⚡️New Chapter 11 Bankruptcy Filing - Griddy Energy LLC⚡️

Griddy Energy LLC

Sooooooo this one was predictable. The writing was on the wall a few weeks ago and we noted in “💥Is Texas F*cked?💥,” that Griddy Energy LLC was a likely bankruptcy candidate.* On Sunday, we noted how recent PUCT/ERCOT decisions to extend the deadline “…for electric retailers to dispute the ridonkulous liabilities imposed upon them after the now-infamous Texan storm” — liabilities that already claimed Just Energy Group Inc.($JE) and Brazos Electric Power Cooperative Inc. as victims — might buy time for certain other players in the stack to figure out their futures. By then, however, it was already too late for Griddy. On February 26, 2021, ERCOT forced the mass transition of Giddy’s customers to other electricity providers.

Griddy’s whole business model was passing through wholesale pricing sans mark-up to 29,000 retail end customers in exchange for a monthly fixed fee of $9.99. Through this model, Griddy claims to have saved its customers more than $17mm since 2017. Griddy argues that at no point since its inception was its model targeted as problematic by the PUCT. PUCT, after all, granted Griddy’s license.

That all obviously changed with February’s big storm. Per the debtor:

During the winter storm in Texas in February 2021, Griddy and its customers suffered as a result of (a) inaccurate information from ERCOT about the preparedness of the electricity grid for the 2020-2021 winter season, (b) the decision by the PUCT to order electricity prices be set to $9,000 per megawatt hour (“MWh”), and (c) ERCOT’s decision to hold electricity prices at $9,000 per MWh for 32 hours after firm load shed had stopped. Prior to the PUCT order, the real-time electricity price had reached $9,000 per MWh for a total of only 3 hours since 2015. In contrast, after the PUCT order, the electricity price was set to $9,000 per MWh for 87.5 hours between February 15, 2021 and February 19, 2021.

This obviously creates a whole host of issues when, in turn, you’re only getting $9.99 per customer per month (plus other passthrough expenses) for a total of $289.7k in revenue a month. Prior to the storm, Griddy was solvent. As of the petition date, it has only $1.448mm of pre-petition debt outstanding (due to Macquarie Investments US Inc.). Griddy obviously blames the reversal of that fortune on ERCOT’s missteps and poor planning. Per the debtor:

Prior to the mid-February winter storm event, Griddy was solvent. As discussed above, the failures of ERCOT and resulting actions taken by the PUCT during the winter storm event resulted in Griddy’s loss of all of its customers and forced Griddy to file this case. The winter storm event also left Griddy in an untenable position – engage in aggressive collection actions against customers for exceedingly high prices for wholesale electricity and ancillary services (which is not its preference) and fight baseless lawsuits – or file for bankruptcy and distribute its remaining cash in an orderly manner.

Be that as it may, Griddy now owes a contingent and disputed $29mm nut to ERCOT — its largest general unsecured creditor. Its customers — who generally tend to be on the lower end of the socioeconomic spectrum — have bills far in excess of historical norm and expectation. So now what?

Griddy is basically flicking the bird to ERCOT (🖕):

In the weeks since the winter storm event, Griddy has created a chapter 11 plan whereby (i) Macquarie would compromise a portion of the remaining amount of money owed to it by Griddy for the benefit of Griddy’s other creditors, (ii) Griddy would give former customers with unpaid bills releases in exchange for such customers’ releases of Griddy and certain other parties, (iii) other general unsecured creditors would share pro rata in remaining available cash, and (iv) upon emergence, a plan administrator would take over ownership of Griddy and, in his or her discretion, pursue causes of action, whether against ERCOT for potential preference claims, fraudulent transfers or other claims related to the winter storm event, or otherwise. Griddy has filed its proposed chapter 11 plan, disclosure statement and related motions concurrently herewith. Griddy intends to seek confirmation of its proposed chapter 11 plan on as expedited basis as possible.

“Certain other parties” no doubt includes Macquarie.

All of this seems so strangely … American. Thousands of innocent people sign up for a product that they don’t fully understand most likely thinking that there are systems in place to protect them. Turns out the systems are broken: thousands of innocent people lose electricity for days and ultimately get billed up the wazoo and, naturally, nobody wants to take any responsibility for that. Lawsuits commence. Bankruptcies ripple through the area.** Meanwhile, the lenders do everything in their power to shed any and all liability risk. God bless America.

