Sec Form 13D Filing - Ascribe Capital LLC filing for BASIC ENERGY SERVICES INC. (BASX) - 2020-03-10

Explanatory Note

This Amendment No. 10 amends and supplements the statement on Schedule 13D originally filed by Ascribe Capital LLC (“Ascribe Capital”), Ascribe III Investments LLC (“Fund III”) and American Securities LLC (“American Securities” and, collectively with Ascribe Capital and Fund III, the “Reporting Persons”) on January 3, 2017 (as amended, the “Schedule 13D”), with respect to the common stock, par value $0.01 per share (“Common Stock”), of Basic Energy Services, Inc. (the “Issuer”).  All capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Schedule 13D.

Item 3. Source and Amount of Funds or Other Consideration

Item 3 of the Schedule 13D is hereby amended and supplemented as follows:

As of March 10, 2020, as reflected in this Schedule 13D, the Reporting Persons beneficially own an aggregate of 122,496,846 shares of Common Stock, reflecting 3,691,846 shares of Common Stock held of record by Fund III, together with 118,805,000 shares of Common Stock that Fund III has the right to obtain upon the conversion of  118,805 shares of Series A Preferred Stock, par value $0.01 per share (“Series A Preferred Stock”), of which Fund III is the record owner.  As described in Item 4 of the Schedule 13D, the shares of Common Stock reported herein were acquired (a) in connection with the Issuer’s chapter 11 case in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”), (b) in purchase transactions funded from cash on hand of Fund III, and (c) in connection with the exchange agreement and purchase agreement outlined herein.

Item 4. Purpose of Transaction.

Item 4 of the Schedule 13D is hereby amended and supplemented as follows:

The summaries of the agreements contained in this Item 4 are qualified in their entirety by reference to the underlying agreements, each of which is filed as an exhibit hereto and incorporated by reference herein.

Purchase and Exchange Agreements

Pursuant to the Purchase Agreement, Fund III agreed with NexTier that, if (i) NexTier holds the Senior Notes until the first anniversary of the Closing Date (the “Holding Period”) or (ii) the bankruptcy or a change in control (as those terms are defined in the Purchase Agreement, an “Acceleration Event”) of NexTier occurs prior to the first anniversary of the Closing Date, then within ten (10) business days following the date (the “Redemption Date”) that is the earlier of (A) the expiration of the Holding Period or (B) the date of an Acceleration Event, Fund III shall, as agent for NexTier, sell the Senior Notes for cash and pay the proceeds thereof to NexTier.  If the sale of the Senior Notes by Fund III in accordance with the Purchase Agreement results in a sale price for the Senior Notes (the “Sale Price”) less than the par value of the Senior Notes as of the date of such sale, Fund III shall pay to NexTier , in cash, the amount equal to the excess of the par value over the Sale Price (the “Make-Whole Payment”).  If the Sale Price for the Senior Notes is equal to or greater than the par value of the Senior Notes, then Fund III shall not be obligated to pay, and NexTier shall not be entitled to receive, any Make-Whole Payment. Furthermore, if the Sale Price for the Senior Notes is greater than the par value of the Senior Notes, then the amount equal to the excess of the Sale Price over the par value shall be paid to, or retained by, Fund III.  If Fund III is unable to sell the Senior Notes as and when required pursuant to the Purchase Agreement, then Fund III shall purchase the Senior Notes, for cash, at par value within fifteen business days following the Redemption Date.

 

Notwithstanding anything in the Purchase Agreement to  the contrary, NexTier shall have the right and continuing option to sell the Senior Notes at any time during the Holding Period; provided, however, that if NexTier sells the Senior Notes during the Holding Period, NexTier shall not be entitled to any Make-Whole Payment; and Fund III shall have the right and continuing option to cause NexTier to sell the Senior Notes at any time during the Holding Period; provided, that, if Fund III exercises its option pursuant to the Purchase Agreement, Fund III shall arrange for the sale of the Senior Notes as agent for NexTier.  If the sale of the Senior Notes in accordance with the Purchase Agreement results in a Sale Price less than the par value of the Senior Notes, Fund III shall pay to NexTier the applicable Make-Whole Payment.

