Calfrac gives itself breathing room with bought deal

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Calfrac Well Services Ltd. has given itself financial breathing room as it seeks to weather the severe downturn in oil field services.

The Calgary-based hydraulic fracturing company agreed to issue $27.5-million worth of shares in a bought deal. The proceeds are being kept in a separate account, to be used if it needs to stay on side with its debt covenants. The equity issue – 20.4 million shares at $1.35 apiece – is an "equity cure option" that helps remove risks of default that have pressured the company's shares as well as its bond price as business has dropped off. It does mean dilution for current investors, however.

Fernando Aguilar, Calfrac's chief executive officer, said the company does not currently believe it will have to use the money to beef up its balance sheet, but stressed that the option is there if needed. The issue follows amendments to its debt covenants announced earlier this week.

The company's operations have slowed along with a massive drop in capital spending among its exploration and production company customers. Since April, the shares are down more than 85 per cent.

Proceeds from the share issue provide insurance against further damage to the company's balance sheet, said Scott Treadwell, an analyst at TD Securities.

"With the revised covenants ... we see no chance of breach under our current 2016 forecast," Mr. Treadwell said in a note to clients.

The company's $833-million worth of bonds, priced at less than 50 cents on the dollar, still reflect a risk of default. That represents "the elephant in the room" for Calfrac, said Raymond James analyst Andrew Bradford.

He said the company's debt levels remain "very high" in proportion to his pretax operating earnings and cash flow projections.

The shares are being sold to a syndicate led by Peters & Co. Calfrac's major shareholder, Matco Investments, which has 20.4 per cent of the stock, has agreed to buy its proportional share, the company said.