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*We said we “smell a chapter 7 filing” which, it turns out, was perhaps a bit to flippant. While the spirit of the comment is correct in that there is no future for the company as a going concern, we neglected to consider some of the benefits of a chapter 11 filing including, among other things, the sought-after releases.

**One interesting side note — given that this is a uniquely Texan fact pattern — is that it took this catastrophe to finally hour-up some Texas-based lawyers rather than enrich some Chicago or New York attorneys. Putting aside Just Energy Group Inc. (represented by Kirkland & Ellis LLP), Brazos Electric Power Cooperative Inc. is represented by Norton Rose Fulbright and Griddy is represented by Baker Botts LLP. The lender, Macquarie, is counseled by Haynes and Boone LLP and ERCOT is represented by Munsch Hardt Kopf & Harr P.C. The local folks must seriously be thinking “it’s about time.”

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Date: March 15, 2021

Jurisdiction: S.D. of Texas (Judge Isgur)

Capital Structure: $15mm Borrowing Base Facility ($1.448m outstanding)

Company Professionals:

• Legal: Baker Botts LLP (Robin Spigel, David Eastlake, Chris Newcomb, Jacob Herz)

• Claims Agent: Stretto (Click here for free docket access)

Other Parties in Interest:

• Pre-petition Lender: Macquarie Investments US Inc.

  • Legal: Haynes and Boone LLP (Kelli Norfleet, Arsalan Muhammad)

• ERCOT

  • Legal: Munsch Hardt Kopf & Harr P.C. (Kevin Lippman)

🧀 New Chapter 11 Bankruptcy Filing - CEC Entertainment Inc. 🧀

CEC Entertainment Inc.

June 24, 2020

For our rundown, please go here.

• Jurisdiction: S.D. of Texas (Judge Isgur)

• Capital Structure: $1.089b funded debt ($760mm TL, $108 RCF, $6mm LOC, $215.7mm notes)

• Professionals:

  • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Alfredo Perez, Andrew Citron, Rachael Foust, Scott Bowling)

  • Board of Directors: David McKillips, Andrew Jhawar, Naveen Shahani, Allen Weiss, Peter Brown, Paul Aronzon

  • Financial Advisor: FTI Consulting Inc. (Chad Coben)

  • Investment Banker: PJT Partners LP (Jamie O’Connell)

  • Real Estate Advisor: Hilco Real Estate LLC

  • Claims Agent: Prime Clerk LLC (*click on the link above for free docket access)

• Other Parties in Interest:

  • PE Sponsor: Queso Holdings Inc./AP VIII CEC Holdings, L.P. (Apollo)

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP

  • First Lien Credit Agreement Agent: Credit Suisse AG, Cayman Islands Branch

    • Legal: Davis Polk & Wardwell LLP (Eli Vonnegut) & Rapp & Krock PC (Henry Flores, Kenneth Krock)

  • Ad Hoc Group of First Lien Lenders: American Money Management Corp, Arbour Lane Capital Management, Arena Capital Advisors LLC, Ares Management LLC, Bank of Montreal, BlueMountain Capital Management, Carlson Capital LP, Catalur Capital Management LP, Citibank NA, Credit Suisse AG, Deutsche Bank New York, Fidelity Management & Research Co., Fortress Investment Group LLC, GS Capital Partners LP, Hill Path Capital, Indaba Capital Fund LP, ICG Debt Advisors, Jefferies Financ LLC, J.H. Lane Partners Master Fund LP, Monarch Alternative Capital LP, MSD Capital LP, MSD Partners LP, Octagon Credit Investors LLC, Par Four Investment Management LLC, RFG-Clover LLC, Second Lien LLC, UBS AG, Wazee Street Capital Management, Western Asset Management Company LLC, WhiteStar Asset Management, ZAIS Group LLC

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Jason Rubin, Marty Brimmage Jr., Lacy Lawrence)

  • Indenture Trustee: Wilmington Trust NA

    • Legal: Reed Smith LLP (Kurt Gwynne, Jason Angelo)

  • Ad Hoc Group of ‘22 8% Senior Noteholders (Longfellow Investment Management Co. LLC, Prudential Financial Inc., Resource Credit Income Fund, Westchester Capital Management)

    • Legal: King & Spalding LLP (Matthew Warren, Lindsey Henrikson, Michael Rupe)

    • Financial Advisor: Ducera Partners LLC

  • Official Committee of Unsecured Creditors: Wilmington Trust NA, The Coca-Cola Company, National Retail Properties, Performance Food Group, Washington Prime Group, NCR Corporation, Index Promotions

    • Legal: Kelley Drye & Warren LLP (Eric Wilson, Jason Adams, Lauren Schlussel & Womble Bond Dickinson LLP (Matthew Ward)

7/17/20 Dkt. 352.

