Judge forces Fracmaster into
receivership
Court rejects proposals, bidders must go
back to drawing board for assets
By IAN MCKINNON
The Financial Post
CALGARY - An Alberta judge yesterday rejected all three
proposals for rescuing troubled Fracmaster Ltd. and
appointed a receiver to oversee the sale of the assets of the
Calgary-based energy services firm.
In issuing her ruling, Justice Marina Paperny of the Court
of Queen's Bench said each of the three proposals had
unacceptable flaws. Fracmaster had sought refuge from its
creditors in mid-March under the Companies' Creditors
Arrangement Act after amassing debts of more than
$134-million.
Arthur Andersen Inc., the former monitor, appointed
receiver to handle the sale, will return to court on Friday
with recommendations on disposing of the assets, likely
spelling the end of Fracmaster after more than 20 years of
providing cementing, pressure pumping, and drilling services
to the energy industry.
Brian O'Leary, lawyer for Arthur Andersen, said the
decision re-opens the auction, meaning new buyers can
enter and previous bidders can alter old plans.
"It's a whole new ball game now," he told reporters after
the ruling was issued. "It is a pure asset sale. It is no longer
a restructuring."
But the various players were either tight-lipped or
unavailable for comment about whether they would
continue to pursue Fracmaster, which got into difficulty
because of soft oil prices, unrest in Russia, and botched
financing.
The ruling negates a deal by UTI Energy Corp. of
Houston, which had agreed to pay $60.7-million for
Fracmaster in late April. The bid would have left
Fracmaster's banking syndicate, owed $96-million, with a
$35-million loss and nothing for unsecured debtors and
common shareholders.
UTI's deal was scheduled to close yesterday. While UTI's
offer was supported by Fracmaster management and the
banking syndicate, the sale did not fit the spirit of CCAA
which calls for a restructuring that benefits all stakeholders,
Judge Paperny said.
"However reasonable the proposal may be, its purpose is
to facilitate a sale for the benefit of the syndicate. That can
be accomplished in a different fashion without distorting the
spirit of the CCAA," she said.
Mark Siegel, chairman of UTI, said quick resolution is
crucial because staff and potential clients want to resolve
the uncertainty surrounding Fracmaster. He declined to say
if his firm will amend its bid.
"We hope the receiver says Friday that there is a process
in place and the process has come to an end and we are the
winner. That's what we hope happens and that's what we
expect will happen," he said.
Judge Paperny found a $93.4-million proposal by Janus
Corp., a company controlled by Alfred Balm, met the act's
intent and provided the banks with slightly more money. It
also gave unsecured debtors partial repayment and
presented shareholders some opportunity for gain.
The banks' concerns that the conditional deal might fall
apart in three months, with the delay increasing their losses,
were accepted by the court.
While awaiting instructions from Geneva-based Mr. Balm,
lawyer Phil Lalonde said he expects his client will make
another pitch for assets of the company he once controlled.
"We would put in a bid for the assets, but that doesn't
mean Mr. Balm has given up in his desire to do something
for the shareholders of Fracmaster," he said.
Also still interested was Doug Ramsay, a former president
of Fracmaster who entered Calfrac Ltd.'s last-minute
proposal that was a small improvement over UTI in terms
of benefits for unsecured creditors and shareholders.
"I want to go caucus with our lawyer and the rest of the
people and take a look at the company," he said outside the
courtroom. "We wouldn't have come this far if we didn't
think there was value in the company," Mr. Ramsay said.
Judge Paperny said Calfrac's proposal failed to comply
with CCAA's legislation and was not supported by the
banking syndicate, led by Royal Bank of Canada.
Mr. Balm took advantage of the bull market in the fall of
1997 to sell his 67% stake in the company via instalment
receipts priced at $19.50. The shares climbed to almost
$25 in early 1998.
Last year's oil-price crash and unrest in Russia caused the
stock to plummet, prompting many investors to walk away
from their second payment of $9.75, due last September.
The fall erased more than $1-billion of market capitalization
in less than 12 months. |
