Alberta Investment Management Corp (AIMCo) has agreed to provide a $200 million second lien senior secured term loan facility to Savanna Energy Services Corp (TSX: SVY), a Calgary-based contract drilling and oilfield services company operating in North America and Australia. AIMCo also agreed to provide a private placement that will generate gross proceeds of about $18.8 million. The funds raised by the company will be used in part to reduce indebtedness. In a separate release, AIMCo CEO Kevin Uebelein said the deal will give Savanna the “flexibility to weather this current market downturn” and allow it to “position for future growth.”
Savanna Announces Concurrent Debt Financing, Private Placement and Bought Deal Financing
CALGARY, ALBERTA–(Marketwired – Nov. 22, 2016) –
Savanna Energy Services Corp. (“Savanna”) (TSX:SVY) is pleased to announce that it has entered into agreements with Alberta Investment Management Corporation (“AIMCo”) providing for a $200 million second lien senior secured term loan facility and a private placement (the “Private Placement”) of 13,000,000 common shares of Savanna (“Common Shares”) at a price of $1.45 per Common Share for gross proceeds of $18,850,000.
Savanna has concurrently entered into an agreement with a syndicate of underwriters (the “Underwriters”) led by Peters & Co. Limited, pursuant to which the Underwriters have agreed to purchase, on a bought deal basis, 13,000,000 Common Shares at a price of $1.45 per Common Share for aggregate gross proceeds of $18,850,000 (the “Bought Deal Financing”). Savanna has also granted the Underwriters an option to purchase up to an additional 1,950,000 Common Shares to cover over-allotments, if any, exercisable in whole or in part at any time until 30 days after the date of closing of the Bought Deal Financing, on the same terms as the Bought Deal Financing.
Second Lien Facility
AIMCo has agreed to provide Savanna a $200 million second lien senior secured term loan facility (the “Term Loan”). The Term Loan will mature on December 31, 2021 and will bear interest at the rate of 7.15% per annum, paid semi-annually. Amortization payments equal to 1% of the original principal amount will be payable annually, in equal quarterly installments, with the balance due on the final maturity date. The proceeds from the Term Loan will be made available in two draws, and amounts borrowed under the Term Loan that are repaid or prepaid will not be available for reborrowing. Savanna may not prepay the Term Loan prior to the second anniversary thereof, except with payment of a make-whole premium. At any time following the second anniversary of the Term Loan and prior to the third anniversary, Savanna may prepay the Term Loan at a premium equal to 105% of the principal amount repaid. Thereafter, Savanna may prepay the Term Loan with no prepayment premium.
In conjunction with the funding of the Term Loan, Savanna has agreed to issue to AIMCo, on first draw under the Term Loan, an aggregate of 7 million warrants to purchase Common Shares, entitling AIMCo to acquire up to 7 million Common Shares at an exercise price per Common Share equal to a 45% premium to the volume weighted average price of the Common Shares for the 5 trading days ended prior to the date of issue of the warrants, at any time prior to 2 years following the date of issue of the warrants. Provided the volume weighted average price of the Common Shares is greater than the exercise price of the warrants for 60 consecutive calendar days, Savanna will have the option to require AIMCo to exercise all or any portion of the warrants at any time thereafter and from time to time.
Closing of the Term Loan is subject to certain conditions, including the concurrent closing of the Private Placement and the Bought Deal Financing.
Savanna has also entered into an agreement with AIMCo whereby AIMCo has committed to subscribe for, on a private placement basis, 13,000,000 Common Shares at a price of $1.45 per Common Share for aggregate gross proceeds of $18,850,000. Completion of the Private Placement is subject to certain conditions, including the receipt of all necessary regulatory approvals (including the Toronto Stock Exchange) and the concurrent closing of the Bought Deal Financing and the Term Loan.
Pro forma the Private Placement and Bought Deal Financing, AIMCo will own approximately 11% of the outstanding Common Shares (16% if the warrants are exercised in full).
Peters & Co. Limited acted as financial advisor to Savanna in connection with the AIMCo financings.
Bought Deal Financing
Savanna has entered into an agreement for a $18,850,000 bought deal financing through a syndicate of Underwriters led by Peters & Co. Limited pursuant to which the Underwriters have agreed to purchase, on a bought deal basis, 13,000,000 Common Shares at a price of $1.45 per Common Share for aggregate gross proceeds of $18,850,000. Savanna has also granted the Underwriters an option to purchase up to an additional 1,950,000 Common Shares to cover over-allotments, if any, exercisable in whole or in part at any time until 30 days after the date of closing of the Bought Deal Financing.
