Key Energy gets 6 3/8% and 8 3/8% noteholder consents to extend filing deadline

New York, July 20 - Key Energy Services Inc. (B1/B) said its previously announced solicitation of consents from the holders of its 6 3/8% senior notes due 2013 and 8 3/8% senior notes due 2008 to allow the company more time to file required financial reports expired as scheduled at 5 p.m. ET July 19 without further extension. As of that deadline, Key had received consents to the change in the reporting deadline, to Dec. 31, from holders of a majority of each note series.

As previously announced, Key Energy, a Midland, Texas-based provider of contract drilling, servicing and other well services to the energy industry, said on July 6 that it was soliciting consents from the holders of its outstanding 6 3/8% and 8 3/8% notes to extend till Dec. 31 the deadline by which the company would have to deliver its 2003 10-K and 2004 10-Q reports to the Securities and Exchange Commission. The company also separately updated information relating to the restatement of its financial statements, and relating to the investigations being conducted by its audit committee, in response to previously announced accounting problems.

Key initially said the consent solicitation would expire at 5 p.m. ET July 15, although this deadline was subsequently extended. It said that noteholders delivering their consents by the deadline would be eligible to receive a consent payment of $2.50 per $1,000 principal amounts of notes validly consented.

Key began seeking the noteholder consents to extending the filing deadline after it received a letter on June 1 from the trustee, purporting to be notice under the indentures governing the 6 3/8% and 8 3/8% notes, stating that the company's failure to file its 2003 10-K annual report and 10-Q quarterly report for the fiscal quarter ended March 31, 2003 constituted breaches of its financial reporting obligations contained in the indentures, and warning that unless the deficiency were to be remedied within 90 days, an event of default would occur under the indentures. Were such an event to occur, the trustee or holders of 25% of the outstanding principal amount of either series of notes would have the right to accelerate the maturity of that series of notes.

Key said that while it believed that the notice was invalid because it did not meet certain requirements for giving notice as required by the indentures, the company nonetheless proceeded with the consent solicitation.

The company said the consent solicitation would be subject to the satisfaction of certain conditions, including that consents for a majority of each particular series of notes must be received, a majority of the other series of notes must be received and the supplemental indenture for both series must be executed.

On July 16, Key Energy announced certain amendments to the consent solicitation, after discussions with holders of more than 50% of each series of the notes, who indicated their intention of delivering their consent.

It said that holders delivering their consents by the extended consent deadline (5 p.m. ET July 19), would receive a consent payment of $5 per $1,000 principal amounts of notes validly consented, instead of the originally announced consent payment of $2.50 per $1,000 principal amount.

It also said that if it were unable to provide by Oct. 1 the waived financial information that would have been required to be provided under the reporting covenants in the notes' indentures, the holders would receive a further cash consent payment of $2.50 per $1,000 principal amount, within three business days of that date, and would additionally receive a further cash consent payment of $2.50 per $1,000 principal amount within three business days of the first day of each month after that, through and including Dec. 1, were the company unable to provide the waived financial information by the first day of such month.

Key also said that it would file with the SEC on form 8-K selected financial and activity information for the quarter ended June 30, no later than the 50th day after the end of that quarter.

It also said that until the earlier of either the date the company provides the waived financial information or Dec. 31, it would make an 8-K filing of selected preliminary financial and activity information for each month after June, not later than the 50th day after the end of such month. The information would include revenues, certain expense data (including interest expense), current assets (including cash and cash equivalents) and current liabilities, outstanding debt, capital expenditures, status of compliance with credit facility covenants (including amounts available for borrowing) management discussion and analysis of the foregoing information, and disclosure of rig hours and trucking hours.

Key said that all other material terms of the consent solicitation would remain unchanged.

It also warned that noteholders not giving timely consent would not receive the consent payment or the further consent payments - even though the proposed amendments to the indentures governing the notes would be binding on them in the event that the proposed amendments became effective.

It also cautioned that any holder that had acquired notes of either series or that would acquire them after the record date of July 2 would have to make arrangements between itself and the holder of the notes as of that record date in order to receive the consent payment or the further consent payments.

Lehman Brothers was the solicitation agent for the offer (contact the Liability Management Group at 212 528-7581 or 800 438-3242.) D.F. King & Co. Inc. was the information agent and tabulation agent for the offer (call 212 69-5550 or 800 848-2998).

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