Business Context and Reporting Period
This Form 8-K Current Report was filed by Nine Energy Service, Inc. on October 18, 2018. The filing discloses the entry into a Material Definitive Agreement regarding a new debt offering and its intended use in funding a pending acquisition.
Key Financial Metrics and Transaction Details
- Debt Issuance: The Company agreed to issue and sell $400.0 million in aggregate principal amount of 8.750% senior unsecured notes due 2023.
- Proceeds: The Notes were priced at par, resulting in net proceeds of approximately $392.0 million after deducting the initial purchasers' discount.
- Expected Closing: The offering is expected to close on or about October 25, 2018.
- Interim Financing: Initial Purchasers have agreed to provide interim financing of $400.0 million if the offering is not consummated.
Material Changes and Use of Proceeds
The Company intends to use the proceeds from the Notes, combined with cash on hand and borrowings under a new credit facility, for the following purposes:
- Fully repay and terminate term loan borrowings and outstanding revolving credit commitments under the Existing Credit Facility.
- Fund the upfront cash purchase price for the pending acquisition of Magnum Oil Tools International, LTD (the "Magnum Acquisition").
- Pay transaction fees and expenses.
Redemption Condition: If the Magnum Acquisition is not consummated by November 30, 2018, or if the purchase agreement is terminated prior to that date, the Notes will be redeemed at 100% of the issue price plus accrued and unpaid interest.
Outlook, Risks, and Contingencies
- Acquisition Contingency: The debt issuance is directly tied to the consummation of the Magnum Acquisition. Failure to close the acquisition by the specified deadline triggers a mandatory redemption of the Notes.
- Lock-Up Period: The Company and Guarantors are restricted from offering or selling other debt securities with a tenor of more than one year for 60 days following the Purchase Agreement date without consent.
- Related Party Transactions: Affiliates of the Initial Purchasers (JPMorgan Chase Bank, N.A., Goldman Sachs Bank USA, and Wells Fargo Bank, National Association) are lenders under the Existing Credit Facility and will receive a portion of the proceeds to repay that facility. They are also expected to serve in comparable capacities under the New Credit Facility.
Investor Verification Checklist
- Verify the closing status of the $400.0 million Notes offering by October 25, 2018.
- Monitor the progress of the Magnum Acquisition to ensure it closes before the November 30, 2018 redemption deadline.
- Review the terms of the New Credit Facility to be entered into in connection with the acquisition.
- Confirm the repayment of the Existing Credit Facility upon closing of the transaction.