The Common Shares will be distributed by way of a short form prospectus in all provinces of Canada and in the United States and certain other jurisdictions as Savanna and the Underwriters may agree on a private placement basis. Completion of the Bought Deal Financing is subject to certain conditions, including the receipt of all necessary regulatory approvals (including the Toronto Stock Exchange) and the concurrent closing of the Term Loan and Private Placement.
Closing of the AIMCo financings and Bought Deal Financing are expected to occur on or about December 15, 2016. The net proceeds of the AIMCo financings and Bought Deal Financing are expected to be used by Savanna to reduce indebtedness and for general corporate purposes.
In addition to the AIMCo financings and Bought Deal Financing, Savanna recently secured a $17 million mortgage with the Business Development Bank of Canada on Savanna’s operating facility in Leduc. The currently undrawn mortgage matures on December 31, 2041 and bears interest at 4.95%.
Savanna has also negotiated the repurchase of approximately $62.5 million of its 7.00% senior unsecured notes due May 25, 2018 (the “Notes”) at a price of 101% of the principal amount thereof, which will leave approximately $107.1 million of Notes outstanding. The Notes are currently redeemable at 101.75% of the principal amount thereof. After May 25, 2017, the Notes will be redeemable at par. Savanna intends to continue to assess opportunities to repurchase the remainder of its Notes if they become available at a price that Savanna finds advantageous, but otherwise expects to redeem the remainder of the Notes on or about May 25, 2017. The final redemption of Notes is expected to be financed primarily through the second draw of the Term Loan.
Commenting on the financings, Chris Strong, President and Chief Executive Officer of Savanna said, “As the industry entered into a downturn two years ago, Savanna was aggressive and early in making changes to its cost structure. Since the beginning of 2015, we reduced the company’s debt by nearly $100 million resulting in some of the better credit metrics in the industry. While we anticipate a recovery with higher utilization in 2017, we do not believe it will necessarily drive higher year over year cash flows because pricing will take more time to rebound and some of our term contracts have rolled into the spot market. As a result of this view of the market and in recognition of the relatively near term maturity of our senior unsecured notes, management and the board of directors again decided to take action rather than delay and hope for a rapid recovery. We are very pleased AIMCo chose to partner with us on this transaction, which we believe is a comprehensive restructuring of our balance sheet. Relative to other options we considered, we believe it provides the best opportunity for our shareholders to participate in a recovery with a considerably reduced risk profile.”
Savanna is a leading contract drilling and oilfield services company operating in North America and Australia providing a broad range of drilling, well servicing and related services with a focus on fit for purpose technologies and industry-leading Aboriginal relationships.
About Alberta Investment Management Corporation (AIMCo)
AIMCo is one of Canada’s largest and most diversified institutional investment managers with more than CDN$90 billion of assets under management. AIMCo was established on January 1, 2008 with a mandate to provide superior long-term investment results for its clients. AIMCo operates at arms-length from the Government of Alberta and invests globally on behalf of 31 pension, endowment and government funds in the Province of Alberta.
This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “may”, “will”, “project”, “should”, “believe”, “plans”, “intends” and similar expressions are intended to identify forward-looking information or statements. More particularly and without limitation, this press release contains forward-looking statements and information relating to the expected closing date of the AIMCo financings and Bought Deal Financing, the use of proceeds thereof, the repurchase of approximately $62.5 million of Notes, the potential opportunity to repurchase additional Notes and the expected redemption of all remaining Notes and the expected industry recovery with higher utilization in 2017 and the impact of such recovery on Savanna. These forward-looking statements and information are based on certain key expectations and assumptions made by Savanna, including the assumption that Savanna will be able to obtain all regulatory approvals for the financings. Although Savanna believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information as Savanna cannot give any assurance that they will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the inability to obtain regulatory approvals, risks associated with general economic conditions, the demand for Savanna’s services, volatility in market prices for oil and natural gas and the effect of this volatility on the demand for oilfield services generally, currency exchange rate risk, compliance with covenants and/or repayment obligations under Savanna’s credit facilities and senior note indenture, changes in legislation, dependence on, and concentration of, major customers, and the creditworthiness and performance by the Company’s counterparties and customers.
Readers are cautioned that the foregoing list of risks and uncertainties is not exhaustive. Additional information on these and other risk factors that could affect Savanna’s operations or financial results are included in Savanna’s annual information form and may be accessed through the SEDAR website (www.sedar.com). The forward-looking statements and information contained in this press release are made as of the date hereof and Savanna does not undertake any obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
The securities referenced herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended, or any state securities laws. This press release is not an offer of any securities for sale in the United States. The securities may not be offered or sold in the United States absent registration or an exemption from registration. The securities will not be publicly offered in the United States.
Savanna Energy Services Corp.
President and Chief Executive Officer
Savanna Energy Services Corp.
Vice President, Finance
Photo courtesy of Savanna Energy Services Corp