Saturday, October 25, 2014
Inquirer Daily News

UPDATE: Mike O'Neill, KKR and Preferred Sands' wild ride

KKR's $680 million minority investment

UPDATE: Mike O'Neill, KKR and Preferred Sands' wild ride

A screen grab from Preferred Sands CEO Michael O´Neill´s biography page on the company´s web site, preferredsands.com.
A screen grab from Preferred Sands CEO Michael O'Neill's biography page on the company's web site, preferredsands.com.

UPDATE: Preferred Sands CEO Michael O'Neill called to explain how his $500 million yearly-sales company, after S&P slapped it with a sub-junk-bond rating, attracted a $680 million investment from buyout giant KKR (see EARLIER item and links below). He tells Preferred's story, starting in 2008:

O'NEILL: Here's what happened: We started this company with $8 million. I bought Aggregate Mines in Florida, we figured when the sand's out maybe we'll develop it (as housing).

So I hire a guy from the sand industry to run it, he says, 'Mike, you gotta look at this mine in Nebraska. My friends started it.' But who wants a thousand acres in Nebraska? Well, we flew to Nebraska. I said, 'We'll be home for dinner, let's get it out of our system.' They were losing their shirts out there. But they had a great company. They had what all the drillers needed... So we said, 'We gotta buy this.' We raised $20 milion, I put up half, raised the rest with friends and family... They've all done really well...

That was January 2008. Within 15 minutes the economy, oil, and gas collapsed. Our lender was going out of business. We had to restructure. And we did. We built it to $100 million in 2010. Bigger in 2011. We built a $1 billion company on leverage. We took a dividend recapitalization of  $150 million out of the company in 2012 and started a new resin technology, our Garnet and Pearl technology (raw materials and know-how supplied by Dow), the only clean coating technology in the industry. We're building plants. We're building our sand company.

Then in 2012 the market goes flat. Gas (prices drop), sand drops, resins drop. So we're overleveraged. There's a squeeze, there's a lender goes out of business. We had to restructure. And then there's another growth spurt, from Texas, South Dakota, Oklahoma, Alberta, Pennsylvania,every basin in North America. We're good, our earnings have doubled since last year. Our liquidity is back. We've (built up) $25-30 million in capital. And then KKR came along. They said, 'We like the management team. We've been watching you a long time."

They offered us a comprenehsive deal. Our brand new sand plant, our resin plant, both in Wisconsin, and we're looking at international expansion? They'll put the capital up. They'll pay off the debt - there and done. And replace it with half the amount of new debt, with our pay rate down 3-4 percentage points. 

And we still own 60 percent of the company. 

We're growing now. We are one of the top sand companies, we are one of the top coating companies. We are in China, Argentina, Mexico. 

KKR has lots of oil assets. Tons of energy investments. (Were there other would-be partners?) Our existing lender, Barclays! They liked the business. (Would they have let you run it?) You never know. But we wouldn't have made a deal with them without staying in.

EARLIER: Preferred Sands, the Radnor-based fracking-supply company built by developer Michael O'Neill, on Friday (July 25) announced this $680 million debt and equity investment by buyout giant KKR.

As Reuters noted here and Bloomberg here, the move follows Preferred's failure to make bank loan payments on time last year amid increased competition for Preferred's Pearl- and Garnet-brand sands, and its credit-rating downgrade to basement-junk D status by Standard & Poor's.

In Friday's statement, O'Neill said he appreciates KKR's backing and looks forward to continued growth. 

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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