Tue 07/21/2020 12:51 PM
Relevant Documents:
Voluntary Petition
Press Release
First Day Declaration
Cash Collateral Motion
Bid Procedures Motion

BJ Services provides hydraulic fracturing and cementing services for upstream oil and gas companies in North America
Attributes the bankruptcy to commodity price volatility and an “unmanageable capital structure,” with the case filed after a reorganization with equity sponsors fell through
Seeks an orderly wind-down and confirmation of a chapter 11 plan, absent a reorganization
Consensus has not been reached with respect to “several key components” of the wind-down
Negotiated limited consensual use of cash collateral with the ABL lenders for seven days “to bring their key stakeholders back to the table”

BJ Services, a Tomball, Texas-based provider of hydraulic fracturing and cementing services for upstream oil and gas companies in North America, filed for chapter 11 protection on Monday in the Bankruptcy Court for the Southern District of Texas, along with affiliates BJ Management Services, L.P., BJ Services Holdings Canada and BJ Services Management Holdings Corporation. The debtors filed after a deal on a reorganization with one of their equity sponsors, CSL Capital Management, for a $75 million new money investment, including $30 million in the form of DIP financing, in exchange for the “vast majority” of the reorganized equity, “fell apart on the one-yard line.”

The company now seeks an orderly wind-down and confirmation of a chapter 11 plan, absent a reorganization. However, the debtors say that they have not been able to reach consensus on “several key components” of a chapter 11 wind-down. The debtors have negotiated the limited consensual use of the prepetition ABL lenders’ cash collateral for seven days “to bring their key stakeholders back to the table.” “The Debtors intend to return to Court next week to provide additional clarity regarding the direction of these chapter 11 cases.”

CSL has agreed to serve as stalking horse with respect to “three fracturing fleets (the Equipment Term Loan Lenders’ collateral), all of the Titan Assets (which are unencumbered, as more fully described below), and intellectual property assets (which are also unencumbered),” and the debtors would submit the bid to a 21-day marketing and auction process.

The debtors have filed a motion to set up bid procedures for their cementing business, saying that they have obtained an indication of interest for the cementing business as a going concern which they say “exceeds the Debtors’ estimate of its liquidation value.” A second party has also indicated that it intends to submit an indication of interest “imminently.” The debtors reserve the right to select a stalking horse for the cementing business.

The company reports $500 million to $1 billion in both assets and liabilities. The company’s prepetition capital structure includes:

The debtors estimate that they also have approximately $150 million of unsecured claims.

Sticking points on the wind-down relate to funding of the chapter 11 process, issues regarding health insurance for employees, funding for ongoing operations at six client sites expected to generate $7 million in aggregate cash flow, funding for a going concern sale of the debtors’ cementing business (expected to generate going concern bids of more than $30 million) and the debtors’ other assets, including intellectual property.

The wind down dispute centers on the prepetition secured creditors’ collateral packages, as the ABL lenders do not want their cash collateral used to liquidate the equipment term loan lenders’ collateral, “as such use would benefit the Equipment Term Loan Lenders at the Prepetition ABL Lenders’ expense.” The debtors say that the equipment term lenders have “now expressed a willingness to fund a limited amount of costs,” contingent on lifting of the automatic stay to allow the lenders to control liquidation of their collateral, a request to which the debtors would object.

The first day declaration says that current appraisals of the equipment term loan lenders’ collateral show that the value of their collateral “is closer to the outstanding loan amount,” but that an end of 2019 appraisal showed a value of “nearly” $588 million, “well in excess of the $190 million claim outstanding.” Recent appraisals show a “wide range of liquidation values,” the debtors say. The prepetition equipment term loan agent GACP Finance Co. filed an objection to the use of cash collateral, disclosing a Hilco Valuation Services appraisal as of June 27, concluding that the net liquidation value of the equipment was “materially less” than the term loan obligations.

“A key component of the confusion regarding funding the chapter 11 cases is a general inability or unwillingness of the lenders to agree on how much each party needs to fund to keep the Debtors’ operations active to pursue a going-concern sale of the Company’s assets.” The prepetition ABL agent, JPMorgan Chase Bank, filed a statement with respect to the use of cash collateral, saying that the lenders support the debtors’ pursuit of an orderly liquidation “so long as the costs of the chapter 11 cases are shared equitably by all of the Debtors’ stakeholders.” The ABL lenders note that they are not the only “large” creditor constituency, pointing to the $190 million in equipment term loan debt and $65.2 million real estate term loan debt. “The Debtors have made clear that a primary focus of these cases will be the liquidation of the Equipment Term Loan Lenders’ considerable collateral: 42 fracturing fleets and cementing assets that include 180 cementing pumps and auxiliary support equipment,” the ABL lenders say, but that the debtors have no definitive source of funding other than the use of ABL cash collateral.

