Select Water Solutions(US:WTTR)2024-02-21 21:31Sustainability-Linked Credit Facility - The Sustainability-Linked Credit Facility requires a fixed charge coverage ratio of at least 1.0 to 1.0, with availability conditions tied to either 10% of the maximum revolver amount or $15.0 million [254]. - The facility restricts SES Holdings' ability to make distributions unless certain conditions are met, including maintaining excess availability of at least $33.75 million or a fixed charge coverage ratio of at least 1.0 to 1.0 [254]. - The Sustainability-Linked Credit Facility includes a sustainability adjustments feature that can result in a 0.05% increase or reduction to the effective interest rate based on Select LLC's performance against sustainability targets [255]. - The scheduled maturity date for the Sustainability-Linked Credit Facility is March 17, 2027 [254]. - Non-compliance with the covenants of the Sustainability-Linked Credit Facility could lead to immediate repayment demands from lenders, adversely affecting financial condition [257]. - As of December 31, 2023, the company had no indebtedness under its Sustainability-Linked Credit Facility, but as of February 19, 2024, it had $55.0 million in outstanding indebtedness [415]. Tax Receivable Agreements (TRAs) - The company is obligated to make payments under the Tax Receivable Agreements (TRAs) amounting to 85% of the net cash savings from tax benefits, retaining 15% of these savings [272]. - Payments under the TRAs are expected to be substantial, with estimated termination payments of approximately $62.0 million if terminated on December 31, 2023, based on a discount rate of 6.49% [278]. - The TRA Holders will not reimburse the company for any payments made if tax benefits are later disallowed, potentially leading to payments exceeding actual cash tax savings [279]. - The company’s obligations under the TRAs could negatively impact liquidity and delay potential mergers or asset sales [278]. - The TRA payments are not conditioned upon the continued ownership interest of any holder, allowing for transferability under certain conditions [276]. Financial Condition and Growth - The company has no independent means of generating revenue and relies on distributions from SES Holdings to cover taxes, dividends, and corporate expenses [271]. - The company’s ability to finance future growth and acquisitions may be adversely affected by increased capital costs and interest rates [285]. - The company plans to pursue selected, accretive acquisitions, which involve risks such as unanticipated costs and difficulties in integration [286]. - The company may incur substantial indebtedness to finance future acquisitions, which could burden its results of operations and financial condition [290]. - The integration of acquired businesses may involve unforeseen costs and operational difficulties, potentially affecting the company's financial condition [289]. Ownership and Equity - Future sales of equity securities may dilute ownership and depress share prices, with the company authorized to issue up to 350 million shares of Class A common stock [258]. - Registration Rights Holders, owning over 20 million shares, can initiate public offerings, potentially impacting the market price of Class A common stock [259]. - The company may issue preferred stock that could adversely affect the voting power or value of Class A common stock [266]. - The exclusive forum provision in the amended certificate of incorporation may limit stockholders' ability to bring claims in favorable judicial forums [267]. Tax and Operating Losses - As of December 31, 2023, the company had approximately $168.6 million of tax-affected U.S. federal net operating loss carryforwards, with $88.3 million expected to expire unused beginning in 2031 [282]. - The company may face limitations on the utilization of net operating loss carryforwards due to potential ownership changes, which could adversely affect operating results and cash flows [284]. - The company intends to limit the number of unitholders to avoid being classified as a publicly-traded partnership, which could lead to significant tax inefficiencies [280]. Asset Management - For the year ended December 31, 2023, the company recorded $11.1 million in abandonment charges to write down the carrying value of definite-lived intangible assets and $1.5 million for long-lived assets [292]. - The company recorded $4.7 million of goodwill in connection with the Breakwater acquisition for the year ended December 31, 2023 [293]. - The company may be required to take write-downs of the carrying values of long-lived and finite-lived intangible assets based on impairment assessments [292]. Market Conditions - The demand for oilfield services is largely dependent on drilling and completion activity in the U.S. oil and gas industry, influenced by various uncontrollable factors [413]. - Sustained low oil and gas prices could lead to reduced capital spending and drilling activity by customers, adversely affecting the company's business [414]. - The company does not maintain key person insurance on any of its personnel, increasing exposure to risks associated with the loss of key executives [291]. - The company faces intense competition for acquisition opportunities, which may increase costs or hinder the completion of acquisitions [289].