Boart Longyear, world’s biggest provider of drilling equipment and services, had been hit hard by the recent global slowdown in mining. The company — which is based in Utah but whose stock is traded on the Australian exchange — has been teetering on the brink due to mining companies slashing their exploration spending due to falling commodity prices and weaker demand.
Last February, the company was $600 million in debt and falling fast. The situation was so dire that it hired restructuring advisors Goldman Sachs to explore its last-gasp options to avoid insolvency.
But Boart Longyear found an unlikely savior this week as its biggest shareh0lder — New York-based private equity investor Centerbridge Partners LP — stepped up to the plate and signed a $352 million deal to restructure debt and raise equity.
US Company Comes Up with the Cash
Centerbridge Partneres will replace Boart’s covenant-laden bank debt with a new $120 million “covenant-lite” loan. Additional loans of up to $105 million will be available to fund a senor secured notes tender offer. Plus, Boart plans to raise an additional $119 million to $127 million through a series of equity moves, according to a filing with the Australian Securities Exchange.
Cambridge is carrying out “a comprehensive recapitalisation plan that improves the debt structure and liquidity of the company,” the investment firm said in a prepared statement.
The company says the plan will raise total liquidity to about $240 million and reduce debt by $120 million. That should be enough to get the company over the hump until the global mining sector picks back up, according to Boart’s CEO, Richard O’Brien.
“The recapitalization is an important step forward for Boart Longyear and its shareholders,” O’Brien told Business Spectator. “We anticipate the recapitalization will provide the company with significant liquidity to better weather the challenges of the current depressed markets for our drilling services and products and the financial strength to allow more time for those markets to recover.”
Investment Firm Gains 20% Stake
As a result of the restructuring plan, Centerbridge is now a 20% owner of the drilling company. In a statement, Boart emphasized that “the recapitalisation reflects a partnership between the Company and Centerbridge and is not a change of control transaction.” However, a member of Centerbrige will be promoted to Boart’s board of directors and the investment firm has the potential to hold out of the ten board seats.
At one time, the 124-year-old Boart was one of the most profitable investments in the mining industry as mining companies launched new projects everywhere from the dense jungles of Africa to the arid plains of Mongolia’s Gobi desert. At its peak, the company’s stock traded for more than $22.00 per share. Now it is worth about $0.15/share.
Decline in Demand for Mined Commodities
The global demand for coal, gold and other mined commodities has decreased due to China’s cooling economy. Mining also was hurt by the US’s move to taper its bond-buying programs. And the first budgets to be cut at such mining giants as BHP Bilion and Rio Tinto were for new exploration. Most mining companies today are opting to conserve cash rather than invest money in exploring new deposits of iron ore and other commodities.
Currently, only about 40% of Boartman’s drilling rigs are in use.