Creditors and members schemes facilitate restructure and recapitalisation

Overview

Ashurst has acted as Australian legal advisors to longstanding firm client, Boart Longyear Limited ("BLY") (ASX:BLY) and its subsidiaries (collectively, the "Company") on its complex and multifaceted recapitalisation and re-domiciliation to Canada.

In the largest debt-for-equity swap in the last decade in Australia, the Company deleveraged by swapping more than A$1.1 billion of finance debt for 98.5% of the equity post issue.

The recapitalisation was effected by way of two interdependent creditors' schemes of arrangement approved in the Supreme Court of New South Wales paired with a series of related recapitalisation transactions, including a new money "Exit Finance Facility" and Chapter 15 recognition in the United States.  The Company also obtained Court orders approving a related members' scheme of arrangement, under which the corporate and tax domicile of the Company will be transferred from Australia to Canada.

The Problem

The Company is a leading manufacturer of drilling products, and provider of drilling services and equipment for mining and drilling companies globally, which is operationally headquartered in the United States.  Prior to the restructure, the Company had a complex capital structure and unsustainable levels of debt, constraining its ability to take full advantage of significant opportunities in an upward trending commodities cycle.

Before the recapitalisation, the Company's debt capital structure consisted of:

• Term Loan A and Term Loan B facilities ("Term Loans") (approx. US$162 million and US$195 million outstanding, respectively);
• notes issued under a Senior Secured Notes Indenture ("SSNs") (approx. US$355 million outstanding);
• notes issued under a Subordinated Unsecured Notes Indenture ("SUNs") (approx. US$94 million outstanding);
• two asset-based loan facilities, one a revolving borrowing-base facility and the other a term loan-style facility ("Backstop ABL") (approx. US$6 million and US$62 million outstanding, respectively); and
• a bridge facility ("Bridge Facility") entered into in May 2021 to provide additional working capital to support the Company throughout the recapitalisation process (approx. US$50 million outstanding).

These debt facilities were due to mature imminently.  The Company was not in a position to refinance its existing debt.

A thoughtful restructure was required to create a sustainable capital and organisational structure to put the Company on a strong footing to capitalise on the upswing in the mining and exploration sectors and to better access North American capital markets.

The Solution

Working in conjunction with Rothschild & Co., the Company undertook a strategic review in late 2020 to evaluate all available options to proactively address its problematic outlook.  After extensive consideration, the Company and its major finance creditors under the Term Loans, SSNs and SUNs agreed a restructuring plan to provide the best outcome for all stakeholders in the Company.  The plan included:

1. implementing two interdependent Australian law creditors' schemes of arrangement, with Chapter 15 recognition in the United States, to effect a debt-for-equity swap, plus new warrant issue, turning approximately A$1.1 billion of debt into 98.5% of the equity in the Company; 
2. giving finance creditors the option to further invest in the Company pursuant to a Creditor Share Purchase Option integrated into the creditors' schemes of arrangement;
3. providing existing shareholders with the option to purchase new shares in the restructured Company under a shareholder purchase plan, or sell-back their shares to the Company under a selective buy-back; and  
4. successfully refinancing the Backstop ABL and Bridge Facility, with a new secured Exit Finance Facility in the amount of US$115 million.

At the same time, the Company pursued re-domiciling its business to Canada to better align the legal structure of the group with the geography of its shareholder base and improve access to capital.  Notwithstanding the re-domiciliation, in light of the large number of Australian shareholders, the Company intends on maintaining its listing on ASX through CHESS Depositary Instruments (or CDIs), which will make the Company one of approximately 13 Canadian companies trading on ASX using CDIs.

Simultaneously preparing and implementing such a multifaceted restructure required outstanding technical expertise, perseverance and hard-work by Ashurst, U.S. counsel Milbank LLP, the Company's management team and its financial advisors, Rothschild & Co. and Alvarez & Marsal, and FTI Consulting as scheme administrators, together with a carefully calibrated transaction timeline, including the following key elements:

1. preparing a detailed suite of transaction documents, comprising of three schemes of arrangement, a restructuring implementation deed, explanatory statements and notice of extraordinary general meeting to obtain the shareholders' approval of the restructure, among many other legal documents;
2. an extended ASIC consultation period; 
3. a consolidated Court hearing seeking orders convening the meetings of creditors and members;
4. convening and facilitating two meetings of creditors, an extraordinary general meeting of shareholders to approve the restructure and a meeting of shareholders to approve the members' scheme of arrangement;
5. a Court hearing approving the creditors' schemes of arrangement;
6. working with U.S. counsel, Milbank LLP to obtain Chapter 15 recognition orders;
7. working with scheme administrators of FTI Consulting to implement the two creditors' schemes of arrangement involving a complex eight step process;
8. a Court hearing approving the members' scheme of arrangement; 
9. establishing a new Canadian holding company and having that company approved for listing on ASX; and
10. implementing the re-domiciliation to Canada and ASX listing of the CDIs, expected to complete on 5 October 2021.

The Outcome

The Company's hard-work, careful planning and execution has paid off.  Not only did the creditors approve the schemes with a very high level of support, the shareholders also voted in favour of the debt-for-equity swap and the redomiciliation to Canada by sizeable majorities.

The restructure has achieved the following:

• shares in BLY equal to 98.5% of its share capital were issued to creditors under the Term Loans, SSNs and SUNs (in addition, warrants were issued to certain creditors);
• pursuant to the creditors' schemes of arrangement, all creditor claims against the Company under the Term Loans, SSNs and SUNs were released (as were security interests granted by the Company in respect of the Term Loans and SSNs);
• the Exit Finance Facility was put in place with moneys advanced used to completely repay the Backstop ABL and Bridge Facility;
• the share purchase plan raised new capital for the Company, and a small number of shareholders opted out by having their shares bought-back; 
• subordinate shareholder claims against the Company were released; and
• total Company finance debt has been reduced by approximately A$1.1 billion.

The debt-for-equity swap effected under the creditors' schemes of arrangement is one of the largest completed in the Australian market.  The recapitalisation demonstrates the position of the creditors' scheme of arrangement as the pre-eminent tool for complex restructures in Australia, and how it can be creatively used with other legal processes to deliver real fixes to capital and organisational structures.  This case is also a good example of how members' schemes of arrangement can be used to re-domicile corporate groups between jurisdictions, but maintain an Australian presence by listing CDIs on ASX.

Ashurst was privileged to support Boart Longyear and its dedicated management team on this transformational transaction.  Boart Longyear is now positioned to take advantage of significant growth opportunities in the ongoing commodities cycle upswing.

Ashurst was also delighted to work closely with Boart Longyear's advisor group, including Rothschild & Co., Milbank LLP, Dorsey & Whitney LLP and Alvarez & Marsal, as well as FTI Consulting as scheme administrators.

Authors:  James Marshall, Partner; Alinta Kemeny, Partner; Harrison Cross, Senior Associate; Simon Parmeter, Lawyer.