Shareholders Face Wipeout in Nine Energy Service Restructuring

Nine Energy Service US65441V1017

Oilfield services company Nine Energy Service has entered a critical restructuring phase after voluntarily filing for Chapter 11 bankruptcy protection. Existing equity holders are poised to suffer a total loss as the firm implements a drastic financial overhaul, a process coinciding with its removal from the New York Stock Exchange, which formally began delisting procedures last Thursday.

Despite the legal proceedings in a Texas bankruptcy court, Nine Energy Service maintains that its daily operations in the onshore oil and gas sector continue uninterrupted. The company is working to preserve supply chain stability, emphasizing that suppliers and service providers will be paid in full for post-filing obligations. This operational persistence occurs against a challenging industry backdrop characterized by declining drilling activity and softer prices. The central question remains whether the planned extreme debt reduction will be sufficient to offset these persistent sector-wide headwinds once the company emerges from Chapter 11.

A Restructuring Built on Debt-for-Equity Swap

The cornerstone of the recovery plan is a massive debt-for-equity exchange. Creditors holding more than 70% of the company’s secured notes have already agreed to a restructuring support agreement. Under this pact, these lenders will become the new owners of the reorganized business. The consequence for current shareholders is severe: the company has explicitly stated that existing shares are expected to be cancelled and rendered worthless upon the plan’s completion.

The key objectives and terms of the restructuring include:
* Accelerated Timeline: The company aims to conclude the Chapter 11 process within 45 days of its February 1 filing date.
* Debt Elimination: The plan seeks to erase approximately $320 million of secured debt from the balance sheet.
* Interest Savings: Annual cash interest expenses are projected to drop by roughly $40 million.
* Financing Package: A $125 million debtor-in-possession (DIP) facility is funding operations during bankruptcy. This DIP financing is set to convert into a $135 million exit credit facility upon court confirmation of the plan, providing capital for the relaunch.

Market Reaction and Path Forward

The financial market’s response to the filing was swift. S&P Global Ratings downgraded Nine Energy Service’s credit rating to ‘D’ on February 2, officially denoting a default. The imminent step in the process is a court hearing to confirm the restructuring plan, scheduled for later in the first quarter. If approved, the company will attempt a fresh start, leveraging its cleared balance sheet and reduced interest burden to navigate the difficult energy services landscape. For previous investors, however, the restructuring signifies a complete erosion of their equity position.

@ boerse-global.de | US65441V1017 SHAREHOLDERS