Wed 10/13/2021 13:28 PM
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2030 Senior Notes Core Analysis

Weatherford International is issuing $1.5 billion of unsecured notes due 2030 (the “2030 Notes”), which are expected to price this week. Proceeds of the 2030 Notes will be used, together with cash on hand, to fund a tender offer for up to $1.5 billion of outstanding 11% unsecured notes due 2024.

According to the offering memorandum for the 2030 Notes, if less than $1.5 billion of 2024 notes are tendered, the company will redeem additional 2024 notes, at 100% plus a make whole premium, in an amount such that the total amount repurchased equals $1.5 billion.

Weatherford’s debt structure as of June 30, with adjustments as noted in the footnotes, is summarized below:

A comprehensive report on the 2030 Notes is available HERE.
Notable Issues

Items of interest under the 2030 Notes include:

  • Priming debt capacity: The 2030 Notes provide fairly limited flexibility to incur additional secured debt, but more flexibility to incur structurally senior debt. The notes provide $1.125 billion of capacity for additional secured debt (reflecting approximately 256% of LTM Adjusted EBITDA), and at least $500 million (114% of LTM Adjusted EBITDA) for structurally senior debt, plus ratio debt in compliance with a pro forma 2x interest coverage ratio (see below).

  • Value leakage: The 2030 Notes provide some flexibility for value leakage, allowing up to $650 million at issuance that can be used for transfers to unrestricted subsidiaries (148% of LTM Adjusted EBITDA), $500 million of which could alternatively be used for dividends (114% of LTM Adjusted EBITDA). However, the notes do not include any leverage-based restricted payments or investments capacity. Further, payments made under the general restricted payments basket will reduce builder basket capacity.

  • Issuer-friendly differences from 2028 Secured Notes: Compared with Weatherford’s 2028 secured notes launched last month (reviewed here), the 2030 Notes are generally more issuer-friendly. For example:

    • The 2030 Notes provide more capacity for secured debt and structurally senior debt. The 2028s allowed only $400 million of ABL or revolving secured debt plus $100 million of add-on secured notes, and capped structurally senior debt at $100 million (or 1% of tangible assets if greater).

    • The 2030 Notes include a general liens basket providing at least $125 million of capacity for liens securing any obligations; under the 2028s, this basket was limited to obligations “other than Debt.”

    • The 2030 Notes allow any investments in restricted group entities, including in nonguarantor restricted subsidiaries. The 2028s restricted investments in nonguarantors (which was unusual in high-yield notes).

    • The 2028s allowed a yearly redemption of up to 10% of the notes at 103% until 2024 if all 2024 unsecured notes had been redeemed or refinanced. The 2030 Notes do not include this redemption option.

    • The 2028s expressly required payment of redemption premiums that would have applied at the time of any acceleration. This language is not included in the 2030 Notes.

In addition, while restricted payments capacity under each series is largely the same, the planned redemption of $200 million of outstanding 2024 unsecured notes on Oct. 20, 2021 will likely require restricted payments capacity under the 2028s, but not under the 2030 Notes, since the 2028s restrict prepayment of unsecured debt, while the 2030 Notes do not.

  • Foreign guarantors: Subsidiaries providing guarantees for the 2030 Notes include entities organized outside the United States.

  • Guarantor coverage: As of June 30, 2021, nonguarantor subsidiaries represented approximately 19% of last-six-month total revenue, held approximately 24% of tangible assets, and 16% of liabilities.

  • All ratio debt capacity available for structurally senior debt: The ratio debt basket allows unlimited unsecured debt subject to compliance with a 2x interest coverage ratio, but there is no leverage liens or other liens basket that can be paired with ratio debt to provide additional capacity for secured debt of the Issuer. However, the basket does not restrict access by nonguarantors, meaning that all ratio debt capacity can be used for structurally senior debt. Further, all nonguarantor restricted subsidiary debt is permitted to be secured by nonguarantor assets.

  • Notes held by Permitted Holders can vote: While the 2030 Notes expressly provide that notes held by the issuer, guarantors, and certain affiliated entities shall be disregarded for voting purposes, notes held by Permitted Holders and certain related entities are not disregarded.

  • Extended cure period for failure to report: Following a notice of default under the reporting covenant, the Issuer has 180 days to cure such violation before an event of default occurs. For other nonpayment breaches, the cure period is 60 days.

Flexibility Under the New Notes

Weatherford’s flexibility under the 2030 Notes is summarized below:

The following table summarizes the presence of certain material holder protections and material aggressive terms included in the 2030 Notes:

--Mitch Oates
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