Houlihan Lokey Advises KCA Deutag (1)

Houlihan Lokey is pleased to announce the successful completion of a comprehensive balance sheet restructuring for KCA Deutag (KCA). The transaction involved a debt reduction from $1.9 billion to c. $505 million via a debt-for-equity swap, resulting in pro forma net leverage of c. 1.4x.

With more than 130 years of experience, KCA Deutag is a leading onshore and offshore drilling and engineering contractor. The company currently operates approximately 75 land drilling rigs and 31 offshore drilling strings across Canada, the North Sea, Africa, Europe, the Middle East, and Russia.

The agreed-upon transaction achieves significant deleveraging and positions KCA for future growth. Key terms are as follows (per Q3 2020 financials):

• Reduction of c. $1.4 billion of debt via equitization and reinstatement of $500 million new senior secured notes.
• Retention of access to WCF and guarantee facilities.
• Access to $225 million of super senior debt basket capacity to enhance liquidity.
• Transfer of 100% of equity ownership to KCA’s financial creditors in exchange for their converting a portion of debt claims into equity.
• Provision of equity warrants to existing shareholders for their support of the deal.

The right-sized capital structure provides KCA with improved operational flexibility to reinvest in the business and capitalize on appealing acquisition/strategic opportunities. The lower debt service cost and access to sufficient liquidity also provides the company with headroom to potentially weather ongoing sector challenges. Pro forma for the transaction and based upon Q3 FY2020 LTM financials, KCA’s net leverage decreased from c. 6.1x to c. 1.4x with a c. $106 million reduction in annual debt servicing costs.

The transaction was implemented by means of a U.K. scheme of arrangement and received recognition in the U.S. via a Chapter 15 petition. The scheme was sanctioned by the High Court on November 5, 2020, with nearly 100% of support from creditors.