OLeFligairoRT APR - i 2016

OLeFligairoRT
FORM 7
[RULE 3.8]
APR - i 2016
CALGARY,ALBERTA
COURT FILE NUMBER
1601 — 031y
COURT
COURT OF QUEEN'S BENCH OF ALBERTA
JUDICIAL CENTRE
CALGARY
APPLICANTS
IN THE MATTER OF THE COMPANIES'
CREDITORS ARRANGEMENT ACT, R.S.C. 1985,
c. C-36, as amended
AND IN THE MATTER OF THE COMPROMISE
OR
ARRANGEMENT
OF
SANJEL
CORPORATION, SANJEL
CANADA
LTD.,
TERRACOR GROUP LTD., SURETECH GROUP
LTD.,SURETECH COMPLETIONS CANADA LTD.,
SANJEL ENERGY SERVICES(USA)INC., SANJEL
(USA) INC., SURETECH COMPLETIONS (USA)
INC., SANJEL CAPITAL (USA) INC., TERRACOR
(USA)INC., TERRACOR RESOURCES (USA)INC.,
TERRACOR LOGISTICS (USA) INC., SANJEL
MIDDLE EAST LTD., SANJEL LATIN AMERICA
LIMITED and SANJEL ENERGY SERVICES
DMCC
DOCUMENT
ORIGINATING APPLICATION
ADDRESS FOR SERVICE AND
CONTACT INFORMATION OF
PARTY FILING THIS
DOCUMENT
BENNETT JONES LLP
Barristers and Solicitors
4500, 855 — 2nd Street S.W.
Calgary, Alberta T2P 4K7
Attention: Chris Simard
Telephone No.: 403-298-4485
Fax No.: 403-265-7219
Client File No.: 22681.375
NOTICE TO THE RESPONDENTS
This application is made against you. You are a respondent.
You have the right to state your side of this matter before the Court.
To do so, you must be in Court when the application is heard as shown below:
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2
Date:
Time:
Where:
Before:
April 4,2016
8:30 a.m.
Calgary Courts Centre
601 — 5th Street S.W., Calgary
The Honourable Madam Justice Romaine
Go to the end of this document to see what you can do and when you must do it.
Basis for this claim:
L
Sanjel Corporation ("Sanjel Corp"), Sanjel Canada Ltd. ("Sanjel Canada"), Terracor
Group Ltd. ("Terracor Group"), Suretech Group Ltd. ("Suretech"), Suretech
Completions Canada Ltd. ("Suretech Canada"), Sanjel Energy Services (USA) Inc.
("Sanjel Energy"), Sanjel (USA) Inc. ("SUSA"), Suretech Completions (USA) Inc.
("Suretech USA"), Sanjel Capital (USA) Inc. ("Sanjel Capital"), Terracor (USA) Inc.
("Terracor USA"), Terracor Resources (USA) Inc. ("Terracor Resources"), Terracor
Logistics (USA) Inc. ("Terracor Logistics"), Sanjel Middle East Ltd. ("Sanjel ME"),
Sanjel Latin America Limited ("Sanjel Latin America") and Sanjel Energy Services
("Sanjel DMCC") (collectively the "Applicants" or the "Sanjel Group") are related
companies to which the Companies'Creditors Arrangement Act, R.S.C. 1985, c. C-36, as
amended (the "CCAA") applies. The Applicants meet the statutory requirements to be
eligible for relief under the CCAA.
2.
Sanjel Corp, through its direct and indirect ownership of the other Applicants, is an
independent oil and gas services company with its management and management
activities exclusively in Canada. The Sanjel Group operates and has assets in Canada, the
USA, Saudi Arabia and Mexico.
3.
The Sanjel Group's pressure pumping operations provide fracturing, cementing, coiled
tubing and reservoir solutions services in Canada, the U.S. and Saudi Arabia (via its joint
venture). Through the Suretech entities, the Sanjel Group offers patented multistage
completions system solutions for unconventional reservoir development with operations
in the USA, Canada and the other international locations. Finally, through Terracor
Group, the Sanjel Group distributes proppant through its strategically-located transload
facilities, and is in the process of developing a premium quality northern white fracturing
sand mine to service the North American energy industry.
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-34.
The Sanjel Group's business was established in 1982. Over the last 34 years, the business
has grown into a fully-integrated industry leader providing fracturing, cementing, coiled
tubing and reservoir solutions services to the oil and gas industry in Canada, the U.S. and
the Middle East.
