Earlier this year, one of the biggest sand mining companies in the state of Wisconsin entered into a debt restructuring agreement with its lenders in a last-ditch effort to stave off bankruptcy. Unfortunately, the move didn’t work, and the company has now declared bankruptcy, but it is an interesting example of what tactics can be tested before a company resorts to bankruptcy.
Sand mining is a thing?
If you were unaware that sand is big business, you may want to check out this story from 99% Invisible that explains why “[s]and is actually the most important solid substance on Earth… It’s the literal foundation of modern civilization.”
And it turns out that the sand found in our state, which is known as “Northern White” to those in the sand industry, is exceptionally good sand — hard and round. So good, in fact, it was being shipped clear to Texas for use in the frac mining industry.
The frac mining boom set off a corresponding sand mining boom in Wisconsin. From 2011 to 2014 they couldn’t dig the stuff out of the ground fast enough. However, shipping sand across the country is expensive. So, frac miners in Texas started looking for sand closer to home. What they found wasn’t as good, but it was good enough that the demand for Wisconsin sand dropped. At around the same time, the price of oil fell and the demand for frac sand dropped overall as oil producers slowed production. And that’s where we are today — Wisconsin still has great sand, but it is not worth what it once was.
Staving Off Bankruptcy
Earlier this year, Emerge Energy Services LP, which owns Superior Silica Sands, entered into a debt restructuring agreement with its lenders. The deal would clear Emerge Energy’s debt obligations while making its lenders the new majority shareholders of the company.
Debt restructuring is a common tactic in the business world and one we have helped both creditors and debtors navigate. When it is successful, it can keep a company out of bankruptcy while preserving assets and maintaining production. Keeping the company up and running can also prevent one shutdown from turning into a chain reaction that pushes a whole industry or supply chain into bankruptcy.
Unfortunately for Emerge Energy, the debt restructuring negotiations failed and the company filed for Chapter 11 bankruptcy. The Daily Reporter pulled the company’s court filings and found that it “owes creditors across the country some $338 million. A list of the company’s 30 largest creditors in court documents includes seven companies that have their headquarters in Wisconsin. Emerge says it owes these firms more than $13 million in total.”
Hopefully, Emerge Energy’s bankruptcy will not push its creditors into insolvency as well. It may, however, be just the first of many sand companies in our state that files for bankruptcy protection. There are 128 frac sand facilities operating in the state, all producing more sand than the market can bear.