DBRS Places Savanna Energy Services Corp. Under Review with Developing Implications

DBRS Limited (DBRS) has today placed the following ratings of Savanna Energy Services Corp. (Savanna, or the Company) Under Review with Developing Implications:

-- Issuer Rating of B
-- Senior Unsecured Notes rating of B

The rating action follows the announcement by Total Energy Services Inc. (Total) that it has acquired approximately 51.6% of the common shares of Savanna. The acquisition of 51.6% meets the condition of acquiring a minimum of 50.1% for the offer to be successful. The common shares were acquired at the end of the initial deposit period of Total’s previously announced offer to purchase all the outstanding common shares of Savanna. The consideration payable under the offer included 0.13 of a Total common share and $0.20 in cash for each Savanna common share. Total has also extended the period for the tender of additional shares under its offer to April 7, 2017.

Savanna’s board of directors had previously rejected Total’s offer and the Company instead entered into a board-approved arrangement agreement with Western Energy Services Corp. (Western) pursuant to which Western agreed to acquire all of the issued and outstanding common shares of Savanna subject to shareholder approval. The consideration payable under the Western offer included 0.85 of a Western common share and $0.21 in cash for each Savanna common share. Savanna has acknowledged the acquisition of a majority of Savanna’s common shares by Total constitutes an event of default under the conditions of Savanna’s Senior Secured Revolving Credit Facility and the second-lien Senior Secured Term Loan Facility (the Term Loan). Savanna has announced that it is in discussions with its lenders and expects the lenders will not immediately take steps with respect to the event of default.

Although Total has acquired a majority stake, the hostile takeover bid is still evolving, with ambiguity regarding (1) Total’s final ownership in Savanna and its ability to gain full control of Savanna; (2) the status of the Term Loan from Alberta Investment Management Corporation (AIMCo) in the event that AIMCo does not consent to the change of control; (3) a detailed financing plan to refinance the Senior Unsecured Notes that also become repayable with a change of control; and (4) the applicability of the termination fee of $20 million as negotiated under the arrangement agreement with Western. Consequently, DBRS has placed the ratings of Savanna Under Review with Developing Implications until there is more clarity on the issues noted above. DBRS will review further information as it becomes available, with a view to resolving the Under Review status.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The principal methodologies are Rating Companies in the Oilfield Services Industry (September 2016) and DBRS Criteria: Recovery Ratings for Non-Investment Grade Corporate Issuers (February 2017), which can be found on dbrs.com under Methodologies.