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- Following a strategic review of its financial position, drilling services specialist Boart Longyear (BLY) is tackling a major debt issue with massive dilution
- The result of the January review is for Boart to convert the majority of its US$900 million (around A$1.16 billion) worth of debt into company stock
- Specifically, US$795 million (around A$1.03 billion) will be converted to equity — meaning Boart lenders will control 98.5 per cent of all company shares once the recapitalisation plan is complete
- Boart told investors today the plan would strengthen its balance sheet, lower its interest expenses and support its operations and future growth
- CEO Jeff Olsen said though the agreement with the company’s creditors was a “challenging” decision to reach, it is the best possible outcome under the company’s current circumstances
- Existing eligible shareholders will have a chance to buy more shares in the company under an upcoming share purchase plan
- Boart also plans to relocate its corporate and tax domicile to the U.S., where most of its management team and employees already live
- Shares in Board have fallen almost 30 per cent today to trade at 38 cents each this afternoon
Following a strategic review of its financial position, drilling services specialist Boart Longyear (BLY) is tackling a major debt issue with massive dilution.
Shares in the company have shaved off almost a third of their value today after Boart revealed the results of its January strategic review to deal with some US$900 million (around A$1.16 billion) worth of debt.
The solution Boart and its lenders have agreed upon is to convert the majority of this debt — US$795 million (around A$1.03 billion), to be exact — into company stock.
The recapitalisation plan brings about major dilution to Boart’s total share issue and hands almost total control of the company to its lenders; once the debt has been converted to equity, lenders will own 98.5 per cent of all Boart stock.
Boart told investors today the recapitalisation plan would strengthen its balance sheet, lower its interest expenses and support its operations and future growth.
“Simply put, this recapitalisation is clearly our best path to recovery for both lenders and equity holders,” Boart Chair Kevin McArthur said.
“The independent board of directors established to oversee the process is unanimous in approval of this recapitalisation as serving the best interests of all of our stakeholders,” he said.
Boart CEO Jeff Olsen assured shareholders that the company’s underlying business is “sound”.
“Our operations are competitive, demand for our products and services is increasing, and the operating outlook is brighter than it has been in many years,” Jeff said.
“But,” he explained, “our debt level, and its servicing costs, has remained unsustainably high.”
He echoed the Chair’s thoughts, saying though the agreement with the company’s creditors was a “challenging” decision to reach, it is the best possible outcome under the company’s current circumstances.
Jeff said while the company has improved its quality of earnings and long-term competitiveness, the economic woes associated with the COVID-19 pandemic meant its debt-to-earnings ratio was still too high.
For shareholders wanting to keep a hold of as much of their interest in the company as they can, Boart is giving them a chance to buy more shares as part of the recapitalisation plan.
Eligible shareholders will have the chance to take part in a share purchase plan as the recapitlisation process begins, though the plan is capped at an aggregate US$2.5 million (around A$3.2 million).
Relocation to the States
As part of the recapitalisation plan, Boart will be relocating its corporate and tax domicile to the United States, where the majority of its management team and employees are already located.
Boart said be moving to the States, it will streamline its corporate structure, better align the business with global operations and improve its access to capital markets and a broader investment pool.
The company will keep its listing on the ASX, so local investors can continue to buy and sell shares.
Nevertheless, news of the upcoming dilution has dealt a major blow to Boart’s share price, with the company down 29.25 per cent at 3:22 pm AEST to trade at 38 cents each. Boart has a $33 million market cap.
