by the MacDonald family, and court proceedings show that Sanjel’s rent and other payments make up 90 per cent of MacBain’s income.

“Generally speaking, the MacBain Assets were custom-built or purchased at the request and upon the direction of Sanjel,” MacBain president Darin MacDonald said in an affidavit filed before the bondholders’ motion.

“Sanjel would advise MacBain what it wanted, and MacBain would source the location, purchase the property and custom-build the facility,” he said.

Sanjel sold its real-estate assets to MacBain in 2002, MacDonald said, and MacBain “was always kept as a separate corporate entity – it is not a subsidiary of Sanjel, there are no guarantees or inter-corporate debt (except some trade debt and short-paid rent owing from Sanjel to MacBain in the last few months).”

A spokeswoman for MacBain declined comment. [Emphasis added]

Sanjel will only recover fraction of what it owes to lenders by Jeff Lewis, April 14, 2016, The Globe and Mail
Sanjel Corp. expects to recover as little as $325-million from the sale of its U.S. and Canadian assets, a small fraction of what it said the businesses were worth and well under what is owed to the company’s lenders.

The family-controlled international oil services company struck a deal to sell its Canadian and U.S. divisions to STEP Energy Services Ltd. and Liberty Oilfield Services LLC, respectively, under court supervision after seeking protection from creditors earlier this month. Both buyers are backed by private equity.

The purchase prices were not disclosed, but in a supplementary affidavit from its chief financial officer, Sanjel said it expects to recover between $325-million and $375-million from the sales – well short of the $1.4-billion it said its assets were worth in earlier filings.

The estimated recovery also includes working capital and potential proceeds from additional asset sales, CFO Paul Crilly said in the document. That means the Canadian and U.S. divisions probably fetched considerably less than the stated range.

It is a steep bargain that underscores risks to banks and other lenders as they navigate the deepening fallout from oil’s collapse. The total falls short of the $396-million Sanjel owes under a secured credit facility to a syndicate of banks led by ATB Financial Corp. The company’s debts also include $300-million (U.S.) of unsecured bonds that recently traded for pennies on the dollar, suggesting that they are unlikely to be repaid.

Sanjel, known for its hydraulic-fracturing and well-cementing businesses, sought to scare up a buyer and ultimately signed confidentiality agreements with 19 parties as its finances deteriorated last year. It agreed to sell itself to Liberty and STEP on April 3.

“This wasn’t a business where they turned the lights off and kind of took it to auction,” TD Securities Inc. analyst Scott Treadwell said.

“It’s a bit of a commoditized business at the best of times, and when you’ve got oversupply and low spending, you just kind of end up in this situation where nobody really wants the assets.”

This week, privately held ATK Oilfield Transportation Inc. became the latest casualty of the bust, pushed into receivership by its lender, ATB, Alberta’s provincially owned bank.

The Alberta-based company was founded in 2010 by Artie T. Kos, who previously built one of North America’s largest privately owned oil field transportation firms, Kos Corp. Oilfield Transportation Ltd. That company was sold in 2006.

It was not immediately clear what drove ATK over the brink, and calls to the company were not returned on Thursday.

However, it specialized in hauling rigs and other equipment, a segment of the industry that has been hit especially hard as oil and gas companies slash spending and drilling activity grinds to a halt.

The number of active rigs in Western Canada fell 11 per cent this week to 41 and is now 74 per cent below the five-year average of 156, according to RBC Dominion Securities Inc.

Also Thursday, cash-strapped Pacific Exploration & Production Corp. said its board had agreed to negotiate a financial restructuring involving private-equity fund Catalyst Capital Group Inc.

Energy companies have cuts tens of thousands of jobs and slashed spending to the bone to weather the downturn. Many now face increased pressure as banks tighten lending restrictions and chop credit lines, reducing liquidity when they need it most.

That could prompt a spike in defaults, said Charla Smith, senior manager at Grant Thornton LLP in Calgary. “I think in most of those situations, the companies have already tried to sell their assets, and either they couldn’t sell them or they couldn’t sell them for enough to satisfy the bank and get them to the level that they need to be at,” she said in a recent interview.

“If the bank isn’t happy with the current level of borrowing, they’re probably unlikely to increase the amount of borrowing to help them deal with that cash crunch.” [Emphasis added]

Unsecured creditors owed $400M unlikely to collect on Sanjel liquidation by Dan Healing, April 14, 2016, Calgary Herald

Proceeds from the breakup and sale of failed private Calgary fracking firm Sanjel Corp. are expected to be less than secured claims of its lending syndicate, leaving out in the cold unsecured suppliers and bondholders owed about $400 million.

The total recovery from two announced asset purchase agreements, or APAs, along with other asset sales and recoveries, will be less than the $397 million owed 12 banks led by Alberta government-owned ATB Financial, according to an affidavit filed this week by Paul Crilly, Sanjel’s chief recovery officer and former chief financial officer.

“The estimated approximate cash recovery to the syndicate (from a combination of the purchase proceeds of the APAs, the sale of the applicant’s other assets, the collection of accounts receivable and remaining cash, if any, at the end of this restructuring process) is between $325 million and $375 million,” says the statement filed on the website of court-appointed monitor PricewaterhouseCoopers.