The prepetition equipment term loan agent’s objection says that the debtors filed with “nothing more than a hope, a prayer and a supposed agreement from the Prepetition ABL Lenders for a mere seven days.” Because of the “absurdity of this strategy,” the ABL lenders cast the term lenders “in the role of the villain, merely because the Term Lenders were not willing to agree to fund tens of millions of dollars of purported ‘winddown’ expenses that would only benefit third parties, like the Prepetition ABL Lenders, at the expense of the Term Lenders.” The lenders say that though they are willing to consider “reasonable requests” to fund expenses for the protection, marshalling and liquidation of their collateral, they would not serve as either voluntary or involuntary DIP lender to fund an “unnecessary and costly plan process.”

"The industry continues to face unprecedented uncertainty caused by volatile commodity markets and significantly reduced demand due to the COVID-19 pandemic,” BJ Services President and CEO Warren Zemlak says in a press release, adding that, “despite maintaining a leading market position and strong client support, the severe downturn in activity and subsequent lack of liquidity resulted in an unmanageable capital structure.” Zemlak says that the debtors’ board and management team “worked diligently over the course of the past several weeks to avoid this outcome. Having said that, we are pleased to be in discussions with interested bidders for our cementing business and for certain portions of our fracturing business and technology."

The first day hearing has been scheduled for today, Tuesday, July 21, at 5 p.m. ET.

The debtors’ equity is held as follows:

The debtors have approximately $56.1 million of cash on hand as of the petition date. “The amount of unencumbered cash, if any, is insufficient to support the wind-down of the Debtors’ business operations,” the debtors say.

The debtors are represented by Kirkland & Ellis and Gray Reed & McGraw as co-counsel, Bennett Jones as Canadian counsel, PJT as investment banker and Ankura restructuring advisor. The company is also working with Hilco Valuation Services, PricewaterhouseCoopers and Ritchie Bros. Donlin Recano is the clams agent. Anthony Schnur of Ankura is serving as CRO. The case has been assigned to Judge Marvin Isgur (case number 20-33627).


The company attributes the bankruptcy filing to the “price war” between OPEC and Russia, the Covid-19 pandemic and the pause on operations of the company’s customers. At the beginning of 2020, the company had $350 million in committed financing under the prepetition ABL facility and sufficient liquidity. However, the company states that these unanticipated events “went far beyond the ordinary volatility of the E&P industry,” including a sharp decline in accounts receivable.

Founded in 1872 by Byron Jacks, BJ Services, LLC, the company says it is the leading provider of hydraulic fracturing and cementing services to upstream oil and gas companies engaged in the production of North American oil and natural gas resources. The company has operating facilities in Alberta, Canada as well as North Dakota, Montana, Wyoming, Colorado, New Mexico, Texas, Louisiana, Oklahoma, Ohio, West Virginia, and Pennsylvania. The company’s central corporate office is located in Tomball, Texas.

Currently, 75% of the company’s business is coming from North America’s top 20 drillers and currently holds the second market share position across all of North America.

Originally, the company designed and manufactured pumps and other equipment for miners and farmers, including the Jackson Feeder. The company eventually moved to San Francisco where it began manufacturing prototypes of both deep-well turbines and submersible pumps. Following the oil boom in the early 1970s, the company began suffering from the slowdown in the petroleum industry and underwent a series of restructurings. By the 1990s, the company reorganized and had gone public. The company commenced an “aggressive expansion” through acquisition and consolidations, including the acquisition of Western Company of North America, Unichem and Nowsco Well Services.

In 2010, Baker Hughes purchased BJ Services Company for a transaction valued at approximately $5.5 billion. Following another downturn in the oil and gas sectors in November 2013, Baker Hughes decided to divest a controlling stake in the North American business operations. On November 29, 2016, the company, Allied Energy JV Contribution LLC, Allied Completions Holdings, and Baker Hughes Oilfield Operations Inc., a wholly owned subsidiary of Baker Hughes entered into a contribution agreement to contribute cash and assets to the company, including a substantial, high-quality equipment base, premier facilities and labs, proprietary technologies, an extensive intellectual property portfolio and the legacy “BJ” brand’s associated goodwill.

The company provides a full range of well-cementing and hydraulic-fracturing services to E&P companies. The company is also currently developing TITAN, the “next-generation fracturing fleet” platform that is “more eco-friendly.” The company is continuing development of TITAN and, absent any interruption to the business, plan to “activate” the TITAN fleets in late 2020 and 2021.

In March 2020, the debtors implemented cost-cutting measures, including laying off approximately 800 employees and furloughing an additional 200 employees. This resulted in the company to operate near EBITDA. The company also drew down approximately $32.5 million under the prepetition ABL facility. At the end of May, the sharp decrease in revenue triggered a borrowing base redetermination that required a paydown of the prepetition ABL facility of approximately $47.5 million at the end of June. Additionally, JPMorgan Chase Bank, the administrative agent of the prepetition ABL facility, provided notice to the company that beginning June 2, the agent would impose an additional $86 million borrowing base reserve under the prepetition ABL facility. The company and the prepetition lenders entered into a waiver agreement where the lenders waived the redetermination and imposition of the reserve until June 12. The company had to pay down $7.5 million of the prepetition ABL facility to obtain this waiver. Subsequent waivers were provided through June 23 (in exchange for an additional $20 million paydown), June 30 (in exchange for an additional $15 million paydown), July 16 and July 19, 2020 (in exchange for an additional $5 million paydown).

