KEY ENERGY SERVICES, INC. OVERVIEW
Key Energy Services, Inc. , and its wholly owned subsidiaries provide a full range of well services to major oil companies and independent oil and natural gas production companies. Our services include rig-based and coiled tubing-based well maintenance and workover services, well completion and recompletion services, fluid management services, fishing and rental services, and other ancillary oilfield services. Additionally, certain of our rigs are capable of specialty drilling applications. We operate in most major oil and natural gas producing regions of the continentalUnited States . An important component of the Company's growth strategy is to make acquisitions that will strengthen its core services or presence in selected markets, and the Company also makes strategic divestitures from time to time. The Company expects that the industry in which it operates will experience consolidation, and the Company expects to explore opportunities and engage in discussions regarding these opportunities, which could include mergers, consolidations or acquisitions or further dispositions or other transactions, although there can be no assurance that any such activities will be consummated. The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes as of and for the three months endedMarch 31, 2020 and 2019, included elsewhere herein, and the audited consolidated financial statements and notes thereto included in our 2019 Form 10-K and Part I, Item 1A. Risk Factors of our 2019 Form 10-K and Part II, Item 1A. Risk Factors of this report. We provide information regarding four business segments: Rig Services, Fishing and Rental Services, Coiled Tubing Services and Fluid Management Services. We also have a "Functional Support" segment associated with overhead and other costs in support of our reportable segments. See "Note 16. Segment Information" in "Item 1. Financial Statements" of Part I of this report for a summary of our business segments. Restructuring and Reverse Stock Split OnMarch 6, 2020 , we closed the previously announced restructuring of our capital structure and indebtedness (the "Restructuring") pursuant to the Restructuring Support Agreement, dated as ofJanuary 24, 2020 (the "RSA"), with lenders under our Prior Term Loan Facility (as defined below) collectively holding over 99.5% (the "Supporting Term Lenders") of the principal amount of the Company's then outstanding term loans. Pursuant to the RSA and the Restructuring contemplated thereby, among other things we effected the following transactions and changes to our capital structure and governance: • pursuant to exchange agreements entered into at the closing of the
Restructuring, we exchanged approximately
outstanding principal of our term loans (together with accrued interest
thereon) held by Supporting Term Lenders under our Prior Term Loan
Facility into (i) approximately 13.4 million newly issued shares of common
stock representing 97% of the Company's outstanding shares after giving
effect to such issuance (and without giving effect to dilution by the New
Warrants and MIP (each as defined below)) and (ii)
loans under our new
Facility"), each on a pro rata basis based on their holdings of term loans
under the Prior Term Loan Facility;
• completed a 1-for-50 reverse stock split of our outstanding common stock.
All pre-Restructuring shares prices, including shares outstanding and
earnings per share, have been adjusted to reflect the 1-for-50 reverse
stock split;
• distributed to our common stockholders of record as of
two series of warrants (the "New Warrants");
• entered into the
million was funded at closing of the Restructuring with new cash proceeds
from the Supporting Term Lenders and
for term loans held by the Supporting Term Lenders under the Prior Term
Loan Facility as described above and (ii) an approximate
a senior secured term loan tranche in respect of term loans held by
lenders under the Prior Term Loan Facility who were not Supporting Term
Lenders;
• entered into the New ABL Facility (as defined below);
• adopted a new management incentive plan (the "MIP") representing up to 9%
of the Company's outstanding shares after giving effect to the issuance of
shares described above; and
• made certain changes to the Company's governance, including changes to our
Board of Directors (the "Board"), amendments to our governing documents
and entry into the Stockholders Agreement (as defined below) with the
Supporting Term Lenders.
In accordance with the RSA at the closing of the Restructuring, the Company
amended and restated its certificate of incorporation and entered into a
stockholders agreement (the "Stockholders Agreement") with the Supporting Term
Lenders in order to, among other things, provide for a Board of seven members.