5.
Sanjel Group's business is fully integrated, with the "nerve center" for the entire group
based in Calgary. As noted above, all of the Directors and Officers of the Canadian and
U.S. Sanjel companies are residents of Calgary. Additionally, almost all of the members
of the executive management team of the entire Sanjel Group are residents of Calgary
and perform their duties out of the Calgary Head Office.
6.
Pursuant to an Amended and Restated Credit Agreement dated as of April 21, 2015 (the
"Bank Credit Agreement"), Sanjel Corp and SUSA, as borrowers, are party to a secured
credit facility (the "Facility") with a syndicate of financial institutions (the "Syndicate")
led by Alberta Treasury Branches as Administrative Agent("ATB" or the "Agent"). All
the other Applicants are guarantors under the Facility.
7.
The amount currently outstanding under the Bank Credit Agreement is approximately
CAD$396.7 million.
8.
On June 18, 2014, Sanjel Corp issued US$300,000,000 principal amount 7.5% unsecured
Senior Bonds due June 19, 2019 (the "Senior Bonds"), which are governed by a bond
agreement (the "Bond Agreement") between Sanjel Corp and Nordic Trustee ASA, as
trustee (the "Trustee"). Sanjel Corp is required to pay the interest accruing under the
Senior Bonds semi-annually on June 19 and December 19. The Senior Bonds are
guaranteed by the other Applicants, but are otherwise unsecured.
9.
The entities in the Sanjel Group have also entered into a number of equipment leases with
various lessors. The total amount of all remaining payments under the Sanjel Group's
equipment leases, including buy-out options, totals approximately CAD$100,000,000.
The Sanjel Group's monthly equipment lease expense is approximately CAD$2,3 million.
10.
As has been well-publicized, there has been a catastrophic deterioration in the macro
commodity price environment for oil and natural gas globally. Since July 2014, the
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-4benchmark West Texas Intermediate ("WTI") crude oil price has dropped from
approximately USD $100/bbl to its current price range of approximately USD $20/bbl to
USD $41/bbl. Similarly, the benchmark Henry Hub natural gas price has dropped from
approximately USD $4.50/MMbtu to its current price range of approximately USD
$1.65/MMbtu to USD $1.80/MMbtu.
11.
This precipitous commodity price decline has severely curtailed the revenues of oil and
gas exploration and production companies ("E & P Companies"). As a result, over the
last 18 months, North American E & P Companies have drastically reduced their capital
expenditure budgets and this has resulted in significant pressure on the North American
energy services industry, including the Sanjel Group.
12.
Among other things, North American E & P Companies are drilling far fewer oil and gas
wells (publicly available industry estimates of active rig counts in the U.S. and Canada
were approximately 2413 in July 2014 and approximately only 519 in March 2016). In
addition, even on drilled wells, E & P Companies are simply deferring the completion of
many wells until commodity prices recover.
13.
These factors have had a direct negative impact on the Sanjel Group's revenue because
the amount of work available from North American E & P Companies has decreased
significantly, and pricing pressure on the jobs that are still available has increased
substantially.
14.
Despite its past and ongoing efforts to pursue all possible cost reductions, as a result of
the decreasing revenues and profitability earned by the Sanjel Group, Sanjel Corp and
SUSA breached certain financial covenants under the Bank Credit Agreement in late
2015. Since late December 2015, the Syndicate has been in a position to exercise
enforcement rights under the Bank Credit Agreement, including accelerating all amounts
outstanding under the Facility.
15,
Additionally, its decreasing revenues led to the Sanjel Group experiencing negative net
cash flow and increasing pressure on its working capital situation. A semi-annual interest
payment of USD $11,250,000 was due and owing on December 19, 2015 under the Bond
Agreement. Sanjel Corp had sufficient cash availability to make this interest payment,
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-5but it decided not to do so given the extremely constrained working capital situation it
was facing at the time and instead entered into the possible restructuring discussions
described below with the Syndicate and the holders of more than 45% of the Senior
Bonds (the "Ad Hoc Bondholders") regarding a possible restructuring. Sanjel was also
in breach of certain financial covenants under the Bond Agreement. This non-payment of
interest was a default of the Bond Agreement and a cross-default under the Bank Credit
Agreement.
16.
