Plummeting energy prices have dramatically increased the number of failing middle-market Oil Field Services (OFS) companies. These zombies in the oil patch can’t stem the virus of negative cash flows despite cutting labor costs, operating expenses and capital budgets. They are still trying to operate but often not paying all their obligations to lenders, vendors, sub-contractors, employees and other creditors. Despite their struggle to survive, many face imminent collapse and liquidation after becoming increasingly over-levered and saddled with equipment they can’t sell.
Lenders are realizing that these zombies lurk in their portfolios, and are witnessing companies, in essence, liquidating to survive. In today’s market, recovery options for lenders are limited as over-supply has led to incredibly low realizable values on OFS equipment. Waiting and hoping for the business to return is no longer an option for lenders. Further delays will only result in the company’s continued deterioration and possible free fall into restructuring or liquidation. Lenders increasingly need to assess and deal with these zombies with the help of an outside professional that can provide their OFS companies with the expertise and guidance to address the immediate lack of liquidity and develop restructuring alternatives that maximizes recovery.
As energy price volatility continues in global markets, LM+Co provides a full range of advisory services to lenders and the OFS companies in their portfolio. Our Energy + Power team can help OFS companies adjust their strategies, restructure operations and develop an approach to confront turbulent market conditions.