🚢 New Chapter 11 Bankruptcy Filing - Speedcast International Limited 🚢

Speedcast International Limited

April 22, 2020

This is a fun one.

Speedcast International Limited, a publicly-traded Australian company headquartered in Houston and 32 affiliates (the “debtors”) filed rare freefall bankruptcy cases in the Southern District of Texas earlier this week. In a week where another 4.4mm people filed for unemployment, one thing seems abundantly clear: the Texas’ bankruptcy courts are going to need help. While Delaware has also been extremely busy, both the Northern District and Southern District of Texas are seeing rock solid bankruptcy flow these days. If the judges got volume bonuses, they’d be rolling in it.

Who’s the big loser? Well, with all of these bankruptcy hearings conducted telephonically, we reckon it’s the city of Houston. In normal times, there’d be a steady stream of suits flushing through the local economy there: staying at the hotels, eating at the restaurants, drinking at the bars. Brutal. But we digress. 🤔

One thing the restructuring industry gives us is an open window into how one domino can topple over others. For instance, the energy and cruise industries are clearly effed currently and so it stands to reason that service providers to those industries would also feel pain. This is where Speedcast comes in: it is a provider of information technology services and (largely satellite-dependent) communications solutions (i.e., cybersecurity, content solutions, data and voice apps, IoT, network systems) to customers in the cruise, energy, government and commercial maritime businesses. They plug a hole: they offer telecom services to users in remote parts around the world, “primarily where there is limited or no terrestrial network.” Picture some evildoer in some decked out yacht-lair somewhere plotting to take over the world Austin Powers-style. He is probably leveraging Speedcast for IT solutions (PETITION Note: we’re just painting a picture folks; we’re not suggesting that the company merely deals with shady-a$$ mofos. Don’t @ us.). The business is truly international in scope.

Putting aside yacht-loving villains, Speedcast has high profile clients. Carnival Corp. ($CCL), for instance, contracted with Speedcast in December 2018 — long before any of Carnival’s customers contracted with the coronavirus. Cruisers streaming reports about their horrific cruise-going experiences likely used Speedcast product to get the word out. 😬 This was a growing business segment. Revenue increased by $36.5mm from fiscal year 2018 to 2019.

Likewise, the debtors’ energy business had also been growing. The debtors provide “high-bandwidth remote communication services to all segments of the global energy industry, including companies involved in drilling and exploration, floating production storage, offloading, offshore service, general service, engineering, and construction.” Revenue there increased from $158.3mm in FY18 to $164.5mm. We’re pretty sure we know which direction that number is heading in FY20.

Similarly, the debtors’ other business segments — Enterprise & Emerging Markets and Government — demonstrated growth between ‘18 and ‘19. All in, this is a $722.3mm revenue business. Unfortunately, it also had net losses of $459.8mm in FY19. So, yeah. There’s that. The debtors’ rapid expansion over the years apparently didn’t lead to immediate synergistic realization and the debtors suffered from margin compression, revenue declines from specific business lines, and other ails that affected performance and liquidity.

While there have been operational issues for some time now, those were just jabs. COVID-19 and the attendant global shutdown body slammed the company. The debtors note:

Further, the lasting and distressed market conditions in the maritime and oil and gas industries, and the recent and dramatic impact of the COVID-19 pandemic, have impacted all players in the global marketplace. The Company has been particularly hard hit by these adverse market conditions. The outsized impact on the Company’s Maritime Business and Energy Business customers has manifested in a dramatic reduction in cash receipts. This macroeconomic downturn, along with the above-mentioned headwinds that contributed to the lower than expected FY19 financial results, made clear that the Company would not satisfy the Net Leverage Covenant under the Credit Agreement.

