Carbo Ceramics in bankruptcy; Wilks Brothers to swap debt for equity

By Caroline Salls

Pittsburgh, March 30 – Carbo Ceramics Inc. filed Chapter 11 bankruptcy Sunday in the U.S. Bankruptcy Court for the Southern District of Texas to facilitate an agreement reached with Wilks Brothers, LLC and Equify Financial, LLC (collectively, the Wilks Brothers) under which the Wilks Brothers will acquire Carbo through a debt-for-equity exchange under a plan of reorganization.

According to a company news release, Carbo expects to continue to operate in the ordinary course throughout the Chapter 11 process.

“Like many companies with a significant concentration in the oil and gas industry, we have felt the impact of the challenging business environment and, in response, have worked diligently to strengthen our overall financial foundation,” Carbo chairman and chief executive officer Gary Kolstad said in the release.

“While Carbo has undoubtedly made progress in our transformation strategy, we ultimately expect these headwinds to persist.”

Restructuring support agreement

Under the restructuring support agreement reached with the Wilks Brothers, Carbo’s pre-bankruptcy secured lenders agreed under a to-be-filed pre-negotiated plan to convert their secured claims, and Wilks agreed to potentially convert its DIP financing claims, if not rolled into an exit facility, into 100% of the equity in the reorganized debtors.

In addition, the pre-bankruptcy secured lenders agreed to provide Carbo’s unsecured creditors with cash equal to the greater of $500,000 or not less than the amount the unsecured creditors would receive in a hypothetical Chapter 7 liquidation, as well as to pay in full all unsecured creditors of Asset Guard and StrataGen, up to a total amount of $1.5 million.

The secured lenders will contribute $100,000 to fund the administrative costs of a liquidating trust established for the benefit of general unsecured creditors, which will own all avoidance actions not released in the plan.

If the unsecured creditor of a debtor vote to accept the plan, the secured lenders will waive their unsecured deficiency claim against that debtor.

DIP financing

In conjunction with the bankruptcy filing, the Wilks Brothers have committed to providing $15 million in DIP financing and consented to the use of its cash collateral to bolster Carbo’s financial position and finance its operations through the process.

This financing, combined with Carbo’s usual operating cash flows, will allow the company to continue to operate in the ordinary course through the restructuring process.

The DIP facility will mature on the earliest of 150 days after the effective date of the credit agreement, 30 days after the bankruptcy filing date if the final order has not been entered, the effective date of a Chapter 11 plan, the closing of an asset sale, the company’s failure to achieve any of the case milestones and the date the loans are accelerated and the commitments terminated.

The company is seeking interim access to $5 million of the DIP loan.

“We have long believed in the underlying strength of Carbo’s business, as exemplified by our multi-year relationship with the company,” Matt Wilks said in the release on behalf of Wilks Brothers, LLC. “This transaction will allow us to invest in the future of Carbo as we pursue opportunities to unlock value and support growth.”

According to court documents, Carbo had $145 million in both assets and debt as of Dec. 31.

The company did not list any unsecured creditors with claims of $1 million or more.

Vinson & Elkins LLP, Perella Weinberg Partners LP and corporate advisory affiliates including Tudor Pickering Holt & Co., and FTI Consulting, Inc. are advising Carbo in its Chapter 11 proceedings.

Carbo, based in Houston, is a global technology company that provides products and services to the oil and gas, industrial, agricultural and environmental markets. The Chapter 11 case number is 20-31973.

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