| Item 1.01 | Entry into a Material Definitive Agreement. |
On September 25, 2018, Basic Energy Services, Inc. (the “Company”) and certain subsidiary guarantors named therein (the “Guarantors,” and together with the Company, the “Issuers”) entered into a Purchase Agreement (the “Purchase Agreement”), by and among the Issuers, Merrill Lynch, Pierce, Fenner & Smith Incorporated and certain other initial purchasers party thereto (the “Initial Purchasers”), which provides for the sale by the Company of $300,000,000 aggregate principal amount of its 10.75% Senior Secured Notes due 2023 (the “Notes”) to the Initial Purchasers (the “Offering”). The Notes will initially be jointly and severally, fully and unconditionally guaranteed (the “Guarantees”) on a senior secured basis by the Guarantors. The Purchase Agreement contains customary representations and warranties of the parties and indemnification and contribution provisions whereby the Issuers, on the one hand, and the Initial Purchasers, on the other hand, have agreed to indemnify each other against certain liabilities.
The purchase price for the Notes is 99.042% of their principal amount. The net proceeds from the Offering will be approximately $290.0 million after discounts and estimated offering expenses. The Company intends to use the net proceeds from the Offering, after discounts and estimated offering expenses, to repay and terminate its Amended and Restated Term Loan Agreement, including associated repayment penalties of approximately $17.5 million, and repay the outstanding borrowings under its asset-based receivables facility, with the remainder to be used for general corporate purposes.
The Notes and the Guarantees will be issued pursuant to an indenture (the “Indenture”), to be dated October 2, 2018, by and among the Issuers and UMB Bank, N.A., as trustee (the “Trustee”). The obligations under the Indenture will be secured as set forth in the Indenture and in a Security Agreement, to be dated October 2, 2018, by and among the Issuers in favor of the Trustee, by first-priority liens, subject to limited exceptions, on the collateral securing the Notes, consisting of substantially all of the property and assets now owned or hereafter acquired by the Issuers, other than certain of the Issuers’ assets, including but not limited to accounts receivable, inventory and certain related assets.
The Initial Purchasers intend to resell the Notes and Guarantees (i) inside the United States to persons reasonably believed to be “qualified institutional buyers,” as defined in Rule 144A (“Rule 144A”) under the Securities Act of 1933, as amended (the “Securities Act”), in private sales exempt from registration under the Securities Act in accordance with Rule 144A, and (ii) to other eligible purchasers pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act (“Regulation S”) in accordance with Regulation S. The Notes and Guarantees have not been registered under the Securities Act or applicable state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state laws.
Relationships
The Initial Purchasers and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the initial purchasers and their respective affiliates have, from time to time, engaged in, and may in the future engage in, various investment banking, financial advisory services and other commercial dealings in the ordinary course of business with us for which they have received, or may in the future receive, customary fees and commissions for these transactions. Certain of the Initial Purchasers or their affiliates that have a lending relationship with the Company hedge their credit exposure to the Company consistent with their customary risk management policies. Typically, such Initial Purchasers and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in Company securities, including potentially the Notes offered pursuant to the Offering. Any such short positions could adversely affect future trading prices of the Notes offered pursuant to the Offering. Affiliates of certain Initial Purchasers are lenders under the Company’s asset-based receivables facility and, accordingly, will receive a portion of the net proceeds of the Offering. As of June 30, 2018, the Company had total capital leases of approximately $85.3 million, approximately $13.2 million of which were with Banc of America Leasing & Capital, LLC, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
In addition, the Issuers have agreed with the Initial Purchasers not to offer or sell any debt securities having a tenor of more than one year (other than the Notes) for a period of 60 days after the date of the Purchase Agreement without the prior consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