Pursuant to the Stockholders Agreement, our Board consists
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of our chief executive officer and six other members appointed by various Supporting Term Lenders. Specifically, pursuant to the Stockholders Agreement, Supporting Term Lenders who hold more than 25% of the Company's outstanding shares as of the closing of the Restructuring are entitled to nominate two directors and Supporting Term Lenders who hold between 10% and 25% of the Company's outstanding shares as of the closing of the Restructuring are entitled to nominate one director. All appointees or nominees of Supporting Term Lenders, other than any director appointed or nominated bySoter Capital LLC ("Soter"), must meet the "independent director" requirements set forth in Section 303A of the NYSE Listed Company Manual. In addition, pursuant to the Stockholders Agreement, Supporting Term Lenders are entitled to appoint a non-voting board observer subject to specified ownership thresholds. In accordance with the RSA and following the closing of the Restructuring, the Company distributed to stockholders of record as ofFebruary 18, 2020 the New Warrants. The New Warrants were issued in two series each with a four-year exercise period. The first series entitles the holders to purchase in the aggregate 1,669,730 newly issued shares of common stock, representing 10% of the Company's common shares at the closing of the Restructuring on an as-exercised basis (after giving effect to the exercise of all New Warrants, but subject to dilution by issuances under the MIP). The aggregate exercise price of the first series of New Warrants is$19.23 and was determined based on the aggregate outstanding principal amount of term loans under the Prior Term Loan Facility plus accrued interest thereon at the default rate as of the closing of the Restructuring. The second series of New Warrants entitles the holders to purchase in the aggregate 1,252,297 newly issued shares of common stock, representing 7.5% of the Company's common shares at the closing of the Restructuring on an as-exercised basis (after giving effect to the exercise of all New Warrants, but subject to dilution by issuances under the MIP). The aggregate strike price of the second series of New Warrants is$28.85 and was determined based on the product of (i) the aggregate outstanding principal amount of term loans under the Prior Term Loan Facility plus accrued interest thereon at the default rate as of the closing of the Restructuring, multiplied by (ii) 1.50. For more information on our New Term Loan Facility and New ABL Facility entered into in connection with the Restructuring, see "Note 7. Long-Term Debt" in Part I, Item 1 of this report. PERFORMANCE MEASURES In assessing overall activity in theU.S. onshore oilfield service industry in which we operate, we believe that the Baker HughesU.S. land drilling rig count, which is publicly available on a weekly basis, is the best available barometer of exploration and production ("E&P") companies' capital spending and resulting activity levels. Historically, our activity levels have been highly correlated withU.S. onshore capital spending by our E&P company customers as a group. Average AESC Average Baker Well Service NYMEX Henry Hughes U.S. Land Active Rig WTI Cushing Oil(1) Hub Natural Gas(1) Drilling Rigs(2) Count(3) 2020: First Quarter $ 41.00 $ 1.90 764 978 April $ 16.55 $ 1.74 548 NA(4) 2019: First Quarter $ 54.82 $ 2.92 1,023 1,295 Second Quarter $ 59.88 $ 2.57 967 1,311 Third Quarter $ 56.34 $ 2.38 894 1,263 Fourth Quarter $ 56.82 $ 2.40 797 1,143
(1) Represents the average of the historical monthly average prices for each of
the periods presented. Source: EIA and Bloomberg
(2) Source: www.bakerhughes.com
(3) Source:
(4) Information unavailable at time of filing.
Internally, we measure activity levels for our well servicing operations
primarily through our rig and trucking hours. Generally, as capital spending by
E&P companies increases, demand for our services also increases, resulting in
increased rig and trucking services and more hours worked. Conversely, when
capital spending by E&P companies declines, we generally provide fewer rig and
trucking services, which results in fewer hours worked.
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Rig activity occurs primarily on weekdays during daylight hours. Accordingly, we
track rig activity on a "per working day" basis. Key's working days per quarter,
which exclude national holidays, are indicated in the table below. Our trucking
activity tends to occur on a 24/7 basis. Accordingly, we track our trucking
activity on a "per calendar day" basis. The following table presents our
quarterly rig and trucking hours from 2019 through the first quarter of 2020:
Key's
Rig Hours Trucking Hours Working Days(1)
2020:
First Quarter 101,341 106,786 64
April 15,912 26,387 21
Total 2020 117,253 133,173 85
2019:
First Quarter 151,309 150,740 63
Second Quarter 154,017 144,996 63
Third Quarter 142,151 150,518 64
Fourth Quarter 114,727 121,152 62
Total 2019 562,204 567,406 252
(1) Key's working days are the number of weekdays during the quarter minus
national holidays.
MARKET AND BUSINESS CONDITIONS AND OUTLOOK
The competition between OPEC and non-OPEC producing countries like Russia for
crude oil market share and the global COVID-19 pandemic have simultaneously
increased supply and decreased demand for oil and natural gas to historically
low levels. This collapse in the demand for and price of oil caused by the
unprecedented global health and economic crisis, has had an adverse impact on
the demand for our services and the prices we can charge for our services. The
extent to which our future results are affected by the COVID-19 pandemic and
related economic downturn will depend on various factors and consequences beyond
our control, such as the duration and scope of the pandemic; additional actions
by businesses and governments in response to the pandemic, and the speed and
effectiveness of responses to combat the virus. COVID-19 may also adversely
affect our results in a manner that is either not currently known or that we do
not currently consider to be a significant risk to our business. For additional
detail, please refer to Risk Factors in Part II, Item 1A of this report and
those risk factors previously disclosed in our 2019 Form 10-K.
