DBRS Comments on Notice of Default Received by Savanna Energy Services Corp.

DBRS Limited (DBRS) today notes that on April 11, 2017, Savanna Energy Services Corp. (Savanna or the Company; rated B, UR-Dev.) announced that it has received a notice of an event of default (the Notice) pursuant to its second lien credit facility (Term Loan) with Alberta Investment Management Corporation (AIMCo). The acquisition by Total Energy Services Inc. (Total Energy) of more than 50% of the outstanding common shares of Savanna constitutes a change of control. The Notice follows the Company's failure to pay the obligations owing under the Term Loan as a result of such change of control. AIMCo has demanded the immediate payment of all obligations outstanding under the Term Loan, including the aggregate principal amount outstanding on the Term Loan of $105 million, the change of control payment of $6 million and all accrued and unpaid interest thereon. AIMCo is currently prohibited from enforcing the payment of these amounts for at least 180 days pursuant to the intercreditor arrangements between AIMCo and Savanna's first lien lenders. DBRS notes that the change of control is also an event of default under the Company’s first lien credit facility.

DBRS had earlier placed the Issuer Rating and Senior Unsecured Notes (the Notes) Rating of Savanna Under Review with Developing Implications (see DBRS’s press release titled “DBRS Places Savanna Energy Services Corp. Under Review with Developing Implications” published on March 28, 2017). The rating action noted that there was ambiguity regarding Total Energy’s ability to gain full control of the Company and the status of the refinancing plan in the event the Term Loan was recalled. Total Energy has since then acquired approximately 82% of the total number of Savanna’s outstanding common shares and gained representation on the Company’s reconstituted Board of Directors thereby reducing some of the uncertainty. However, AIMCo’s decision to recall the Term Loan will require Savanna and Total Energy to put in place a refinancing plan within 180 days from the date of the Notice. DBRS notes that Total Energy had previously stated that it received indicative term sheets from various sources of financing to fund the repayment of amounts outstanding under the Term Loan and the Notes. DBRS will review the refinancing plan as it becomes available, with a view to resolving the Under Review status. The Company’s rating may be adversely affected if the refinancing plan is not implemented prior to the 180-day enforcement grace period or if the terms of the new refinancing are materially worse than the prior financing.

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

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 www.dbrs.com under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.