Stockholders Agreement

Fund III and the Issuer entered into a stockholders agreement on March 9, 2020 (the “Stockholders Agreement”), pursuant to which Fund III became entitled, until such time that it beneficially owns 50% or less of the Issuer’s outstanding Common Stock, to designate all of the members of the Board.  Simultaneously with the execution and delivery of the Stockholders Agreement, three representatives of Ascribe were appointed to the Board as follows: (i)  Lawrence First was appointed as a Class I director; (ii)  Derek Jeong was appointed as a Class II director; and (iii) Ross Solomon was appointed as a Class III  director.  As a result of such appointments to the Board, the Board is comprised of seven (7) directors, constituted as follows: (a) three (3) Class I directors; (b) two (2) Class II directors; and (c) two (2) Class III directors.

The Stockholders Agreement provides that, so long as its Board rights continue under the agreement, Fund III shall, and shall cause each of its affiliates that own the Issuer’s Common Stock to, vote all voting equity securities of the Issuer held by Fund III and any such other holders over which any affiliated Fund III entity has voting control, and each of the Issuer and Fund III agree to take all other necessary or desirable actions within its control to cause the Board to include no less than two independent directors, as defined in the Stockholders Agreement.

 

 

For the purposes of the Stockholders Agreement, “Ascribe Affiliated Entities” means (i) Fund III and each investment fund which Fund III or its affiliates controls or for which Fund III or its affiliates act as manager or investment advisor and (ii) each person in which person(s) described in clause (i), directly or indirectly, individually or collectively, holds a majority of the outstanding equity securities or voting securities. For the purposes of determining whether a person described in clause (ii) holds a majority of the outstanding equity securities of a person, the outstanding equity securities of all classes of such person will be taken into account and ownership will be determined on the basis of all such classes taken as a whole.

Pursuant to the Stockholders Agreement, Fund III and the Ascribe Affiliated Entities have agreed not to acquire or make any proposal to acquire additional shares of  Common Stock or any other common stock equivalent equity security of the Issuer or rights or options to acquire any such securities (“Common Equity”), without the prior approval of an Independent Committee, other than converting their shares of Series A Preferred Stock to Common Stock.  However, Fund III and the Ascribe Affiliated Entities are permitted to acquire additional Common Equity upon a transfer of Common Equity to a third party, so long as the beneficial ownership of the Reporting Persons does not exceed an equity cap of 85.06%, calculated in accordance with the Stockholders Agreement (this cap is equivalent to the Reporting Persons’ ownership, on a fully diluted basis, as of March 9, 2020 upon the consummation of the transactions described in this Amendment No. 10).  Under the Stockholders Agreement, Fund III and the Ascribe Affiliated Entities are entitled to acquire or make a proposal to acquire Common Equity in connection with any merger or other business combination between the Issuer or any of the Issuer’s subsidiaries and any individual, firm, partnership, company or other entity (other than an Ascribe Affiliated Entity) in which any Ascribe Affiliated Entity owns debt or equity securities.

 

The Stockholders Agreement grants to the Reporting Persons certain preemptive rights with respect to any future issuances of equity securities by the Issuer. In addition, the Reporting Persons agreed not to transfer, directly or indirectly, Common Equity representing more than 50% of the Issuer’s fully-diluted Common Equity, unless each holder of Common Stock (other than the Ascribe Affiliated Entities) is entitled to participate in such transaction to receive (i) the same form of consideration per share of Common Stock as the Ascribe Affiliated Entities or (ii) equivalent cash consideration per share of Common Stock.

 

The Stockholders Agreement will terminate automatically upon the earlier to occur of (i) the Reporting Persons' beneficial ownership percentage being reduced to less than fifteen percent or (ii) the Reporting Persons and the Ascribe Affiliated Entities, collectively, no longer constituting the largest beneficial owner of the Issuer’s Common Stock.

 

Guaranty Agreement

Fund III’s feeder partnerships, Ascribe Opportunities Fund III, L.P. and Ascribe Opportunities Fund III(B), L.P. (each a “Guarantor”) have entered into a March 9, 2020 Guaranty Agreement with NexTier, pursuant to which each Guarantor has jointly and severally agreed to guarantee Fund III’s obligations under the Purchase Agreement, including the obligation to make payments required thereunder.