We experienced a downturn in demand for our services in 2019, but this decline
has increased in 2020. The macroeconomic events that began in March 2020
resulted in significant revisions to our customers' capital spending programs
for 2020. We expect reduced demand for our services and pricing pressure to
continue for the foreseeable future. As of the date of this filing, we have
limited visibility into when our customers will resume their production
maintenance activities, but believe that as oil supply adjusts to demand and our
customers begin to bring wells back on line, we will see some recovery in
activity as normal maintenance work is resumed.
We initiated a number of actions in the fourth quarter 2019 aimed at conserving
cash and protecting our liquidity, and these actions have continued into the
second quarter of 2020, including: completing the refinancing our capital
structure, internally realign our operations, exited operations and areas to
focus on certain markets where we had the best competitive positions, and have
taken steps to reduce our overhead costs, given the reduced operating footprint.
We remain focused on maximizing our current equipment fleet, but we may further
reduce our planned expenditures and defer acquisition of new equipment or
maintenance if market conditions decline further. Additionally, to protect our
workforce in the wake of COVID-19, we have taken steps to keep our employees
safe by supporting those affected, mandating that as many employees as possible
work from home, and monitoring those who cannot do so and are required to be at
work.
Given the dynamic nature of the macroeconomic events discussed above, we are
unable to reasonably estimate the period of time that these market conditions
will exist, the extent of the impact they will have on our business, liquidity,
results of operations, financial condition, or the timing of any subsequent
recovery.
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RESULTS OF OPERATIONS The following table shows our consolidated results of operations for the three months endedMarch 31, 2020 and 2019 (in thousands): Three Months Ended March 31, 2020 2019 REVENUES$ 75,308 $ 109,273 COSTS AND EXPENSES: Direct operating expenses 61,661 88,194 Depreciation and amortization expense 10,226 14,296 General and administrative expenses 15,253 22,095 Asset impairments 41,242 - Operating loss (53,074 ) (15,312 )
Interest expense, net of amounts capitalized 8,221 9,233 Other income, net
(385 ) (1,142 )
Gain on debt restructuring (170,648 ) -
Income (loss) before income taxes 109,738 (23,403 )
Income tax benefit (744 ) (38 )
NET INCOME (LOSS) $ 108,994 $ (23,441 )
Consolidated Results of Operations - Three Months Ended March 31, 2020 and 2019
Revenues
Our revenues for the three months ended March 31, 2020 decreased $34.0 million ,
or 31.1%, to $75.3 million from $109.3 million for the three months ended
March 31, 2019 , due to lower spending from our customers as a result of lower
oil prices. These market conditions resulted in reduced customer activity.
Additionally, in the fourth quarter of 2019, the company strategically exited a
number of non-core and underperforming locations. See "Segment Operating Results
- Three Months Ended March 31, 2020 and 2019" below for a more detailed
discussion of the change in our revenues.
Direct Operating Expenses
Our direct operating expenses decreased $26.5 million , to $61.7 million (81.9%
of revenues), for the three months ended March 31, 2020 , compared to $88.2
million (80.7% of revenues) for the three months ended March 31, 2019 . This
decrease is primarily a result of a decrease in employee compensation costs,
fuel expense and repair and maintenance expense due to a decrease in activity
levels.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased $4.1 million , or 28.5%, to $10.2
million during the three months ended March 31, 2020 , compared to $14.3 million
for the three months ended March 31, 2019 . This decrease is primarily due to
certain assets becoming fully depreciated.
General and Administrative Expenses
General and administrative expenses decreased $6.8 million , to $15.3 million
(20.3% of revenues), for the three months ended March 31, 2020 , compared to
$22.1 million (20.2% of revenues) for the three months ended March 31, 2019 . The
decrease is primarily related to a credit of $4.3 million related to a
restructuring related concession on some accrued professional fees and lower
employee compensation costs due to reduced staffing levels, partially offset by
an increase in insurance claims of $5.6 million .
