High Arctic Energy Services Inc.

High Arctic Energy Services Inc.

October 29, 2007 18:17 ET

High Arctic Energy Services Announces Amendments to Credit Facilities

RED DEER, ALBERTA--(Marketwire - Oct. 29, 2007) -


High Arctic Energy Services Inc. ("High Arctic" or the "Corporation")(TSX:HWO) announced today that it has negotiated certain amendments to its existing credit facilities. The amendments to the credit facilities require the Corporation to complete the subordinated convertible debenture of at least $20,000,000 (the "Offering") by November 15, 2007, the details of which were disclosed by the Corporation in a separate press release on October 26, 2007. The amendments also provide the consents required to complete the transactions contemplated to close the joint venture which are also disclosed by the Corporation in a separate press release disseminated today.

The Corporation has a revolving credit facility composed of a $20-million revolving loan ("Facility A") and a $100-million equipment based revolving loan ("Facility B"). Facility A may be drawn to a maximum of the lesser of $20-million and 75% of eligible accounts receivable and 90% of eligible foreign receivables insured by Export Development Canada (the "Facility A Borrowing Base"). Facility B may be drawn to a maximum of the lesser of $100-million and 75% of the appraised orderly liquidation value of eligible equipment (the "Facility B Borrowing Base"). In addition, the Corporation entered into a bridge facility credit agreement dated July 12, 2007 for a $20 million multi-draw bridge loan facility (the "Bridge Loan"), which Bridge Loan was subsequently drawn down in full by the Corporation. The obligations under the revolving credit facility and the Bridge Loan are secured by, among other things, the pledge of accounts receivable and the eligible equipment pursuant to debentures under which the Corporation and certain subsidiaries grant security over all of their respective assets.

The Corporation currently owes approximately $2.8 million on Facility A, $100 million on Facility B and $20 million on the Bridge Loan (the aggregate amounts owing on Facility A, Facility B and the Bridge Loan are herein referred to as the "Consolidated Debt"). Accordingly, the Corporation's Consolidated Debt is approximately $122.8 million. The revolving term period has been extended to June 30, 2008 after which outstanding principal will become repayable over a 36-month period. The maturity date of the Bridge Loan has been extended to June 30, 2008.

As at August 31, 2007, the Facility A Borrowing Base was $4.6 million and the amount owed by the Corporation was approximately $2.8 million, providing the Corporation with an excess of $1.8 million. As at August 31, 2007, the Facility B Borrowing Base was $92.0 million and the amount owed was $100 million, resulting in a shortfall of approximately $8.0 million caused by the transfer of equipment from Canada to the international operations. Under the amendments, the Lenders will permit a shortfall of up to $9 million until February 10, 2008.

In addition to the facility limits set out in the Facility A Borrowing Base and the Facility B Borrowing Base, the Corporation is required to maintain its maximum consolidated leverage ratio ("CLR") within a defined limit. The CLR is generally defined as the Consolidated Total Debt, as defined in the revolving credit facility, divided by the 12 month trailing Consolidated EBITDA which generally means the adjusted earnings before interest, depreciation, amortization and taxes. The maximum permitted CLR was 3.6 to 1.0 for the quarters ended December 31, 2006 and March 31, 2007 and 2.75 to 1.00 for each quarter thereafter. At June 30, 2007, the Corporation had a CLR of approximately 5.35 to 1.0. In June, 2007, the Lenders agreed to waive compliance with the CLR test for the June 30, 2007 quarter-end. The amendments to the credit facilities provide that the CLR test will now be applied monthly instead of quarterly, and the maximum CLR will be 6.65 to 1.0 for the months ended September 30, 2007 to December 31, 2007 and 4.80 to 1.0 thereafter.

The amendment of the revolving credit facility will allow the Corporation to draw up to an additional $8.0 million under Facility A without the borrowing base limitation. The additional $8.0 million will be available prior to closing the Offering only if certain conditions are satisfied and the availability after the closing of the Offering will be limited to meeting pre-established cash needs of the Corporation as agreed with the lenders. As part of the terms of the amendment, a corporation controlled by Mr. Jed Wood, President and Chief Executive Officer of High Arctic, has loaned the Corporation $2 million at the same interest rate as applies to the increase in the Facility A and secured on a subordinate basis to the Consolidated Debt.

The amendment modifies the interest rate and certain other terms of the revolving credit facility including the application of the CLR test. The interest rate applicable to all prime loans after October 22, 2007 will be prime plus 2% for all amounts drawn up to 2.75 times Consolidated EBITDA and prime plus 4% for the excess under the revolving credit facility and prime plus 6.25% on the Bridge Loan. The amendments also provide that by February 10, 2008, the amounts owing on both Facility A and Facility B must be reduced to $86 million and must meet borrowing base limits and the CLR must not exceed 4.8 to 1.0. Commencing March 31, 2008, the Corporation must use 100% of free cash flow (which is generally defined as Consolidated EBITDA less debt service requirements, maintenance capital expenditures and cash income taxes, all as determined by the lenders acting reasonably) to repay Facility A and Facility B amounts until the CLR has been reduced to 2.75 to 1.0 and thereafter to repay the Bridge Loan.

The Corporation will pay an amendment fee of approximately $1.1 million under the revolving credit facility. In addition, in consideration for amendments to the Bridge Loan, the Corporation has agreed to pay the lender of the Bridge Loan a fee of $2.7 million payable by June 30, 2008 and to issue to the lender 500,000 warrants to purchase common shares of the Corporation. The exercise price under the warrants will be $1.60 per common share and can be exercised at any time up to April 29, 2009. The cash fees will generally be payable out of future equity issues (but excluding the Offering) or other mandatory loan reductions, but no later than June 30, 2008 or upon the occurrence of an event of default.

The amended credit facilities contain various other changes to the terms of the loan agreements and adjustments to the CLR. The Corporation will file a copy of the material contracts giving effect to the amended and restated credit facilities on SEDAR at www.sedar.com.

The Corporation would also like to clarify that Mr. Peter Julien is currently serving as Interim Chief Financial Officer of the Corporation in addition to his role as Vice President of Finance. The Corporation is continuing to search for a full time Chief Financial Officer.

About High Arctic

The Corporation, through its subsidiaries, is a global provider of specialized oilfield equipment and services, including drilling, completion and workover operations. High Arctic's new underbalanced drilling technology and equipment is recognized for its ability to improve oil and gas production capabilities and is expected to develop greater acceptance in international markets. Based in Red Deer, High Arctic has domestic operations in Alberta, British Columbia and the Northwest Territories. International operations are currently active in the Middle East, Northern Africa and Asia. For more information visit www.higharcticenergyservices.com.

Forward-Looking Statements

This news release may contain forward-looking statements relating to expected future events and financial and operating results of the Corporation that involve risks and uncertainties. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including market and general economic conditions and the risks and uncertainties detailed in the Corporation's Management Discussion and Analysis for the six months ended June 30, 2007 and in High Arctic Energy Services Trust's (the "Trust) Annual Information Form for the year ended December 31, 2006 and the Trust's Information Circular dated May 29, 2007, all found on SEDAR (www.sedar.com). Due to the potential impact of these factors, the Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.

The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.

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