C&J Energy Services Inc. (NYSE: CJES) has revised the debt structure to finance the proposed combination of C&J with the completion and production services business of Nabors Industries Ltd. (NYSE: NBR).
At the time of signing the definitive agreement for the proposed transaction, C&J had obtained commitments from certain financial institutions to provide debt financing in an amount sufficient to fund the cash portion of the consideration to be paid to Nabors at the closing of the transaction.
The proposed transaction remains fully financed under the revised debt structure and is expected to close by the end of March, subject to approval by C&J stockholders and other customary closing conditions.
Under the revised arrangement, C&J has elected to finance the proposed transaction with term loans and borrowings under its new revolving credit facility, which allows the company to maintain future liquidity at the same interest rates that were expected to apply to the revolving credit facility when the transaction was announced in 2014. Specifically, the revised debt structure is expected to include the same $600 million revolver (with an estimated $92 million drawn at the closing of the proposed transaction) that was previously announced, along with an increased term loan B comprising a $510 million term loan B-1 expected to mature five years after closing and a $550 million term loan B-2 expected to mature seven years after closing, thereby eliminating the need for a high-yield offering. C&J calculates that the all-in yield (inclusive of the applicable margin, upfront fees, and issue price) for the new term loans at the closing date should not exceed 8.25% yield to maturity and that the interest rate margins under the revolving credit facility will remain the same as originally announced. The covenant package and aggregate interest expense under the revised debt structure remains substantially consistent with the original term loan covenant package and aggregate interest expense.
“We are pleased with this all-loan financing structure, which reflects a very favorable revision to the committed financing structure in light of current market conditions,” said Josh Comstock, founder, chairman and CEO of C&J Energy. “This enhanced debt structure is expected to provide our combined company with significant financial flexibility as we manage through a challenging time for our industry. The covenant package will allow us to use our cash flow to optimize our liquidity position and aggressively manage our debt, while maintaining a strong balance sheet. Additionally, we believe this will strongly position us to take advantage of future market improvements and strategic industry opportunities as we continue to focus on executing our long-term growth strategy and maximizing value for all of our shareholders.”