In December 2015 and January and February 2016, Sanjel Corp, on its own behalf and on
behalf of some or all of the Applicants, negotiated forbearance arrangements with the
Syndicate, the holders of over 45% of the Senior Bonds and certain equipment lessors
(the "Lessors") to ensure that they did not exercise remedies with respect to the defaults
while the parties continued to discuss the Applicants' restructuring. The forms of those
forbearance agreements were settled between the parties, but they have not been executed
or implemented as the conditions precedent thereunder have not been met.
17.
On February 25, 2016, the Trustee under the Senior Bonds delivered to Sanjel Corp a
summons of a meeting of the holders of the Senior Bonds in Oslo, Norway on March 10,
2016 at which time the holders of the Senior Bonds will consider either approving the
forbearance arrangement or instructing the Trustee to accelerate the amounts outstanding
under the Senior Bonds and commence enforcement remedies.
18.
The meeting of holders of Senior Bonds was postponed from March 10, 2016 to March
31, 2016 on certain terms and conditions, and again to April 14, 2016.
19.
On March 18, 2016, legal counsel for the Syndicate delivered to the Applicants demands
for repayment of all amounts outstanding under the Bank Credit Agreement, along with
10-day Notices of Intention to Enforce Security pursuant to s. 244 of the Bankruptcy and
Insolvency Act.
20.
The Applicants do not have sufficient liquidity to pay the accelerated amounts that would
be due to any one of the Syndicate, the Senior Notes and the Lessors. As a result, the
Applicants are insolvent.
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-621.
The Applicants require a stay of proceedings in order to restructure their debt obligations
for the long-term benefit of their creditors and stakeholders. It is the Applicants'
expectation that they, their creditors and their stakeholders will derive a greater benefit
from a restructuring than through liquidation or bankruptcy.
22.
On or about January 17, 2016, Credit Suisse Securities(CANADA), Inc.("CS") and PJT
Partners LP ("PJT") on behalf of the Applicants commenced a sales and investment
solicitation process ("SISP") to solicit purchase, investment, recapitalization and
restructuring proposals respecting the Applicants or substantially all or a portion of their
assets. The Syndicate required commencement of the SISP as a condition of continuing
to forbear from enforcement of the Syndicate's rights and remedies, based on the existing
defaults under the Bank Credit Agreement and the Applicants agreed that a SISP was
necessary and appropriate in the circumstances.
23.
The SISP ran from about January 17, 2016 to March 9, 2016. The Syndicate did not
participate in the SISP as a bidder, and was kept apprised of its progress. Two phases of
bid submissions took place, as a result of which, on April 3, 2016 the Applicants entered
into two Asset Purchase Agreements for the sale of substantially all of the assets
comprising the Sanjel Group's Canadian and U.S. businesses.
24.
Effective April 4, 2016, Sanjel Corp and all the members of the Syndicate (collectively,
in this context, the "Interim Lenders") entered into a Senior Secured Superpriority
Interim Credit Agreement (the "Interim Credit Agreement"), and certain ancillary
guarantee and security documents are in the process of being finalized.
25.
In addition, both before and concurrently with the SISP, the Applicants have actively
engaged with the Ad Hoc Bondholders to solicit and discuss a possible restructuring
transaction. These discussions have been ongoing since late 2015, but have not led to the
proposal of any transaction acceptable to the Applicants or the Syndicate.
26.
The most expedient and efficient means of restructuring the Sanjel Group and its debt
obligations is to carry out a singular restructuring proceeding that is overseen and
directed by this Honourable Court in Canada, the home jurisdiction and centre of
management, business and operations of the Sanjel Group.
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-727.
The provisions of the CCAA and the equitable jurisdiction of this Court.
28.
Such further and other grounds as counsel may advise and this Court may permit.
Remedy sought:
29.
An Order dispensing with service of the Originating Application and supporting materials
on all creditors of the Applicants and, or, deeming service thereof to be good and
sufficient and abridging the time for service, if necessary.
30.