Right. The debt. $689.1mm of it, to be exact (exclusive of financing arrangements) — of which approximately $590mm is a term loan. With a capital structure this simple, one would think that this is a case that is ripe for a prearranged deal memorialized via a pre-petition restructuring support agreement. But no. There isn’t one here. Why not?

The term lenders argue that the debtors engaged them too late in the game. Therefore, there wasn’t enough time to conduct due diligence on the business, they say. Surely quarantine ain’t helping matters on that front. Nor is the fact that the company is international in nature.

And so this is a traditional freefall balance sheet and operational restructuring — something you don’t really see much of anymore. This case looks headed towards either a sale — which we’re guessing is the term lenders preferred outcome (par plus accrued baby!) — or a plan that would equitize the term lenders and put the go-forward financing needs of the debtors on the shoulders of the term lenders. A plan would preserve the debtors’ net operating losses which, as noted above, could be meaningful.

The debtors and the ad hoc lenders did nail down a commitment for a multiple-draw super-priority senior secured term loan DIP which includes a $90mm new money portion ($35mm on an interim basis) and a $90mm roll-up ($35mm on an interim basis). Judge Isgur took some exception to the interim roll-up portion of the proposed facility but the debtors and the lenders were hand-in-hand saying that — particularly under the circumstances today — the interim roll-up was necessary and appropriate because the lenders need a “big incentive” to lend and “the lenders’ capital providers are getting squeezed themselves.” 🤔 (PETITION Note: The DIP market sounds vicious — though some of that, here, is attributable to the nature of the assets. Delta Airlines can place senior secured notes right now at around 7% because, well … duh … planes!). Judge Isgur did caution however that he wants no part of professionals throwing this interim roll-up in his face as precedent in an upcoming case (Um, we’ll see how that plays out…this financing environment ain’t exactly reversing overnight). While the ad hoc lenders are clearly in pole position for the DIP commitment, they’re syndicating the loan now (which would obviously affect the roll-up too). The DIP will push the professionals towards a path forward over the next couple of weeks and the hope is for a result to be consummated within six months.

Interestingly, the largest single unsecured creditor is an entity that suffers from its own issues and has reportedly hired bankruptcy professionals for advice: Intelsat SA is owed $44mm. In late March, Intelsat terminated their contract with the debtors in a pretty savage leverage play. We talk about leverage a lot in PETITION. There’s balance sheet leverage and then there is situational leverage. Intelsat flexed its muscles and exercised the latter. In exchange it got critical vendor designation, acknowledgement of the full amount of their pre-petition claim and mutual releases. Significantly, the debtors stressed the importance of the relationship, noting that the IT services were needed more than ever as vessels sail adjusted routes due to COVID (read: boats are circling around because governments won’t let passengers disembark).

We should know within a few weeks what a deal may look like here.

• Jurisdiction: S.D. of Texas (Judge Isgur)

• Capital Structure: $87.7mm RCF, $591.4mm Term Loan, $10.6mm LOC

• Professionals:

  • Legal: Weil Gotshal & Manges LLP (Gary Holtzer, Alfredo Perez, David Griffiths, Brenda Funk, Martha Martir, Kelly DiBlasi, Stephanie Morrison, Paul Genender, Amanda Pennington Prugh, Jake Rutherford) & Herbert Smith Freehills LLP

  • Independent Director: Stephe Wilks, Grant Scott Ferguson, Michael Martin Malone, Peter Jackson, Carol Flaton, David Mack)

  • Financial Advisor/CRO: FTI Consulting Inc. (Michael Healy)

  • Investment Banker: Moelis & Company Co. (Paul Rathborne, Adam Waldman)

  • Claims Agent: KCC (*click on the link above for free docket access)

• Other Parties in Interest:

  • Ad Hoc Group of Secured Lenders

    • Davis Polk & Wardwell LLP (Damian Schaible, David Schiff, Jonah Peppiatt, Jarret Erickson) & Rapp & Krock PC (Henry Flores, Kenneth Krock)

    • Financial Advisor: Greenhill & Co. Inc.