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Asset Impairments During the three months endedMarch 31, 2020 the Company recognized an asset impairment of$41.2 million . It was determined that the fair value of the Fluid Management Services and Fishing & Rental Services was less than the carrying value of those respective segments. As a result, we recorded an impairment of$17.6 million and$23.7 million at those segments, respectively. Interest Expense, Net of Amounts Capitalized Interest expense decreased$1.0 million , or 11.0%, to$8.2 million for the three months endedMarch 31, 2020 , compared to$9.2 million for the same period in 2019. This decrease is primarily related to the decrease in interest payments required under the New Term Loan Facility. Other Income,Net During the three months endedMarch 31, 2020 , we recognized other income, net, of$0.4 million , compared to other income, net, of$1.1 million for the three months endedMarch 31, 2019 . The following table summarizes the components of other income, net for the periods indicated (in thousands): Three Months Ended March 31, 2020 2019 Interest income$ (57 ) $ (323 ) Other (328 ) (819 ) Total$ (385 ) $ (1,142 ) Gain on debt restructuring During the three months endedMarch 31, 2020 , the Company recognized a gain of$170.6 million related to the recent restructuring of corporate debt. For more information on our New Term Loan Facility and New ABL Facility entered into in connection with the Restructuring, see "Note 1. General" and "Note 7. Long-Term Debt" for additional information. Income Tax Benefit We recorded an income tax expense of$0.7 million on a pre-tax loss of$109.7 million for the three months endedMarch 31, 2020 , compared to an income tax expense of less than$0.1 million on a pre-tax loss of$23.4 million for the same period in 2019. Our effective tax rate was 0.7% for the three months endedMarch 31, 2020 , compared to (0.2)% for the three months endedMarch 31, 2019 . Our effective tax rates differ from the applicableU.S. statutory rate of 21% due to a number of factors, including the mix of profit and loss betweenU.S. taxing jurisdictions with varying statutory rates, the impact of permanent differences, and other tax adjustments, such as valuation allowances against deferred tax assets. Segment Operating Results - Three Months EndedMarch 31, 2020 and 2019 The following table shows operating results for each of our segments for the three months endedMarch 31, 2020 and 2019 (in thousands): For the three months endedMarch 31, 2020 Fishing and
Coiled Tubing Fluid Management Functional
Rig Services Rental Services Services Services Support Total
Revenues from external customers $ 47,909 $ 9,592 $ 4,837 $ 12,970 $ - $ 75,308
Operating expenses 44,583 29,342 5,793 36,832 11,832 128,382
Operating income (loss) 3,326 (19,750 ) (956 ) (23,862 ) (11,832 ) (53,074 )
For the three months ended
Fishing and Coiled Tubing Fluid Management Functional
Rig Services Rental Services Services Services Support Total
Revenues from external customers $ 65,026 $ 14,587 $ 10,673 $ 18,987 $ - $ 109,273
Operating expenses 60,570 15,710 12,811 18,878 16,616 124,585
Operating income (loss) 4,456 (1,123 ) (2,138 ) 109 (16,616 ) (15,312 )
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Rig Services Revenues for our Rig Services segment decreased$17.1 million , or 26.3%, to$47.9 million for the three months endedMarch 31, 2020 , compared to$65.0 million for the three months endedMarch 31, 2019 . The decrease for this segment is primarily due to lower spending from our customers as a result of lower oil prices. These market conditions resulted in reduced customer activity. Additionally, in the fourth quarter of 2019, the company strategically exited a number of non-core and underperforming locations which resulted in a decrease of$9.4 million of revenue. Operating expenses for our Rig Services segment were$44.6 million for the three months endedMarch 31, 2020 , which represented a decrease of$16.0 million , or 26.4%, compared to$60.6 million for the same period in 2019. This decrease is primarily a result of a decrease in employee compensation costs, equipment expense due to a decrease in activity levels and a decrease in depreciation expense and gain on sale of assets. Fishing and Rental Services Revenues for our Fishing and Rental Services segment decreased$5.0 million , or 34.2%, to$9.6 million for the three months endedMarch 31, 2020 , compared to$14.6 million for the three months endedMarch 31, 2019 . The decrease for this segment is primarily due to lower spending from our customers on oil and gas well drilling and completion, as a result of lower oil prices. These market conditions resulted in reduced customer activity. Operating expenses for our Fishing and Rental Services segment were$29.3 million for the three months endedMarch 31, 2020 , which represented an increase of$13.6 million , or 86.8% compared to$15.7 million for the same period in 2019. This increase is primarily a result of$17.6 million impairment of assets partially of set by a decrease in employee compensation costs due to a decrease in activity levels and a decrease in depreciation expense. Coiled Tubing Services Revenues for our Coiled Tubing Services segment decreased$5.8 million , or 54.7%, to$4.8 million for the three months endedMarch 31, 2020 , compared