Senior Secured Promissory Note

Fund III provided $15,000,000 in financing to the Issuer in connection with the purchase of the Company by the Issuer in exchange for a Senior Secured Promissory Note (the “Promissory Note”) dated March 9, 2020.  The principal amount was made available to the Issuer in a single drawing on the date of the Promissory Note.  The Promissory Note has a maturity date of October 15, 2023.  From the date of the Promissory Note until (but not including) the date that the Promissory Note is paid in full, interest will accrue on the outstanding principal amount of the Promissory Note at a rate per annum equal to 10.0%, provided that the Initial Rate will increase by 2.0% on January 1, 2021 and on each January 1 thereafter.   In addition, the Issuer paid Fund III a closing fee equal to 3.5% of the principal amount of the Promissory Note, (i.e., $525,000).

Except as reported herein in this amended Item 4, the Reporting Persons do not have any current plan or proposal that relates to or would result in any transaction, event or action enumerated in paragraphs (a) through (j) of Item 4 of Schedule 13D.  The Reporting Persons intend to review their respective investment in the Issuer on a continuing basis and may, from time to time and at any time in the future depending on various factors, including, without limitation, the Issuer’s financial position and strategic direction, actions taken by the Board, price levels of the Common Stock, other investment opportunities available to the Reporting Persons, conditions in the securities market, general economic and industry conditions, and the provisions of the aforementioned agreements, take such actions with respect to the Funds’ investment in the Issuer as they deem appropriate, including: (i) acquiring additional shares of Common Stock and/or other equity, other securities, or derivative or other instruments that are based upon or relate to the value of the shares of Common Stock (collectively, “Securities”) in the open market or otherwise; (ii) disposing of any or all of their Securities in the open market or otherwise; or (iii) engaging in any hedging or similar transactions with respect to the Securities.  The Reporting Persons intend to explore, from time to time, potential strategic alternatives for the Issuer, including potential merger and other business combination opportunities. In addition, the Reporting Persons intend to request that, at the next annual meeting of stockholders, the Board present to stockholders an amendment to the certificate of  incorporation to authorize additional shares of Common Stock, including in order to satisfy the conversion rights of holders of Series A Preferred Stock, and to permit stockholders to act by written consent.

Item 5. Interests in Securities of the Issuer.

 

Item 5 of the Schedule 13D is hereby amended and supplemented as follows:

(a)	The responses of the Reporting Persons to rows (7) through (13) of the cover pages of this Amendment No. 10 to Schedule 13D are incorporated herein by reference. The Reporting Persons beneficially own the Common Stock reported herein. There are currently 24,936,864 shares of Common Stock outstanding, as provided to the Reporting Persons by the Issuer, together with 118,805,000 shares of Common Stock that Fund III has the right to obtain upon the conversion of 118,500 shares of Series A Preferred Stock of which Fund III is the record owner.  The shares of Common Stock reported herein represent approximately 85.2% of the outstanding Common Stock, as calculated pursuant to Exchange Act Rule 13d-3.
(b)	The responses of the Reporting Persons to rows (7) through (13) of the cover pages of this Schedule 13D are incorporated herein by reference.  Fund III beneficially owns, and has the shared power to vote or direct the vote of, and the shared power to dispose or direct the disposition of, 122,496,846 shares of Common Stock, representing 85.2% of the outstanding shares of Common Stock, as calculated pursuant to Exchange Act Rule 13d-3.  Ascribe Capital, as the investment manager to Fund III, beneficially owns and has the shared power to vote or direct the vote of, and the shared power to dispose or direct the disposition of, 122,496,846 shares of Common Stock, representing 85.2% of the outstanding shares of Common Stock, as calculated pursuant to Exchange Act Rule 13d-3.  American Securities, as the sole owner of Ascribe Capital, beneficially owns, and has the shared power to vote or direct the vote of, and the shared power to dispose or direct the disposition of, 122,496,846 shares of Common Stock, representing 85.2% of the outstanding shares of Common Stock, as calculated pursuant to Exchange Act Rule 13d-3.
(c)	Except for the transactions described in Item 4 of this Amendment No. 10 to the Schedule 13D, there have been no other transactions in the securities of the Issuer effected by the Reporting Persons since the Amendment No. 9 to Schedule 13D filed by the Reporting Persons on February 13, 2020.
(d)	Not applicable.
(e)	Not applicable.