  • DIP Agent: Credit Suisse AG

    • Skadden Arps Slate Meagher & Flom LLP (Steven Messina, George Howard, Albert Hogan III, David Wagener)

  • Large Creditor: Intelsat SA

    • Legal: Kirkland & Ellis LLP (Edward Sassower, Steven Serajeddini, Anthony Grossi) & Jackson Walker LLP (Matthew Cavenaugh)

  • Large Creditor: Inmarsat Global Limited

    • Legal: Steptoe & Johnson LLP (Michael Dockterman) & Norton Rose Fulbright US LLP (Jason Boland, Bob Bruner)

  • Official Committee of Unsecured Creditors

    • Legal: Hogan Lovells US LLP (S. Lee Whitesell, John Beck, David Simonds, Ron Silverman, Michael Hefter) & Husch Blackwell LLP (Randall Rios, Timothy Million)

⛽️New Chapter 11 Filing - CARBO Ceramics Inc. ($CRRT)⛽️

CARBO Ceramics Inc.

March 29, 2020

Houston-based CARBO Ceramics Inc. and two affiliates (the “debtors”) are the latest oil and gas servicers to file for chapter 11 bankruptcy; they are manufacturers and sellers of ceramic tech products and services and ceramic proppant for oilfield, industrial and environmental markets. Make no mistake, though: they are indexed heavily to the oil and gas market.

Here’s a paragraph that literally scores of companies ought to just copy and paste (with limited edits) over the next several months as a wave of oil and gas companies crash into the bankruptcy system:

Beginning in late 2014, a severe decline in oil prices and continued decline in natural gas prices led to a significant decline in oil and natural gas drilling activities and capital spending by E&P companies. While modest price recoveries have occurred intermittently since that time, prices have generally remained depressed and recently fell precipitously again to near record low levels. The Company’s financial performance is directly impacted by activity levels in the oil and natural gas industry. A downturn in oil and natural gas prices and sustained headwinds facing the E&P industry have resulted in both reduced demand for the Company’s products and services and reduced prices the Company is able to charge for those products and services. Because drilling activity has been reduced over a protracted period of time, demand for all of the Company’s products and services (proppant, in particular) has been significantly depressed.

They can then follow it up with some astounding business performance figures like:

From 2014 to 2019, the Company’s total revenue for base ceramic media fell from approximately $530 million to approximately $34 million.

BOOM!

Of course, this financial pain will trickle down to others. Like railcar and distribution center lessors, among others.

The debtors have a consensual deal with their pre-petition secured lenders, Wilks Brothers LLC and Equify Financial LLC, to equitize their debt — including maybe the DIP if its not rolled into an exit facility. The deal is interesting because it provides 100% recovery to unsecured creditors of two debtors and a cash payment option to unsecured debtors of the main debtor. The lenders will see a liquidating trust with a whopping $100k so that certain avoidance actions can be pursued. And, finally, there’s a “death trap.” If the unsecured creditors vote to accept the plan, the pre-petition secured creditors will waive their “very significant unsecured deficiency claim.” If not, they’ll flood them into oblivion. Of course, this statement implies that the value of the business is negligible at this point. Reminder: revenue dipped from $530mm to $34mm in 2019. Can’t imagine numbers for 2020 are looking particularly rosy either. Finally, all of the above is subject to a “fiduciary out” — you know, in case, by some miracle, someone else actually wants this business (spoiler alert: nobody will).

Also interesting is the value of the NOLs here which dwarf the funded debt. 🤔

Wilks will fund a $15mm DIP to finance the cases with $5mm needed within the first 14 days of the cases. This, however, is subject to what we’ll call “The COVID-caveat.” Per the company:

The DIP Budget is based on information known to date and is the best estimate of the Debtors’ current expectations. It should be noted that the global outbreak of the COVID-19 virus and the severe disruption and volatility in the market has caused and continues to cause major challenges across all industries and may ultimately result in the Debtors’ falling short of their forecasted receipts.

Interestingly, they note further:

The Company’s New Iberia facility is currently non-operational due to a state-wide shelter-in-place order, but the Company, pursuant to applicable state law, is continuing to pay its employees. While the shelter-in-place order could terminate by April 10, 2020, it is possible that the order will be extended.

While the Company’s other facilities in Alabama and Georgia are still operational, it is possible that these states will also enact shelter-in-place orders in the near term that will force these facilities to go non-operational.

The simultaneous supply and demand shock in the oil market is unprecedented and may cause a substantial strain on or reduction in collections from the Company’s primary customers, many of whom are dependent on oil prices.

None of this is surprising but it’s interesting to see the various x-factors that are now part of the DIP sizing process.

