Houston-based fracking services company Hi-Crush Inc. filed for bankruptcy protection Sunday in Houston federal court to restructure $600 million in debt.
Like many companies before it, Hi-Crush cited chronic hardships in the market combined with the more recent challenges resulting from COVID-19 and the Saudi-Russian oil price war as cash-flow-crippling factors that drove the company to file for Chapter 11 reorganization. In the first quarter, the company reported $145 million in losses.
Hi-Crush General Counsel Mark Skolos turned to a team of lawyers from Latham & Watkins and Hunton Andrews Kurth to lead its corporate restructuring. The case has been assigned to U.S. Bankruptcy Judge David Jones in the Southern District of Texas.
Houston Hunton AK partner Timothy “Tad” Davidson is the lawyer listed on High-Crush’s voluntary petition. The Hunton AK team also includes Houston associates Ashley Harper, Ian Goldberg, Andrew Blasio, Philip Guffy and Catherine Diktaban.
Latham’s restructuring team is being led out of New York and Chicago, but the team handling corporate matters includes several Houston lawyers: partners Ryan Maierson and Trevor Lavelle as well as associates Kevin Richardson, Denny Lee and Eric Schoppe.
This isn’t the first time for Latham and Hunton AK to team up; less than three weeks ago, the two firms joined forces for Sable Permian Resources’ Chapter 11 filing. Davidson is also working on the Sable Permian bankruptcy.
Hi-Crush provides frac sand and logistics services to exploration and oil and gas producers in the Permian and DJ basins and the Marcellus, Utica, Bakken and Eagle Ford shales. The primary type of frac sand the company provides to its customers is Northern White Sand (NWS), which is higher quality but is produced in an unassuming region: Wisconsin and the upper Midwest.
This requires Hi-Crush to deliver NWS to its customers via railcar and other means of transportation. According to court documents, this became an issue for Hi-Crush in late 2017, when customers began to trade their demand for high quality for less expensive, lower quality, locally-sourced frac sand. This caused financial problems for Hi-Crush, which, in addition to NWS being its bread and butter, had a lot of money tied up in railcar leases that were no longer needed.
As for the roughly $600 million in debt that Hi-Crush is currently saddling in the Chapter 11, a bulk of that appears to be owed to the U.S. Bank National Association, the trustee for $450 million worth of senior unsecured notes due 2026 and Hi-Crush’s largest unsecured creditor listed on its bankruptcy petition.
Hi-Crush said in a statement that it entered its bankruptcy with a restructuring support agreement with the investors who hold 94% of the aggregate outstanding amount of the senior notes. Hi-Crush also said it enters its bankruptcy with $65 million in debtor-in-possession and exit financing from pre-petition lenders. The financing is expected to fund working capital needs during the bankruptcy as well as long-term capital needs as the company emerges from Chapter 11.
Alvarez & Marsal is Hi-Crush’s restructuring advisor for the bankruptcy and Moelis & Company is the company’s financial advisor. Paul, Weiss, Rifkind, Wharton & Garrison is providing legal advice to Hi-Crush’s noteholders.
Hi-Crush’s second largest unseured creditor is a subsidiary of Dallas-based Trinity Industries, which says it’s owed nearly $2.5 million. Other Texas-based creditors include Odessa-based KimberCo Services, Fort Worth-based Texas Specialty Sands, Eastland-based Maverick Logistics Services, Austin-based Atlas Sand Company, Odessa-based Tex Energy Resources, Denton-based Professional Trucking Services and Midland-based Sandbros Logistics.