FTS International (FTSI) Bankruptcy Is Imminent

 FTS International is a fracking company. The shale oil companies hire them to frack their new wells. Shale oil wells produce very little oil without fracking and then in a predictable diminishing pattern. This requires that shale oil companies must be ever drilling new wells and those wells must be fracked. The sudden impact of oil prices falling has shocked the shale oil companies and they virtually stopped drilling and fracking. Thus FTS' business fell off a cliff - for now.


FTS is about to file for bankruptcy protection. On August 24th they announced they had signed a Restructuring Support Agreement (RSA) with a majority of their debt holders. The RSA binds the signers to work together to achieve the following milestones:
Bankruptcy filing: Sep 15
Judge confirms plan: Nov 14
Plan becomes effective: Nov 29

So the bankruptcy should be over by the end of November. Things can go wrong but it is in everyone's interest to minimize how long it takes as protracted restructurings just increase the legal costs.

The current capital structure of FTS (millions):
Cash: 193
Priority Bank Debt: 0
Term loan: 67
Secured bonds: 370 (price: 39)
Stock: 27 (price: 4.95)

The secured bonds are just one issue: 6.25% Senior Notes due 5/1/22 (CUSIP: 30283WAB0) and will be treated as the same class as the Term Loan.

The RSA sets forth the terms:

Term Loan and bond holders get $31 million in cash (equivalent to 7 cents per face dollar) and 90.1% of the new stock with a total equity of $360 million for the company. Equivalent to a bond price of 81. However, stockholders are getting some of the company so, by law, they must show that the bondholders will end up getting 100 cents per dollar of face value.

Stockholders get 9.9% of the new stock, the right to purchase an additional 10% of the stock at 6.60/share, and three-year warrants for an additional 30% of the stock of its price rises sufficiently that the bondholders get 110% of their face value.

I estimate the bonds, selling at 39, will be turned into cash and stock equivalent to the bonds at 63 by mid-December. A 60% return in 3 months.

As the oil market returns to normalcy the return will increase. If FTS reaches just half its historical average cash flows the investment would at least triple to the equivalent of the current bonds at 180. If that happens within three years, the current stockholders will have fared better than the current bondholders as their warrants would then be significantly "in-the-money."

Most of this comes from the SEC filing for the RSA. Scroll to the bottom for links to the RSA its self, the press release, and "cleansing material" of facts and a presentation of the situation and estimates going forward.

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