As you all very well know, these are extraordinary times.

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• Jurisdiction: S.D. of Texas (Judge Isgur)

• Capital Structure: $65mm RCF (Wilks Brothers LLC & Equify Financial LLC)

• Professionals:

  • Legal: Vinson & Elkins LLP (Matthew Moran, Matthew Struble, Garrick Smith, Paul Heath, David Meyer, Michael Garza) & Okin Adams LLP (Matthew Okin, Johnie Maraist)

  • Financial Advisor: FTI Consulting Inc.

  • Investment Banker: Perella Weinberg Partners LP (Jakub Mlecsko)

  • Claims Agent: Epiq (*click on the link above for free docket access)

• Other Parties in Interest:

  • Prepetition Secured Lender & Major Equityholder: Wilks Brothers LLC & Equify Financial LLC

    • Legal: Norton Rose Fulbright LLP (Greg Wilkes, Francisco Vazquez)

    • Financial Advisor: Ankura Consulting Group LLC

⚓️New Chapter 11 Bankruptcy Filing - American Commercial Lines Inc.⚓️

American Commercial Lines Inc.

February 7, 2020

Indiana-based American Commercials Lines Inc. and ten affiliates (the “debtors”), large liquid and dry cargo shippers with an active fleet of approximately 3,500 barges, filed a prepackaged bankruptcy case in the Southern District of Texas to (i) effectuate a comprehensive restructuring of $1.48b of debt ($536mm RCF and $949mm term loan) and (ii) inject the debtors with much-needed new capital via a rights offering. Now, we know what you’re thinking: the debtors are just the latest victims of the oil and gas crash. While oil and gas do make up some small portion of the debtors’ revenues (10%), this is incorrect. Other factors complicated the debtors’ efforts to service their bulk of debt (see what we did there?). Hold on to your butts, people.

The company notes:

Beginning in early 2016, the inland barge industry entered a period of challenging conditions that have resulted in reduced earnings. These challenges were brought on by a variety of international trade, macroeconomic, industry capacity, and environmental factors. The industry has experienced a prolonged period of declining freight rates, grain volume volatility related to international competition and tariffs on U.S.-grown soybeans, and excessive operating costs incurred as a result of extreme flooding conditions. Freight rates during 2016 and 2017 were under continued downward pressure from reduced shipping demand for metals, grain, refined products, petrochemicals, chemicals and crude oil. These declines resulted in part from pressure on the U.S. steel industry linked to dumping of foreign steel into U.S. markets, increased international competition in grain exports, and the decline in North American crude oil production in response to an oversupply of global crude oil.

Wow. So much to unpack there. It’s as if the debtors’ diversified revenue streams all fell smack dab in the middle of each and every declining sector of the US economy. Reduced steel shipments due to Chinese dumping ✅. Distress in agriculture leading to less volume ✅. Oil and gas carnage ✅.

Compounding matters was increased barge supply (read: competition) due to an increase in coal shipments. That’s right, folks. We’re back to coal. Less coal production = redeployed ships looking for replacement cargo = more competition in the liquid and dry cargo space = decreased freight rates.

The debtors got a temporary reprieve in late 2017 when the Trump administration imposed steel tariffs. A short-lived recovery in steel prices combined with a temporary recovery in oil prices and, due to the above issues, a slowdown in barge construction, helped rates recover a tad.

It didn’t last. In mid-2018, China imposed tariffs on US-grown soybeans. Agricultural products constitute 36% of the debtors’ revenues. Combined with flooding that disrupted farming and navigable waterways, the debtors experienced approximately $86mm in increased operating costs. So, yeah, no bueno. As the debtors note with no intended irony, all of these factors amount to a “perfect storm” heightened mostly by an unsustainable and unserviceable debt load.

A few things to highlight here in terms of the process and trajectory of the cases:

• This serves as yet another example where the pre-petition lenders used the debtors’ need for additional time to fund a short-term bridge and, in exchange, lock down a full rollup of the pre-petition debt into a $640mm DIP credit facility. The term lenders will also provide a $50mm DIP to fund the administration of the cases.

• The term lenders are equitizing their $949mm term loan, getting 100% 7.5% “take back preferred equity” and “new common equity” in return. Their estimated recovery is 38%. Post-reorg, the major owners of the debtors, therefore, will be Contrarian Capital Management LLC, Finepoint Capital LP, and Invesco Ltd.

