DBRS Comments on Western Energy Services Corp. Announcement of Debt Financing, Private Placement and Bought Deal Financing

DBRS Limited (DBRS) notes that on September 22, 2016, Western Energy Services Corp. (Western or the Company; rated B (low) with Stable trends) announced that it had entered into agreements with Alberta Investment Management Corporation (AIMCo) for (1) a $215 million second lien senior secured term loan facility (the Term Loan) and (2) a private placement of common shares for gross proceeds of $11.4 million. Concurrently, Western also entered into an agreement with a syndicate of underwriters to sell, on a bought deal basis, common share for gross proceeds of $11.4 million. Combined, the equity financings could raise up to $22.8 million in gross proceeds for Western. The above transactions are subject to certain conditions and are expected to close concurrently on or about October 17, 2017. Western intends to use the proceeds from the above transactions to redeem Western’s outstanding senior unsecured notes (the Senior Notes) after January 30, 2018, at which time the Senior Notes will be redeemable at par.

The Term Loan matures five years from the date that Western elects to draw the funds, and is available in a single draw. It bears an interest rate of 7.25% per annum with amortization payments equal to 1% of the original principal amount payable annually, in equal quarterly installments beginning July 1, 2018, with the balance due on maturity. Western has also agreed to issue to AIMCo, on closing of the Term Loan, warrants to purchase common shares. The exercise price will be equal to a 45% premium to the volume weighted-average price of the common shares for the five trading days ended prior to the date of issue of the warrants, at any time prior to three years following the date of issue of the warrants. Western retains the option to require AIMCo to exercise all or any portion of the warrants if the volume weighted-average price of the common shares is greater than the exercise price of the warrants for 60 consecutive calendar days. At close, AIMCo will own approximately 10% of the outstanding common shares (16% if the warrants are exercised in full).

Subject to successful completion, the cash proceeds from the equity financings are expected to improve the liquidity profile of the Company and the Term Loan is expected to improve the Company’s debt maturity profile. The Company is also expected to benefit from lower interest expense as the interest rate on the Term loan is marginally lower than the interest rate on the Senior Notes. The transactions provide Western with a strong strategic investor in AIMCo with a possibility of additional equity injections in the medium term. Overall, DBRS view the transactions as credit positive, but not enough to have an immediate impact on Western’s overall credit ratings.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Companies in the Oil & Gas and Oilfield Services Industries, which can be found on dbrs.com under Methodologies.