Restoring Foraco’s foundations for the future
Foraco, a leading global mineral drilling services company facing the headwinds of industry-wide overcapacity
Foraco International SA (TSX: FAR) is a leading global mineral drilling services company that provides a comprehensive and reliable service offering in mining and water projects. Supported by its founding values of Integrity, Innovation, and Involvement, Foraco has grown into the third largest global drilling enterprise, with a presence in 22 countries across five continents.
Following the decreasing trend in mineral prices that started in 2012, miners drastically cut exploration budgets which led to significant overcapacity in the supply of drilling services. As a result, drilling companies’ income and profitability were severely hit. Foraco has not been spared from this trend and by end of 2016, the company was in need of additional sources of funding to restore liquidity and to permit the company to renew its capital expenditures.
In addition to new liquidity needs, Foraco was confronted with a pool of eight historical lenders whose varying goals were not aligned with the company’s objectives.
Kartesia co- led a reorganization of Foraco’s indebtedness, which resulted in a new money injection of €23.0 million in the form of secured bonds with a 5-year term of which €18.0 million immediately available at closing. In addition, the maturities of most of the company’s existing long-term loans were converted into subordinated 5 year bonds held by Kartesia and other investors for an amount of €81.5 million. Finally, banks continue to support Foraco by providing a €12.7m guarantee line.
Kartesia determined to reach a consensus with all parties
“It took a lot of perseverance to reach a deal, considering the amount of parties involved and the long lead time to conclusion” says Damien Scaillierez, Managing Partner in charge of the transaction at Kartesia, who adds “this shows how Kartesia’s patient, consensual approach pays off in the end. Legal counsels of all parties also proved pragmatic in order to finalize a complex transaction in an eventually short timeframe”. Kartesia was advised by De Pardieu Brocas Maffei and Orrick Rambaud Martel.
“With its new funding structure, Foraco is well equipped to operate in the current market environment and is in a favorable position to benefit from a looming recovery in the mining market” says Jean Diercxsens, Investment Manager at Kartesia.
Jean-Pierre Charmensat, Director and Executive Officer of Foraco comments: “Kartesia has proven to be a reliable partner who was able to reconcile the business needs of Foraco with its financial situation and the legal complexity of this deal. Thanks to the support from our new lenders, we have hereby laid the foundation for the long term while protecting our shareholders. With this Agreement, we can now fully concentrate on our customers and operations”.