The debtors’ corporate organizational structure is shown below:

The debtors' largest unsecured creditors are listed below:


10 Largest Unsecured Creditors
Creditor Location Claim Type Claim Amount
Gardner Denver
Petroleum Pumps LLC
Quincy, Ill. Trade $    10,682,825
SPM Flow Control Fort Worth, Texas Trade 4,162,267
ChampionX, LLC Sugar Land, Texas Trade 3,982,798
FMC Technologies -
Fluid Control
Stephenville, Texas Trade 3,357,219
Infosys Limited Bangalore, Ind. IT Services 3,253,365
Brahma Services, LLC Dallas Trade 3,232,571
Gardner Denver
Canada Corporation
Woakville, Ontario Trade 2,878,506
DTE Enterprises, LLC Addison, Ill. Trade 2,734,506
Single Line Technologies Houston Trade 2,390,769
High Roller Sand
Operating, LLC
Lufkin, Texas Trade 1,998,638

The case representatives are as follows:


Role Name Firm Location
Debtors' Co-Counsel Joshua A. Sussberg Kirkland
& Ellis
New York
Christopher T. Greco
Samantha G. Lawrence
Joshua M. Altman
Debtors' Co-Counsel Jason S. Brookner Gray Reed
& McGraw
Paul D. Moak
Amber M. Carson
Debtors' Canadian
N/A Bennett
Debtors' Investment
Sanjiv Shah Simmons Energy
(Division of Piper
Sandler & Co.)
Tim McEuen
Steve Erzinger
Kirby Stockard
Debtors' Investment
Debtors' Restructuring
Anthony C. Schnur
Debtors' Real Estate
N/A Hilco
Debtors' Auctioneer N/A Ritchie Bros.
Counsel to JPMorgan
Chase Bank, as
Prepetition Revolving
Facility Agent
Dennis M. Twomey Sidley
Laura E. Baccash
Alyssa Russell
Counsel to Monroe
and Kayne, as First
Out Lenders
Justin E. Rawlins Paul
Los Angeles
Aaron M. Gober-Sims
James T. Grogan Houston
Counsel to CLMG
Corp., as Pepetition
Real Estate Term
Loan Agent
Justin Bernbrock Sheppard
Mullin Richter
& Hampton
Robert B. McLellarn
Amanda L. Cottrell Dallas
Co-Counsel to the
Prepetition Term
Loan Credit
Agreement Agent
John F. Ventola Choate Hall
& Stewart
Co-Counsel to the
Prepetition Term
Loan Credit
Agreement Agent
James Muenker DLA
Noah Schottenstein
Stuart M. Brown Wilmington, Del.
United States
Hector Duran, Jr. Office of the
U.S. Trustee
Stephen Douglas Statham
Debtors' Claims
Nellwyn Voorhies Donlin,
& Co.
New York

Cash Collateral Motion

The debtors request the use of cash collateral with the consent of the prepetition ABL lenders “for the limited purpose of funding vital expenses over the next seven days, and potentially the remainder of these chapter 11 cases if, at the expiration of the initial seven days, an agreement is reached with the Prepetition ABL Lenders regarding the path forward in these chapter 11 cases.” The cash collateral may be used for employee wages, “costs required to safely cease their operations on client sites, security to protect their assets (most of which represents collateral of certain of the Debtors’ secured lenders), and other vital expenses” as set forth in a budget. The use of cash collateral is conditioned on entry of a final order within 35 days of the petition date.

The company proposes the following adequate protection to the prepetition ABL lender: replacement liens (including avoidance action proceeds subject to the final order), superpriority administrative expense claims, payment of prepetition and postpetition interest at the non-default rates and payment of professional fees. The real estate term loan lenders, with CLMG Corp. as agent, would be entitled to replacement liens.

In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b). The carveout for professional fees is $1 million.

The debtors submitted the declaration of CRO Anthony Schnur in support of the use of cash collateral, saying that “the Debtors and the Prepetition ABL Lenders have negotiated a 'bare-bones' budget to provide the Debtors seven days to negotiate with their stakeholders regarding the use of cash during these chapter 11 cases.”

The lien challenge deadline is the later of (a) 75 days after entry of the interim cash collateral, or 60 days from appointment for an official committee of unsecured creditors and (b) the effective date of a confirmed chapter 11 plan. The UCC investigation budget is $50,000.

Bid Procedures Motion

The debtors request approval of bid procedures for their cementing business, consisting of cementing, pumping and mixing services and includes certain cementing assets, such as coiled tubing units and cementing pumps. The primary purpose of the cementing business is to provide “zonal isolation” in an oil or gas well, and in 2019, cementing services accounted for about 20% of the debtors’ revenues. The debtors have obtained an indication of interest for the cementing business as a going concern which they say “exceeds the Debtors’ estimate of its liquidation value.” A second party has also indicated that it intends to submit an indication of interest “imminently.”

The debtors reserve the right to select a stalking horse bidder. Overbids at auction must exceed the prior bid by $150,000.

The debtors propose the following sale timeline:

Other Motions

The debtors also filed various standard first day motions, including the following:


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