Weatherford’s CEO Resigns as The Firm Prepares to File For Chapter 22 Bankruptcy Protection
Weatherford International’s CEO has resigned only days before the firm’s annual meeting amid a financial problem that may result in the business declaring bankruptcy for the second time in less than a year.
According to the business, Mark McCollum left on Sunday, and COO Karl Blanchard and CFO Christian Garcia will manage operations until McCollum’s successor is sought.
McCollum’s resignation was “not the consequence of any conflict or disagreement with the business on any issue related to the company’s accounting procedures or financial statements,” Garcia told investors on Monday.
On the other hand, his departure comes only days before Weatherford’s annual meeting on June 12th, and a recent filing with the Securities and Exchange Commission discloses that the oil collapse triggered a financial crisis that may lead to the firm defaulting obligations and declaring bankruptcy.
“The issue is that Weatherford came from bankruptcy at the wrong moment with too much debt,” said Sarah Foss, a Houston-based legal analyst with Debtwire, a London-based financial news service. “They emerged from bankruptcy with a debt of $2.7 billion. They were able to pay off $6.7 billion in debt. That’s amazing, but they couldn’t have predicted what’s occurring today.”
As the sector emerged from the 2014-16 oil slump, McCollum resigned from an executive position at rival Halliburton to join Weatherford as CEO in March 2017. Weatherford had built up $10 billion in debt and had gone more than four years without earning a profit before filing for Chapter 11 bankruptcy in July 2019.
The business, headquartered in Switzerland with headquarters in Houston, emerged from bankruptcy in December and lost $966 million in the first quarter as a pricing war between Russia and Saudi Arabia and the coronavirus epidemic, slashed oil prices.
Weatherford board Chairman Thomas Bates stated, “Weatherford achieved substantially better performance this year until the beginning of the COVID-19 epidemic and measures by some oil producing countries caused unprecedented uncertainty in the energy and other markets.” “In the face of this difficult business climate, we will continue to concentrate our efforts on cost reduction and liquidity management.”
According to Foss, Weatherford had a significant debt payment and interest payment due on June 1st, despite having $950 million in cash and available credit at the end of the first quarter.
Weatherford claimed to have paid the June payments, but according to Foss, the business hired insolvency and restructuring legal firm Paul Weiss.
She added that renegotiating payments and credit arrangements with lenders or filing a second Chapter 11 bankruptcy are among the company’s alternatives.
Impatience is already evident on the faces of some lenders. For example, D.E. Shaw Group, a major Weatherford shareholder and activist investor based in New York, is trying to remove three board members at the company’s annual meeting on Friday.
According to Craig Pirrong, a finance professor at the University of Houston Bauer College of Business, Weatherford may be in danger of breaching financial covenants, in which a firm commits to maintain a specific amount of cash on hand and debts below a set level.
Companies often pay off debt with stock, but if they face possible financial agreements with investors and lenders, a second bankruptcy isn’t unheard of, according to Pirrong.
Weatherford may be “in breach of these covenants,” according to Pirrong, allowing the lenders to push the business into default and bankruptcy “Because it’s an unpleasant alternative that neither the borrower nor the lenders desire, the business and some of its lenders are trying to restructure the deals.”
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