LSQ Provides $10MM Factoring Line as Part of Enservco's Refinancing

Enservco, a provider of specialized well-site services to the domestic onshore conventional and unconventional oil and gas industries, retired its $13.8 million senior revolving credit facility with East West Bank for total consideration of approximately $9.4 million, which includes an initial payment of $8.4 million in cash and future payments of up to $1 million from a limited portion of net proceeds from receivables financing.

As a result of the refinancing, Enservco’s debt was reduced and predominantly reclassified as long-term liabilities with four- to six-year terms. The refinancing will have minimal impact on aggregate monthly debt and lease obligations, thus improving and stabilizing the company’s capitalization.

“We appreciate East West Bank’s support over recent years and willingness to work with the company to de-lever the business and strengthen our balance sheet,” Rich Murphy, executive chairman of Enservco, said. “Over the past 18 months, we have significantly reduced our total debt while substantially reducing costs, relocating equipment to optimize margins and increasing market share, putting the company in a stronger position to pursue its growth objectives as our industry improves. We believe that the higher commodity price environment bodes well for the company in the foreseeable future.”

The refinancing included:

• A receivables factoring line of up to $10 million

• A $6.22 million master equipment lease

• A $1.2 million convertible subordinated note

Specifically, the company’s Heat Wave Hot Oil Service unit entered into an invoice purchase agreement with LSQ, which will provide receivables factoring to the company for a term of 18 months. The agreement calls for LSQ to advance up to 85% on up to $10 million of accounts receivable factored by the Heat Wave at an effective annual interest rate of approximately 7.3%. LSQ provided for $2.4 million in immediate financing at the close of the refinance under the accounts receivable factoring facility, of which $1.2 million was used in the initial payment to East West Bank and $1.2 million was used to pay off a working capital loan provided during the first quarter of 2022 by Cross River Partners, an entity controlled by Murphy.

Heat Wave further entered into a master lease agreement with Utica Leaseco, whereby Utica provided a $6.22 million master equipment lease collateralized by Enservco equipment. The lease has a 51-month term at an effective rate in the range of 13.5% to 15.46% based on performance metrics. After 12 months, the company has the option to prepay $1 million of the obligation.

The third component of the refinancing includes the issuance by the company of a $1.2 million convertible subordinated note to Cross River Partners. The note has a six-year term, bears interest at 7% per annum and has interest-only quarterly payments commencing on June 30.