to$10.7 million for the three months endedMarch 31, 2019 . The decrease for this segment is primarily due to lower spending from our customers on oil and gas well drilling and completion, as a result of lower oil prices, and the increase in competition. These market conditions resulted in reduced customer activity and a reduction in the price received for our services. Additionally, in the fourth quarter of 2019, the company strategically exited a number of non-core and underperforming locations which resulted in a decrease of$2.5 million of revenue. Operating expenses for our Coiled Tubing Services segment were$5.8 million for the three months endedMarch 31, 2020 , which represented a decrease of$7.0 million , or 54.8%, compared to$12.8 million for the same period in 2019. This decrease is primarily a result of a decrease in employee compensation costs, fuel expense and repair and maintenance expense due to a decrease in activity levels. Fluid Management Services Revenues for our Fluid Management Services segment decreased$6.0 million , or 31.7%, to$13.0 million for the three months endedMarch 31, 2020 , compared to$19.0 million for the three months endedMarch 31, 2019 . The decrease for this segment is primarily due to lower spending from our customers on oil and gas well drilling and completion, as a result of lower oil prices. These market conditions resulted in reduced customer activity. Additionally, in the fourth quarter of 2019, the company strategically exited a number of non-core and underperforming locations which resulted in a decrease of$2.4 million of revenue. Operating expenses for our Fluid Management Services segment were$36.8 million for the three months endedMarch 31, 2020 , which represented an increase of$18.0 million , or 95.1%, compared to$18.9 million for the same period in 2019. This increase is primarily a result of a$23.7 million impairment of assets partially of set by a decrease in employee compensation costs, fuel expense and repair and maintenance expense due to a decrease in activity levels and a decrease in depreciation expense. Functional Support Operating expenses for Functional Support, which represent expenses associated with managing our reporting segments, increased$4.8 million , or 28.8%, to$11.8 million (15.7% of consolidated revenues) for the three months endedMarch 31, 2020 compared to$16.6 million (15.2% of consolidated revenues) for the same period in 2019. The decrease is primarily related to a credit of$4.3 million related to a restructuring related concession on some accrued professional fees and lower employee compensation costs due to reduced staffing levels, partially offset by an increase in insurance claims of$5.6 million . 30
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LIQUIDITY AND CAPITAL RESOURCES Effective as ofMarch 6, 2020 , we completed the Restructuring of our capital structure and indebtedness and, among other things, reduced our outstanding debt from$241.9 million as ofDecember 31, 2019 to$51.2 million as of the closing of the Restructuring. For more information on the Restructuring, see "--Restructuring and Reverse Stock Split" above. We require capital to fund our ongoing operations, including maintenance expenditures on our existing fleet and equipment, organic growth initiatives, investments and acquisitions, our debt service payments and our other obligations. Funding of our operations consists of our internally generated cash flows from operations, current reserves of cash, availability under the New ABL Facility and proceeds from sale of assets to finance our cash requirements for current and future operations, budgeted capital expenditures, debt service and other obligations. The conditions and events discussed in "Note 1. General-Market Conditions, COVID-19 and Going Concern" in "Item 1. Financial Statements" and in "Market and Business Conditions and Outlook" above have adversely affected the demand for oil and natural gas, as well as for our services. The collapse in the demand for oil caused by this unprecedented global health and economic crisis, coupled with oil oversupply, has had, and is reasonably likely to continue to have, a material adverse impact on the demand for our services and the prices we can charge for our services. The decline in our customers' demand for our services has had, and is likely to continue to have, a material adverse impact on our financial condition, results of operations and cash flows. The decrease in oil and natural gas prices has adversely affected out customer and resulted in a decrease of the creditworthiness of some our customers. As a result, our allowance for doubtful accounts as a percentage of accounts receivable has increased. To date, the company has enhanced the cost control measures related to operational and general and administrative expenses to optimize cost during this time period with the goal of ensuring that margins are preserved as well as increase efforts on improving working capital until customer spend increases. Due to the uncertainty of future oil and natural gas prices and the effect the COVID-19 pandemic will have on our results of operations and financial condition, there is substantial doubt as to the ability of the Company to continue as a going concern. Management has prepared these consolidated condensed financial statements in accordance