Situation Overview

C&J Energy Services Inc. (C&J) is a large public fracking service provider specializing in well construction, completions and services. C&J experienced a period of rapid growth over the past 10-12 years as horizontal unconventional drilling of the shale formations became more prevalent. However, their 2015 acquisition of a competitor’s completion services business left the company with a significant amount of debt that coincided with a severe drop in oil prices – leading C&J to file for Chapter 11 bankruptcy in mid-2016.

Because of Carl Marks Advisors’ expertise working with legal counsel and creditors to develop favorable, outcome-focused financial solutions for companies going through in-court restructurings, as well as their deep knowledge of the oilfield industry and relevant experience working on transactions involving fracking service companies, Carl Marks Advisors was engaged by C&J to represent the unsecured creditors committee. The objective was to recover maximum value for them in the restructuring.

Unique Challenges

At the time Carl Marks Advisors was engaged, C&J had $1.5 billion of secured debt and the company valuation was suggested to be $750 million by the debtor and its lenders. The original restructuring support agreement proposed by the senior lenders and debtors called for the unsecured creditors to receive nothing.

Carl Marks Advisors found that management’s plan for C&J’s financial future and the basis of the company’s valuation was based on outdated and skewed projections. In depth industry knowledge and credibility enabled Carl Marks Advisors to challenge the company valuation based on early indications of recovery in the industry and more realistic assumptions around pricing and utilization that were supported by public peers and research analysts.

Results

Ultimately, Carl Marks Advisors was able to negotiate a court-approved solution for the unsecured creditors to receive essentially a full recovery in the form of cash as well as 2,360,000 seven-year warrants to purchase C&J stock at $27.95 per share.

As part of a confirmed plan of C&J’s reorganization, and after emerging from bankruptcy in 2017, Carl Marks Advisors affiliate, Carl Marks Securities LLC, was retained by C&J’s former unsecured creditors as Financial Advisor to help liquefy the unconventional long-duration warrants through a sale to institutional investors. For any buyer, the warrants would provide significant potential financial upside over the warrants duration as the oil and gas industry began to recover. For the sale of the warrants, the Carl Marks Securities’ team advised the trustee on the creation of a unique two-tier auction process that leveraged a stalking horse bid from a leading alternative investment manager to generate the best possible bid.

After soliciting nearly 150 bids, the highest four bidders advanced to a second competitive round. The winning bid sold the warrants at the expected value, right before the company’s stock price dipped, yielding an optimal outcome for the former unsecured creditors.

Key Takeaways

  • Having a financial advisor with deep industry experience and knowledge of the state of the industry can make the difference between an unsecured creditor receiving a full recovery in a bankruptcy or receiving nothing. Because Carl Marks Advisors knew the ins-and-outs of the oilfield services sector, they were able to credibly illuminate key information that led to a more accurate and favorable valuation of C&J for the unsecured creditors.
  • The Carl Marks Advisors team are adept at developing tailored solutions to meet unconventional client needs. The wide variety of roles, and the complex engagements Carl Marks Advisors has successfully navigated, have forged a team of dynamic investment banking and financial restructuring professionals with a unique ability to build creative processes and innovative approaches.
  • Carl Marks Advisors can take on multiple roles on a given deal, expanding on the expert perspectives the firm is able to bring to complex restructurings. In combination with affiliate Carl Marks Securities, the firm is uniquely positioned as a registered broker-dealer with the ability to sell securities. This was a true advantage with C&J’s unsecured creditors’ post-bankruptcy warrants as not many restructuring groups have the expertise, and qualifications to sell a block of securities coming out of a bankruptcy.