We believe Boart Longyear (BLY on the ASX) will restructure after discovering the WHOIS record for blyrestructuring.com. As a reminder, we search new WHOIS registrations for these new websites.

bly-whois

Additionally, the header listed on the website states “Boart Longyear TM”. Ironically, this website was registered the same day as S&P credit ratings were updated, with the corporate credit rating remaining at CCC+ and outlook remaining stable.

A bit about the company from their corporate website:

Headquartered in Salt Lake City, Utah, USA, and listed on the Australian Securities Exchange (ASX) in Sydney, Australia, Boart Longyear has a corporate profile of being the world’s leading provider of drilling services, drilling equipment, and performance tooling for mining and drilling companies globally. We also have a substantial presence in aftermarket parts and service, energy, mine de-watering, oil sands exploration, and production drilling.

The Global Drilling Services division operates in over 30 countries for a diverse mining customer base, spanning a wide range of commodities, including copper, gold, nickel, zinc, uranium, and other metals and minerals. The Global Products division designs, manufactures, and sells, drilling equipment, performance tooling, and aftermarket parts and services to customers in over 100 countries.

Boart Longyear’s capital structure is as follows:

$195mm Senior Secured Notes at 10% due 10/1/2018 with the following liens provisions:

Second lien on the accounts receivable, inventories, deposit accounts and cash (“Working Capital Assets”) of the Term Loan B and 10% Secured Notes guarantors that are not ABL guarantors, a third lien on the Working Capital Assets of the Term Loan B and 10% Secured Notes issuer and the Term Loan B and 10% Secured Notes guarantors that are also ABL guarantors, and a first lien on substantially all of the Non-Working Capital Assets of the Term Loan B and 10% Secured Notes issuer and guarantors, including equipment, intellectual property, the capital stock of subsidiaries and certain owned real property.

$105mm TL-B at 12% due 10/1/2018 with the same security provisions as the Senior Secured Notes

$84mm TL-A at 12% due 10/22/2020 with a the following liens:

First lien on the Working Capital Assets of the Term Loan A guarantors that are not ABL guarantors, a second lien on the Working Capital Assets of the Term Loan A issuer and the Term Loan A guarantors that are also ABL guarantors, and a second lien on substantially all of the NonWorking Capital Assets of the Term Loan A issuer and guarantors, including equipment, intellectual property, the capital stock of subsidiaries and certain owned real property.

$284mm Senior Unsecured Notes at 7% due 4/1/2021

Additionally, the company has a $40mm ABL facility due in 5/2020 which accelerates to 2018 (ahead of the bonds and TL-B) if the Secured Bonds and TL-B have not been refinanced by July 2018.

Boart Longyear actually completed a previous restructuring in January 2015 with Centerbridge. Below is a Summary of the previous restructuring:

  • Term Loans: In October and November 2014, the Company received $225.0 million of term loans that accrete interest at a rate of 12% per annum and does not require financial maintenance covenants. The proceeds of the term loans were used to refinance the Company’s prior revolving credit facility, of which $30.0 million was drawn at the time of repayment, and to repurchase $105.0 million of the Company’s existing 10.0% Senior Secured Notes.

  • Equity Placements: The Company issued two equity placements directly to Centerbridge totaling approximately $27.2 million, the first in October 2014 and the second in December 2014.

  • Rights Offering: In January 2015, the Company completed a pro-rata traditional renounceable rights offering and received additional proceeds of A$106.2 million.

  • Share Buyback – In January 2015, the Company acquired approximately 7.5 million fully paid ordinary shares at A$0.165 per share pursuant to the off-market buyback, canceled the shares and subsequently sold an equivalent number of new shares to Centerbridge for the same price per share.

  • Equitisation of Debt – The Company completed a $16.0 million equitisation of its 7.0% Senior Unsecured Notes, held by Centerbridge, its affiliates and related funds through the issuance of approximately 102.8 million shares.

Following the completion of the recapitalisation transactions, Centerbridge’s holding in the Company increased to 49.9% of the Company’s voting shares.

However, even after the recapitalization (which actually did not reduce net debt by much), the company has struggled to be profitable in the last few years in an era of lower natural resource prices. EBITDA was -$82.9MM and -$115.3MM in 2014 and 2015, respectively. The company also has not generated cash from operations in the last few years, with cash from operating activities of -11.3MM and -54.9MM in 2014 and 2015, respectively.

Additionally, Jeff Olsen, Boart Longyear’s CEO in Half-Year Results Report on August 22nd, 2016 mentioned they are exploring restructuring options:

Our objective is to be cash positive in 2017 through continued improvements in operating performance combined with better volumes from an improving market. In addition, we will continue to focus on at-site drilling technologies and leading our industry in safety performance. This is also a good time to evaluate capital structure options, and this work has already begun with the appointment of a team of advisors including restructuring specialist, Houlihan Lokey.

Q3 Results released November 17th have not improved, it is very easy to see that there is too much debt on this business:

bly-q3

In the Q3 “Review of Restructuring Alternatives” Section, the company stated:

Liquidity at 30 September 2016 was $59 million, comprised of cash balances totalling $53 million and a further $6 million of availability under the Company’s assetbased loan facility. The Company will provide further updates to the market concerning the status of the restructuring process when important developments occur.

Approximate prices of securities are as follows:

  • Common Equity $0.12 AUD for a MKT capitalization of $113MM. We believe the equity will be wiped out in a restructuring. Ironically, the equity is up roughly 90% this year, granted liquidity is limited.
  • $284MM 7% Senior Unsecured Notes are illiquid but currently quoted around 17 cents. We believe these will be a zero.
  • $195MM 10% Senior Notes trading around 78 cents. This is where the valuation fight will be held. This business requires a fair amount of working capital, so depending on the size of the DIP and negotiations between Centerbridge and holders of the Senior Secured Notes (and depending on how much Centerbridge owns), the recovery on this piece of paper could vary widely. We would have to do more digging into the covenants and we have reached out to IR, but as of now we would not want to own these in the high 70s. During a restructuring we believe these could trade into the low 50s.
  • We do not have a quoted price for the TLs, but we image Centerbridge will attempt to own the business though these securities, provide the DIP, and give a maybe 15-20% of the business plus warrants to the Senior Secured Note Holders.

We will provide additional updates as we do more work, but we believe the common equity and unsecured will be worth close to zero in a restructuring, which we view as imminent - especially given the recent website registration of blyrestructuring.com.

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