with US GAAP applicable to a going concern, which contemplates that assets will be realized and liabilities will be discharged in the normal course of business as they become due. These consolidated condensed financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported revenues and expenses and balance sheet classifications that would be necessary if the Company was unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material and adverse to the financial results of the Company. Current Financial Condition and Liquidity As ofMarch 31, 2020 , we had total liquidity of$35.8 million which consisted of$25.6 million cash and cash equivalents and$10.2 million of borrowing capacity available under our ABL Facility. As ofApril 30, 2020 we had total liquidity of$36.2 which consisted of$26.1 million cash and cash equivalents and$10.1 million of borrowing capacity available under our ABL Facility. As ofDecember 31, 2019 , prior to the Restructuring, we had$14.4 million cash and cash equivalents. As ofDecember 31, 2019 , we were unable to borrow any amounts under the ABL Facility and had$24.0 million of borrowing capacity available under our ABL Facility. Our working capital was$26.7 million as ofMarch 31, 2020 , compared to$(0.7) million as ofDecember 31, 2019 . Our working capital increased from the prior year end primarily as a result of an increase in cash and cash equivalents and decrease in accrued interest partially offset by, accounts receivable and prepaid assets. As ofMarch 31, 2020 , we had no borrowings outstanding,$36.3 million in committed letters of credit outstanding and$7.4 million posted as additional collateral recorded in deposits on our balance sheet under our ABL Facility. 31
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The following table summarizes our cash flows for the three months ended
Three Months Ended
March 31,
2020 2019
Net cash used in operating activities $ (18,430 ) $ (11,342 )
Cash paid for capital expenditures (682 ) (5,040 )
Proceeds received from sale of fixed assets 1,750 2,389
Proceeds from long-term debt 30,000 -
Repayments of long-term debt - (625 )
Repayments of finance lease obligations (103 ) -
Payment of deferred financing costs (1,385 )
-
Other financing activities, net (7 )
-
Net increase (decrease) in cash, cash equivalents and restricted cash
$ 11,143
Cash used in operating activities was$18.4 million for the three months endedMarch 31, 2020 compared to cash used in operating activities of$11.3 million for the three months endedMarch 31, 2019 . Cash used in operating activities for the three months endedMarch 31, 2020 was primarily related net losses adjusted for noncash items and a decrease in accrued interest. Cash used in operating activities for the three months endedMarch 31, 2019 was primarily related net losses adjusted for noncash items and decrease in accrued liabilities. Cash provided by investing activities was$1.1 million for the three months endedMarch 31, 2020 compared to cash used in investing activities of$2.7 million for the three months endedMarch 31, 2019 . Cash outflows during these periods consisted of capital expenditures. Our capital expenditures are primarily related to the ongoing maintenance of our equipment and the addition of new equipment. Cash inflows during these periods consisted of proceeds from sales of fixed assets. Cash provided by financing activities was$28.5 million for the three months endedMarch 31, 2020 compared to cash used in financing activities of$0.6 million for the three months endedMarch 31, 2019 . Financing cash inflows for the three months endedMarch 31, 2020 primarily relate to proceeds of long-term debt. Financing cash outflows for the three months endedMarch 31, 2019 primarily relate to the repayment of long-term debt. Debt Service As ofMarch 31, 2020 , our annual debt maturities for our Term Loan Facility were as follows (in thousands): Principal Year Payments Remainder of 2020 $ 9 2021 1,200 2022 - 2023 - 2024 - 2025 50,000 Total principal payments$ 51,209 32
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New ABL Facility OnMarch 6, 2020 , the Company andKey Energy Services, LLC , as borrowers (the "ABL Borrowers"), entered into Amendment No. 3 to the Company's existing ABL facility, dated as ofDecember 15, 2016 (as amended, the "New ABL Facility") with the financial institutions party thereto from time to time as lenders (the "ABL Lenders") andBank of America, N.A ., as administrative agent and collateral agent (the "ABL Agent") for the ABL Lenders. The New ABL Facility provides for aggregate commitments from the ABL Lenders of$70 million , which mature on the earlier of (x)April 5, 2024 and (y) 181 days prior to the scheduled maturity date of the Company's term loan facility or the scheduled maturity date of the Company's other material debt in an aggregate principal amount exceeding$15 million . The New ABL Facility provides the ABL Borrowers with the ability to borrow up to an aggregate principal amount equal to the lesser of (i) the aggregate revolving commitments then in effect and (ii) the sum of (a) 85% of the value of eligible accounts receivable plus (b) 80% of the value of eligible unbilled accounts receivable, subject to a limit equal to the greater of (x)$30 million and (y) 25% of the commitments. The amount that may be borrowed under the New ABL Facility