WINNIPEG, Manitoba/TORONTO (Reuters) – Six years ago, Canadian oilfield services firm Calfrac Well Services (CFW.TO) commanded a C$2.1 billion ($1.55 billion)market value and was poised for U.S. expansion.
FILE PHOTO: An oil & gas pump jack is seen near Granum, Alberta, Canada May 6, 2020. REUTERS/Todd Korol -/File Photo/File Photo
But by last month, Calfrac’s market value had collapsed to just C$23 million and it deferred an interest payment on debt that does not mature for six years. The Texas billionaire Wilks brothers, already its top shareholder, scooped up more of the company’s debts in June, a regulatory filing showed, preparing to salvage what they can from restructuring.
The Canadian industry has borrowed heavily to survive a series of catastrophes, and is facing C$6 billion in refinancing in the next six months, the Bank of Canada said in May.
This year’s maturing energy debts are the most on record for the fourth year in a row and a more than 40% increase over 2019, according to Refinitiv data. They are an existential threat for some companies during the worst industry crisis in decades, while others with stronger credit ratings may buy time in exchange for higher rates that hobble bottom lines.
Companies have two main options as unaffordable debts mature – swap debt for equity or convince noteholders to extend maturity, said Kevin Fougere, partner in law firm Torys LLP.
The list of energy companies with maturing debts includes some oilpatch giants, although top producer Canadian Natural Resources Ltd (CNQ.TO) and pipeline operator Enbridge Inc (ENB.TO) have already taken steps to cover them.
Smaller players face more drastic changes.
Bonavista Energy Corp (BNP.TO) last month announced a proposed recapitalization to reduce debt, shrinking existing equity values and resulting in a stock delisting.
The pace of restructurings and bankruptcies has been slow as banks have little desire to own assets, and as rebounding oil prices offer hope, said Alan Ross, regional managing partner with law firm Borden Ladner Gervais.
“There’s a lot of extend, amend and pretend with respect to finance documentation,” he said. “But at some point the music will stop.”
When oil prices CLc1 crashed in 2014, Canada’s oilpatch struggled to recover as quickly as other countries due to problems getting new pipelines built. Companies cut costs and borrowed to survive. Then this year, the coronavirus pandemic hammered oil demand, dealing the biggest blow in decades.
Too many producers gorged on cheap debt to fund operations as share prices lagged and investors soured on new equity issues, said Raymond James analyst Jeremy McCrea.
“Even if they kick the can down the road, it’s still going to be an over-arching issue,” he said.
Potential credit rating downgrades of investment grade bonds could more than triple the amount of high-yield energy-related bonds, which are already the most of any Canadian sector in the high yield category, according to the Bank of Canada.
‘GRINDING HALT’
For Calfrac, 19.8%-owned by the Wilks brothers, its story moved from riches to rags so fast that it could not afford even an $18 million interest payment.
Calfrac, which provides fracking, coiled tubing and cementing services on wells, went public in 2004 as prices began ascending vertigo-inducing heights.
Prices crashed in 2014 and two years later, the company cut 500 jobs. Even so, in 2017, Calfrac moved into the U.S. Permian basin.
After years of profit, losses began in 2015 and have continued, excluding one-time items.
This year’s price collapse has led Canadian producers to curtail output and to scrap drilling plans, hurting service companies like Calfrac.
“Everything came to a grinding halt, and they got caught before they could start to clean up the leverage,” said Rafi Tahmazian, senior portfolio manager at Canoe Financial, Calfrac’s sixth-largest shareholder.
Peer Trican Well Service (TCW.TO), by contrast, has taken a cautious approach, Tahmazian said.
Calfrac cut operating expenses 23% from 2014-2019, while revenue dropped 35%. Trican chopped expenses by 69% as revenue plunged 74%, including the sale of some businesses, according to Refinitiv data.
In June, after Calfrac missed the interest payment, it said it would work with advisors to examine its options. Dan Wilks acquired about one-quarter of Calfrac’s second-lien debt for $18.4 million, the filing showed, giving his Wilks Brothers investment group added sway over the company’s future.
Efforts to reach Wilks Brothers were unsuccessful. Dan Wilks has also acquired stakes in hard-hit U.S. service firms.
Since deferring its interest payment on $432 million in debt, Calfrac has 30 days, barring an extension, to pay or work out another solution before a default that could result in restructuring through bankruptcy, Stifel FirstEnergy analyst Ian Gillies said.
Calfrac President Lindsay Link declined to comment on options during its delayed quarterly conference call on June 25.
“We do not believe a return to normal activity levels will occur in the near term,” he said. In a statement, the company said it has the ability and capacity to make the interest payment.
It declined further comment.
Smaller producers with scant ability to sell assets or raise new debt or equity face a “refinancing wall,” said Victor Vallance, senior vice-president, energy, at credit rater DBRS Morningstar.
“You’re going to see more consolidation,” he predicted.
Government loans have been little help.
In the meantime, lenders are weighing their confidence in management teams and assessing operating costs to decide how flexible they should be, Fougere, of Torys said.
“The banks will determine who the winners and losers are.”
Reporting by Rod Nickel in Winnipeg, Manitoba and Jeff Lewis in Toronto; additional reporting by Fergal Smith in Toronto; Editing by Denny Thomas and Marguerita Choy
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