Sanjel announced April 4 it had agreed to sell its Canadian pressure pumping, coiled tubing and cementing assets to Step Energy Services Ltd. of Calgary and similar assets in the U.S. to Denver-based Liberty Oilfield Services for undisclosed prices. Documents from the monitor indicate the specific prices won’t be revealed until the sales close, expected in May.

Sanjel also said it had filed for protection from creditors in Canada under the Companies’ Creditors Arrangement Act and had filed an initial order under Chapter 15 of the Bankruptcy Code in the United States.

A list of unsecured creditors on the PwC site includes the holders of US$300 million in senior bonds issued by Sanjel in June 2014, plus almost $19 million in unpaid interest.

It also includes more than 2,000 suppliers of services, technology and material owed Cdn$18 million and US$46 million, listed in a 55-page filing on the website.

Several creditors reached by Postmedia on Thursday declined to comment.

“We have a long history with Sanjel and we’re sad to see the company go the way that it has, but we don’t want to put anything else out there,” said Jesse, a representative of Peaskie Minerals of Redwater, a small town northeast of Edmonton, refusing to give his last name.

The third-generation, family-owned business, which boasts on its website that it is the “leading producer of API spec frac sand in Alberta,” is owed $1.8 million, according to the Sanjel creditors list.

PwC reported that 11 companies had been designated “critical suppliers” for Sanjel’s ongoing operations, including Houston-based Hi Crush Partners, a supplier of frack sand that is owed $8.6 million.

“I can confirm that we are a critical supplier going forward, and that we therefore must continue to supply Sanjel with sand,” chief financial officer Laura Fulton said in an email reply to a Postmedia inquiry.

“In exchange, we are granted the benefit of a charge over Sanjel’s property to secure payment of post-petition obligations.”

Real estate firm MacBain Properties Ltd., owned by the MacDonald family that also owns Sanjel, is listed as an unsecured creditor owed $921,000. Chairman Don MacDonald founded Sanjel in 1982; his son Darin resigned as president and chief executive on April 4.

In a letter to staff obtained by Postmedia, the younger MacDonald blamed the current commodity price crisis and its chilling effect on oil and gas producer spending for Sanjel’s solvency problems.

In an earlier affidavit, Crilly said Sanjel’s total liabilities as of Jan. 31 were Cdn$1.1 billion, including accounts payable of $135 million and future tax liability of about $51 million.

The company has cut its staff from 4,300 to 2,200 over the past 18 months.

Companies such as Sanjel provide the truck-mounted pumps that inject liquids and sand into tight underground formations under high pressure to break up the rock and allow the trapped oil and gas to be produced.

More than 110,000 people are estimated to have lost their jobs in the Canadian oilpatch as oil prices fell from more than US$100 per barrel in June 2014. [Emphasis added]

Privately held Sanjel broken up and sold to rivals by Jeffrey Jones, April 4, 2016, The Globe and Mail

Sanjel Corp., the privately held oil-field services company, is being broken up and sold to two rivals under a court-supervised process for undisclosed sums, it said on Monday.

Calgary-based Sanjel said STEP Energy Services, owned by private-equity firm ARC Financial Corp., is buying the Canadian hydraulic fracturing, coiled tubing and well-cementing business.

Meanwhile, Denver-based Liberty Oilfield Services is acquiring Sanjel’s U.S. business. Liberty operates in the Williston, DJ and Powder River basins in the United States.

In a statement, the company offered few details of the transactions, such as price and terms. A Sanjel executive was not immediately available for comment. Officials from STEP and Liberty said they could provide little other information until the deals close following the court process.

Calgary-based Sanjel’s breakup comes as the energy-services sector reels from the effects of the oil-price collapse, which has led exploration and production companies to slash spending on operations such as drilling and other development activities.

Little has been written about Sanjel’s inner workings over the years, but a filing for a debt issue in 2014 shed some light on the company’s finances.

It was founded in 1982 by Don MacDonald, the company’s chairman. Two years ago it ran offices in Calgary, Houston, Denver, Dubai and Mexico City, and employed 4,100 people. His son, Darin MacDonald, had been the company’s president and chief executive. The two had equal financial control over the family’s holdings, which included energy businesses, real estate assets and capital and technology units.

In fiscal 2014 – before the energy industry downturn – it had revenue of $1.4-billion, making it third among well-cementing and pressure pumping firms behind Trican Well Service Ltd. and Calfrac Well Services Ltd. Both of those companies have undergone major cost-cutting and job cuts to cope with the severe drop in business over the past year and a half.

Sanjel said on Monday that it obtained an initial order from an Alberta court under the Companies’ Creditors Arrangement Act to help with the closing of the deals. [Tory-touted free market? Why can’t oil and gas and frac corporations take care of their own debts and businesses, why must so many of them lean on the courts that are financed by ordinary taxpayers?]

PriceWaterhouseCoopers has been appointed monitor of the Sanjel assets during the process, it said.

The company said it expects to keep operating during the CCAA proceedings. [Emphasis added]

This entry was posted in Global Frac News. Bookmark the permalink.