is subject to increase or reduction based on certain segregated cash or reserves provided for by the New ABL Facility. In addition, the percentages of accounts receivable and unbilled accounts receivable included in the calculation described above is subject to reduction to the extent of certain bad debt write-downs and other dilutive items provided in the New ABL Facility. Borrowings under the New ABL Facility bears interest, at the ABL Borrowers' option, at a per annum rate equal to (i) LIBOR for 30, 60, 90, 180, or, with the consent of the ABL Lenders, 360 days, plus an applicable margin that varies from 2.75% to 3.25% depending on the ABL Borrowers' fixed charge coverage ratio at such time or (ii) a base rate equal to the sum of (a) the greatest of (x) the prime rate, (y) the federal funds rate, plus 0.50% or (z) 30-day LIBOR plus 1.0% plus (b) an applicable margin that varies from 1.75% to 2.25% depending on the ABL Borrowers' fixed charge coverage ratio at such time. The New ABL Facility provides that, in the event LIBOR becomes unascertainable for the requested interest period or otherwise becomes unavailable or replaced by other benchmark interest rates, then the Company and the ABL Agent may amend the New ABL Facility for the purpose of replacing LIBOR with one or more SOFR-based rates or another alternate benchmark rate giving consideration to the general practice in similarU.S. dollar denominated syndicated credit facilities. In addition, the New ABL Facility provides for unused line fees of 0.5% to 0.375% per year, depending on utilization, letter of credit fees and certain other factors. The New ABL Facility may in the future be guaranteed by certain of the Company's existing and future subsidiaries (the "ABL Guarantors," and together with the ABL Borrowers, the "ABL Loan Parties"). To secure their obligations under the New ABL Facility, each of the ABL Loan Parties has granted or will grant, as applicable, to the ABL Agent a first-priority security interest for the benefit of the ABL Lenders in its present and future accounts receivable, inventory and related assets and proceeds of the foregoing (the "ABL Priority Collateral"). In addition, the obligations of the ABL Loan Parties under the ABL Facility are secured by second-priority liens on the Term Priority Collateral (as described below under "New Term Loan Facility"). The revolving loans under the New ABL Facility may be voluntarily prepaid, in whole or in part, without premium or penalty, subject to breakage or similar costs. The New ABL Facility contains certain affirmative and negative covenants, including covenants that restrict the ability of the ABL Loan Parties to take certain actions including, among other things and subject to certain significant exceptions, the incurrence of debt, the granting of liens, the making of investments, entering into transactions with affiliates, the payment of dividends and the sale of assets. The New ABL Facility also contains a requirement that the ABL Borrowers comply, during certain periods, with a fixed charge coverage ratio of at least 1.00 to 1.00. As ofApril 30, 2020 , we had no borrowings outstanding under the New ABL Facility and$36.3 million of letters of credit and$11.8 million posted as additional collateral recorded in deposits on our balance sheet with borrowing capacity of$10.1 million available subject to covenant constraints under our New ABL Facility. As ofMarch 31, 2020 , we were in compliance with all covenants under our New ABL Facility. New Term Loan Facility OnMarch 6, 2020 , the Company entered into the amendment and restatement agreement with theSupporting Term Lenders andCortland Capital Market Services LLC andCortland Products Corp. , as agent (the "Term Agent"), which amended and restated the Prior Term Loan Facility, among the Company, as borrower, certain subsidiaries of the Company named as guarantors therein, the financial institutions party thereto from time to time as lenders and the Term Agent (as amended and restated by the amendment and restatement agreement, the "New Term Loan Facility"). Prior to the closing of the Restructuring, there were approximately$243.1 million aggregate principal amount of term loans outstanding under the Prior Term Loan Facility. Following the closing of the Restructuring, the New Term Loan Facility is comprised of (i)$30 million new money term loans funded by the Supporting Term Lenders and$20 million new term loans excluding new money issued in exchange for existing term loans held by the Supporting Term Lenders (collectively, the "New Term Loans") and (ii) an approximate$1.2 million senior 33
