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Key Energy Services, Inc.

Oilfield Services

"Key Energy Services offers clients a comprehensive and advanced array of onshore energy production services. Service offerings include workover, drilling, fluid management, frac stack and well testing, liner hanger systems, fishing and rental services, and consulting services. Key Energy Services is redefining the industry. We are using technology where none previously existed, building equipment with unmatched speed, quality and efficiency and training our people to excel. All this with one goal in mind: our customers' long-term success. Key is committed to developing the newest technologies while maintaining the highest standards of employee safety and training, all to provide customers with an unparalleled quality of service and value. Key Energy Services employs more than 8,500 people worldwide".

BDC Credit Reporter View

This oilfield services company has been weighed down by over $1bn in debt and negotiated with its lenders for months on a debt to for equity swap. Finally, on October 24th, the Company filed for bankruptcy and is expected to emerge with 75% of debt converted into equity, leaving existing shareholders with a very small position. The only BDC with exposure is TPG Specialty (TSLX), which is at a senior level in the 2020 Term Loan, currently the most senior tranche of debt outstanding. As of the September 2016 financial statements, the BDC was still marking its exposure at par. Based on the outline of Key Energy's plan to the bankruptcy judge on October 25th, the Term Loan-including TSLX-will be reduced from $288mn to $225mn principally from the proceeds of a Rights Offering that is part of the "pre-packaged" bankruptcy plan, but will continue till maturity. The subordinated debt- where no BDC has exposure- will be swapped for 95% of the equity. The current ABL Revolver has been paid off but is projected to be replaced with a new loan whose lender will have a priority security interest in the assets. There is a possibility that Term Loan lenders might need to finance the ABL or an equivalent facility i9f a new Revolver is not arranged.

The BDC Credit Reporter has a Credit Rating of 5 for the Company because it is in bankruptcy and its plan has not yet been court approved. The Company's IIIQ 2016 earnings release showed liquidity to be quickly tightening with cash down to $54mn and no ABL availability. Moreover, "Adjusted EBITDA" generation was negative. The Credit Trend remains unchanged until further clarity on the court's approval of the Plan occurs. The good news for TSLX is that its own risk of loss is low at this point, as reflected in the mark given a Plan that includes debt pay-down of the Term Loan, a huge reduction in total indebtedness and new equity commitments. However, there is still a slim risk that deteriorating business conditions and/or bankruptcy delays could cause a Chapter 11 to become a Chapter 7, but even then recovery is likely to be high for the Term Loan lenders. However, further down the road with additional debt coming on above the Term Loan, should the Company stumble losses could yet occur at the Term Loan level. As a result, even if the Company completes its "Debt For Equity" swap, this will remain on the Watch List.