Canada's Calfrac to issue equity to meet required debt ratio

Wed Dec 16, 2015 11:56am EST
 
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TORONTO Dec 16 (Reuters) - Canadian oilfield services provider Calfrac Well Services Ltd said on Wednesday it is raising C$27.5 million via an equity issue aimed at shoring up a key debt ratio, underscoring the level of pressure on energy sector companies hit by slumping oil and gas prices.

The Calgary-based company said the proceeds of the offering will help it meet its required leverage ratios. Earlier this week, Calfrac entered into an agreement with its syndicate of lenders to make certain amendments to its credit facilities in order to provide it with greater financial flexibility.

The offering dubbed an 'equity cure' will let the company maintain a specified funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio.

If the net proceeds are not utilized as an 'equity cure', it is expected that they will be used by Calfrac to fund capital expenditures, to reduce its outstanding indebtedness, or for general working capital and corporate purposes.

"Overall, the timing of the issuance seems sudden, but we understand the rationale," said Evercore analyst James West in a note to clients. "Calfrac is taking decisive action to bolster its status as a going concern. The dilution from the equity raise is offset by the removal of the covenant breach overhang."

Oilfield services providers have been hurt as energy companies have slashed overall costs and have mothballed projects, as they scramble to deal with depressed oil and gas prices currently hovering around 11- and 15-year lows, respectively.

Earlier this week, Canadian oil and natural gas producer Encana Corp slashed its dividend by about 79 percent and its 2016 capital budget by more than a quarter. This came just days after its rival Cenovus Energy Inc said it expects its capital spending to be 19 percent less next year than in 2015.

Calfrac said it top single shareholder, Matco Investments Ltd, will participate in the offering to at least maintain its current ownership at 20.45 percent.

The lead underwriter on the deal Peters & Co, along with a syndicate of other firms is purchasing 20.37 million shares in Calfrac at C$1.35 a share, guaranteeing the company gross proceeds of about C$27.5 million.

Investors cheered Calfrac's move to shore up its finances by sending its shares up 6 percent to C$1.60 on the TSX.

($1 = 1.3752 Canadian dollars) (Reporting by Euan Rocha; Editing by David Gregorio)