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secured term loan tranche in respect of the existing term loans held by lenders who are not Supporting Term Lenders (the "Continuing Term Loans"). As ofMarch 31, 2020 , there was$51.2 million outstanding under the New Term Loan Facility. The New Term Loan Facility will mature onAugust 28, 2025 , with respect to the New Term Loans, and onDecember 15, 2021 with respect to the Continuing Term Loans. Such maturity date may, at the Company's request, be extended by one or more of the term loan lenders pursuant to the terms of the New Term Loan Facility. The New Term Loans will bear interest at a per annum rate equal to LIBOR for six months, plus 10.25%. The Company has the option to pay interest in kind at an annual rate of LIBOR plus 12.25% on the outstanding principal amount of the New Term Loans for the first two years following the closing of the Restructuring. The Continuing Term Loans will bear interest at a per annum rate equal to LIBOR for one, two, three, six or, with the consent of all term loan lenders, up to 12 months, and the Company has the option to pay interest in kind of up to 100 basis points of the per annum interest due on the Continuing Term Loans. The New Term Loan Facility is guaranteed by certain of the Company's existing and future subsidiaries (the "Term Loan Guarantors," and together with the Company, the "Term Loan Parties"). To ensure their obligations under the New Term Loan Facility, each of the Term Loan Parties has granted or will grant, as applicable, to the Term Agent a first-priority security interest for the benefit of the Term Loan Lenders in substantially all of eachTerm Loan Party's assets other than certain excluded assets and the ABL Priority Collateral (the "Term Priority Collateral"). In addition, the obligations of the Term Loan Parties under the New Term Loan Facility are secured by second-priority liens on the ABL Priority Collateral (as described above under "ABL Facility"). The New Term Loans may be prepaid at the Company's option, subject to the payment of a prepayment premium (which may be waived by lenders holding New Term Loans under the New Term Loan Facility representing at least two-thirds of the aggregate outstanding principal amount of the New Term Loans) in certain circumstances as provided in the New Term Loan Facility. If a prepayment is made prior to the first anniversary of the closing of the Restructuring, such prepayment premium is equal to 3% of the principal amount of the New Term Loans prepaid; if a prepayment is made from the first anniversary to the second anniversary of the closing of the Restructuring, the prepayment premium is equal to 2% of the principal amount of the New Term Loans prepaid; if a prepayment is made from the second anniversary to the third anniversary of the closing of the Restructuring, the prepayment premium is equal to 1% of the principal amount of the New Term Loans prepaid; and there is no prepayment premium thereafter. The Company is required to make principal payments in respect of the Continuing Term Loans in the amount of$3,125 per quarter commencing with the quarter endingMarch 31, 2020 and is required to pay$1,190,625 on the maturity date of the Continuing Term Loans. In addition, pursuant to the New Term Loan Facility, the Company must prepay or offer to prepay, as applicable, term loans with the net cash proceeds of certain debt incurrences and asset sales, excess cash flow, receipt of extraordinary cash proceeds (e.g., tax and insurance) and upon certain change of control transactions, subject in each case to certain exceptions. The New Term Loan Facility contains certain affirmative and negative covenants, including covenants that restrict the ability of the Term Loan Parties to take certain actions including, among other things and subject to certain significant exceptions, the incurrence of debt, the granting of liens, the making of investments, entering into transactions with affiliates, the payment of dividends and the sale of assets. The New Term Loan Facility also contains a financial covenant requiring that the Company maintain Liquidity (as defined in the New Term Loan Facility) of not less than$10 million as of the last day of any fiscal quarter, subject to certain exceptions and cure rights. As ofMarch 31, 2020 , we were in compliance with all covenants under our Term Loan Facility. Capital Expenditures During the three months endedMarch 31, 2020 , our capital expenditures totaled$0.7 million . Our current capital expenditure plan for 2020 contemplates spending of approximately$5 million for the full year, subject to market conditions. In light of the decline in planned E&P capital spending, reduced activity by our customers and reduced demand for our services, in April, we reduced our capital expenditure plan for 2020 from the original amount of$15 to$20 million to the current amount of approximately$5 million . These capital expenditures are primarily related to the ongoing maintenance of our equipment and addition of equipment and new equipment needed. Our capital expenditure program for 2020 is subject to market conditions, including activity levels, commodity prices, industry capacity and specific customer needs as well as cash flows, including cash generated from asset sales. Our focus for 2020 will be the maximization of our current equipment fleet, but we may choose to increase our capital expenditures in 2020 to expand our presence in a market. We may also further reduce our planned expenditures and defer acquisition of new equipment or maintenance if market conditions decline further. Should our operating cash flows or activity levels prove to be insufficient to fund our currently planned capital spending levels, management expects it will adjust our capital spending plans accordingly. 34
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Off-Balance Sheet Arrangements AtMarch 31, 2020 we did not, and we currently do not, have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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