Frac sand supplier Hi-Crush Inc. on July 13 filed for Chapter 11 bankruptcy protection, making it the latest oilfield service provider to succumb to bankruptcy during the COVID-19 pandemic driven downturn.

Earlier this year, U.S. shale producers slashed spending and curtailed new drilling in response to the coronavirus crisis, which has destroyed a third of global oil demand and caused a price collapse. The pullback by operators has hit the oilfield service providers hard with 11 service companies filing for bankruptcy so far this year, according to a June 30 report by Haynes and Boone LLP

“With immediate cutbacks in producers’ capex budgets for drilling, completions and other activities in the field, oilfield service companies (OFS) will feel the brunt of this impact,” Haynes and Boone lawyers wrote in the report. “Many smaller or highly leveraged OFS companies may not be able to hold on, avoiding seeking protection of the bankruptcy courts.”

Most recently, Covia Holdings Corp., a fellow frac sand supplier, filed for bankruptcy on June 29 after reaching an agreement with its lenders for a restructuring plan expected to eliminate more than $1 billion in debt. 

In a statement on July 13, Houston-based Hi-Crush said it entered into a restructuring support agreement with certain noteholders. Its prearranged plan, if implemented, will result in the elimination of approximately $450 million of unsecured note debt and an ongoing reduction in annual interest expense of greater than $43 million, according to the company release.

“The exchange of debt for equity is a clear indication of the high confidence our noteholders have in the future of Hi-Crush,” Robert E. Rasmus, chairman and CEO of Hi-Crush, said in a statement.

The noteholders collectively own or control approximately 94% of the aggregate outstanding amount of Hi-Crush’s 9.5% senior unsecured notes due 2026.

“The agreement itself will simplify and accelerate the restructuring process,” Rasmus continued, “and we expect to emerge from this process in an even stronger market position, with an enhanced ability to execute on our operational strategy and grow our business over the long-term.”

Hi-Crush said it will continue to operate its business in the normal course without disruption to its vendors, customers or employees. Additionally, the company has received commitments from its various pre-petition lenders for $65 million in debtor-in-possession and exit financing to be used during the Chapter 11 process as well as for long-term capital needs post-emergence.

The Hi-Crush Chapter 11 filing was made in the U.S. Bankruptcy Court for the Southern District of Texas.

Lazard is financial adviser to Hi-Crush with Latham & Watkins LLP acting as legal counsel and Alvarez & Marsal as restructuring adviser in connection with the prearranged plan. Moelis & Co. is financial adviser to the noteholers with Paul, Weiss, Rifkind, Wharton & Garrison acting as legal adviser.