An Order pursuant to the CCAA granting an interim stay of proceedings pursuant to
sections 11 and 11.02 of the CCAA on the terms substantially set out in the draft Initial
Order attached hereto as Schedule "A", and which shall include, but not be limited to, the
following relief:
(a)
declaring that the Applicants are companies to which the CCAA applies;
(b)
staying all proceedings and remedies taken or that might be taken in respect of the
Applicants or any of their property except as otherwise set forth therein;
(c)
authorizing the Applicants to carry on business in a manner consistent with the
preservation of their property and business;
(d)
appointing PricewaterhouseCoopers Inc. as monitor (the "Monitor") of the
Applicants in these proceedings and granting the Monitor certain enhanced
powers relating to the disclaimer of agreements and the SISP (as described in the
Affidavit ofPaul Crilly sworn April 4, 2016 (the "Crilly Affidavit"));
(e)
confirming the Applicants' engagement of Paul Crilly as the Chief Restructuring
Officer (the "CRO") of the Applicants, approving the agreement between the
Applicants and Mr. Crilly, authorizing Mr. Crilly, as CRO, to take steps to
restructure the business and affairs of the Applicants as provided for therein, and
providing for Mr. Crilly's indemnification and security for the same;
(f)
granting the Administration Charge, the Interim Lenders' Charge, the Credit Card
Charge, the Directors' Charge, the KERP Charge, the Financial Advisors' Charge,
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-8and the Critical Suppliers' Charge (all as defined in the Crilly Affidavit) in the
amount and with the priority set out therein;
(g)
approving Sanjel Corp's KERP (as defined in the Crilly Affidavit);
(h)
authorizing the Applicants to pay for goods and services supplied to the
Applicants by certain Critical Suppliers after the date of the Initial Order;
(i)
authorizing the Applicants to continue to utilize the corporate credit cards in place
with The Bank of Nova Scotia and requiring the Applicants to make full
repayments of the amounts outstanding thereunder on a daily basis, including with
respect to any pre-filing charges;
(j)
approving the Financial Advisor Engagement Letters (as defined in the Crilly
Affidavit) entered into between each of Wells Fargo Securities Canada Ltd.
("Wells Fargo Securities"), CS, and PJT, and the Applicants;
(k)
authorizing Sanjel Corp to borrow funds under the interim credit facility
established under the Interim Credit Agreement (as defined in the Crilly
Affidavit);
(1)
sealing on the Court file the Confidential Crilly Affidavit and its Exhibits, and
sealing on the Court file Exhibit "1" to the Affidavit of Michael J. Genereux
sworn April 4, 2016 (the "Genereux Affidavit");
(m)
requesting the aid, recognition and assistance of any court, tribunal, regulatory or
administrative body having jurisdiction in Canada or in the United States to give
effect to the Initial Order;
(n)
authorizing the Monitor to act as the foreign representative of the Applicants and
of the within proceedings, and to apply for foreign recognition of the within
proceedings, as necessary, in any jurisdiction outside of Canada, including in the
United States pursuant to Chapter 15 of the U.S. Bankruptcy Code, and to take
such actions necessary or appropriate in furtherance of the recognition of these
proceedings in any such jurisdiction;
WSLEGAL\022681\00375\12980277v6
- 9-
(0)
deeming service of the Application for the Initial Order to be good and sufficient;
and
(p)
such further and other relief as to this Honourable Court may seem just.
Affidavit or other evidence to be used in support of this application:
31.
the Crilly Affidavit, filed;
32.
the Confidential Crilly Affidavit, to be sealed on the Court file;
33.
the Genereux Affidavit, filed, Exhibit "1" thereto to be sealed on the Court file;
34.
the Consent ofPricewaterhouseCoopers Inc. to act as Monitor of the Applicants;
35.
the Pre-Filing Report of the Proposed Monitor; and
36.
such further and other evidence as counsel may advise and this Honourable Court may
permit.
Applicable Acts and regulations:
37.
the CCAA; and
38.
such further and other Acts and regulations as counsel may advise.
WARNING
You are named as a respondent because you have made or are expected to make an
adverse claim in respect of this originating application. If you do not come to Court either
in person or by your lawyer, the Court may make an order declaring you and all persons
claiming under you to be barred from taking any further proceedings against the applicants
and against all persons claiming under the applicants. You will be bound by any order the
Court makes, or another order might be given or other proceedings taken which the
applicants are entitled to make without any further notice to you. If you want to take part
in the application, you or your lawyer must attend in Court on the date and at the time
shown at the beginning of this form. If you intend to give evidence in response to the
application, you must reply by filing an affidavit or other evidence with the Court and
serving a copy of that affidavit or other evidence on the applicants a reasonable time
before the application is to be heard or considered.
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