US firm saves Boart from financial hole

Embattled drilling services company Boart Longyear has been bailed out by US equity firm Centerbridge, in a deal worth up to $400m.

Drilling down: Without the financial help, Boart may have gone under early next year.

Centerbridge, already Boart’s biggest individual shareholder with a 19.9% stake and a board seat, will replace banks as the company’s key lender, in exchange for an increase of shareholding to 41.6%.

Boart will transfer its debt – currently held by banks – to a “covenant-lite” term loan with Centerbridge. A covenant-lite agreement typically does not contain the usual protective covenants aimed at protecting the lender, and is therefore less likely to cause the borrower to default on the loan.

As part of the transaction, Boart shareholders are able to buy more shares in the company at a rights-offer price of US13.5c a share, or they can sell some or all of their shares into a buy back at that same value.

Boart chief executive Richard O’Brien said the Centerbridge deal was “by far the best option” for the company to avoid defaulting on its bank loan.

“The recapitalisation is an important step forward for Boart Longyear and its shareholders,” he said.

“We are preserving our existing shareholders’ opportunity to participate in the future prospects of the company and the improving future margin potential to be released when our markets do improve and we reap the benefit of the significant cost and efficiency actions the company has taken over the past 18 months.”

Boart anticipates the deal will provide it with “significant liquidity to better weather the challenges of the current depressed markets” for its drilling services and products, O’Brien said.

“We believe this transaction with Centerbridge … will ensure that the Boart Longyear franchise, which will have been operating for 125 years next year, remains fundamentally strong and valuable.”

The loan is evidence that Centerbridge believes Boart can come good in the long run, despite its ongoing struggles in the past 18 months.

Boart has seen its stock price fall from $2 at the start of 2013 to around 25c this week; although the current price is up from where it was prior to the refinancing announcement, when it was just below 20c.

The drilling company has struggled with dropping revenue in the wake of the ended mining boom.

Centerbridge senior managing director Jonathan Lewinsohn said the investment firm believes Boart will bounce back.

“We believe this transaction will provide a solid base for the company to work towards its goal of sustaining profitability through the mineral exploration cycle,” Lewinsohn said late last week.