Oilfield Co. Calfrac Files For Ch. 15 After Canadian Insolvency

By Vince Sullivan
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Law360 (July 14, 2020, 10:02 PM EDT) -- Oilfield services provider Calfrac Well Services Corp. filed a Chapter 15 petition in Texas bankruptcy court Tuesday, a day after it commenced a Canadian insolvency proceeding as a way to deleverage its balance sheet amid the COVID-19 pandemic and what it characterized as a global energy price war.

In initial court filings, the Calgary-based company said recent drops in demand for fossil fuel due to the outbreak and cratering energy commodity prices have led Calfrac's customers to slash their operational expenditures. Foreign representative Ronald P. Mathison said in a first-day declaration that those expenditure cuts have in turn caused a reduction in demand for the debtor's services, which include fracking services in the U.S., Canada, Russia and Argentina.

"Due to the COVID-19 global pandemic and the ensuing [Organization of the Petroleum Exporting Countries] oil price war, oil prices fell to historic lows, including negative prices in certain markets, and as a result, well completion activity in North America declined by almost 90% and was completely shut down in Argentina by a mandatory government decree," the declaration said.

Those market conditions came on the heels of the debtor's February exchange of unsecured notes, which converted $218 million of those notes into $120 million of second-lien secured note debt for Calfrac, the declaration said. After the exchange, Calfrac was left with a $173 million senior secured credit facility, $120 million in second-lien secured notes and $431 million in unsecured notes.

Through the Canadian insolvency proceeding, Calfrac is seeking to complete a recapitalization transaction that will wipe out the unsecured note debt and reduce annual debt interest obligations by $36 million, Mathison said. Secured creditors are not expected to be impacted by the deal.

Calfrac missed a June interest payment on its unsecured note debt that required it to pay more than $18 million to its noteholders, and the 30-day grace period associated with the payment was set to expire Wednesday, prompting the filing of the Canadian proceeding, the declaration said.

Calfrac was formed in 1999 in Calgary with a single coiled tubing unit in Alberta and quickly began expanding, growing to seven fracturing units and six coiled tubing units. In 2002, it made its first foray into the U.S. with operations in Platteville, Colorado, Mathison said.

By 2011, Calfrac had expanded internationally into Russia, Mexico, Argentina and Colombia while also continuing to grow its American presence. In recent years, it has withdrawn from Colombia and Mexico and shifted its focus to the U.S., Russia and Canada.

A hearing to consider recognition of the Canadian case as a foreign main proceeding is scheduled for Aug. 25 before U.S. Bankruptcy Judge David R. Jones, who granted initial provisional relief at a hearing Tuesday morning.

Calfrac is represented in the Chapter 15 proceeding by Caroline A. Reckler and Adam J. Goldberg of Latham & Watkins LLP and John F. Higgins and Eric M. English of Porter Hedges LLP.

The case is In re: Calfrac Well Services Corp., et al., case number 20-33529, in the U.S. Bankruptcy Court for the Southern District of Texas.

--Editing by Alanna Weissman.

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