• The company will get a $150mm of new money via a backstopped rights offering supported by certain holders of term loan claims. This new money infusion (in exchange for 10% junior preferred equity to that noted above and provided subject to a 7% backstop premium) will presumably give the debtors some additional runway should the market forces noted above persist.

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• Jurisdiction: S.D. of Texas (Judge Isgur)

• Capital Structure: $536mm RCF and $949mm term loan

• Professionals:

  • Legal: Milbank LLP (Dennis Dunne, Samuel Khalil, Parker Milender) & Porter Hedges LLP (John Higgins, Eric English) & Seward & Kissel LLP

  • Post-Reorg Independent Director: Scott Vogel

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: Greenhill & Co. Inc.

  • Claims Agent: Prime Clerk LLC (*click on the link above for free docket access)

• Other Parties in Interest:

  • Prepetition ABL & DIP ABL Agent: Wells Fargo Bank NA

    • Legal: K&L Gates LLP (David Weitman, Christopher Brown)

  • Preptition Term Loan Agent: Cortland Capital Market Services LLP

  • Ad Hoc Group of Term Lenders: Contrarian Capital Management LLC, Finepoint Capital LP, and Invesco Ltd.

    • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Darren Klein, Erik Jerrard) & Rapp & Krock PC (Henry Flores, Kenneth Krock)

    • Financial Advisor: Evercore Group LLC

  • Large Equityholder: Platinum Equity
    

⛽️New Chapter 11 Bankruptcy Filing - Sheridan Holding Company II, LLC⛽️

Sheridan Holding Company II, LLC

September 15, 2019

Houston-based Sheridan Holding Company II LLC and 8 affiliated debtors filed a chapter 11 bankruptcy case in the Southern District of Texas with a nearly-fully-consensual prepackaged plan of reorganization. The plan, once effective, would eliminate approximately $900mm(!) of pre-petition debt. The case is supported by a $100mm DIP credit facility (50% new money).

Why so much debt? While this is an oil and gas story much like scores of other companies we’ve seen march through the bankruptcy court doors, the business model, here, is a bit different than usual. Sheridan II is a “fund”; it invests in a portfolio of working interests in mature onshore producing properties in Texas, New Mexico and Wyoming. Like Matt Damon in “Promised Land,” the debtors scour God’s country in search of properties, acquires working interests in those properties, and then seeks to deploy their special sauce (“application of cost-effective reinvestments, operational improvements, and enhanced recovery programs to the acquired assets”) to eke out product and, ultimately, sell that sh*t at a profit. This, as you might suspect, requires a bunch of capital (and equity from LPs like Warburg Pincus).* Hence the $1.1b of debt on balance sheet. All of this is well (pun intended) and good, provided the commodity environment cooperates. Which, we all know all too well, has not been the case in recent years. Peace out equity. Peace out sub debt.

Interestingly, some of that debt was placed not too long ago. Confronted with the oil and gas downturn, the debtors took the initiative to avoid bankruptcy; they cut off distributions to LPs, took measures to decrease debt, cut opex, capex and SG&A, and engaged in a hedging program. In 2017, the debtors raised $455mm of the subordinated term loan (with PIK interest galore), while also clawing back 50% of distributions previously made to LPs to the tune of $64mm. Everyone needed to have skin in the game. Alas, these measures were insufficient.

Per this plan, that skin is seared. The revolving lenders and term lenders will receive 95% of the common stock in the reorganized entity with the subordinated term lenders getting the remaining 5%. YIKES. The debtors estimate that the subordinated term lenders will recover 2.6% of the amount of their claims under the proposed plan. 2.6% of $514mm = EPIC VALUE DESTRUCTION. Sweeeeeeeeet. Of course, the limited partners are wistfully looking at that 2.6%. Everything is relative.

*****

Some additional notes about this case:

• The hope to have confirmation in 30 days.

• The plan includes the ability to “toggle” to a sale pursuant to a plan if a buyer for the assets emerges. These “toggle” plans continue to be all of the rage these days.

• The debtors note that this was a “hard fought” negotiation. We’ve lost count of how many times professionals pat themselves on the backs by noting that they arrived at a deal, resolving the issues of various constituencies with conflicting interests and positions. First, enough already: this isn’t exactly Fallujah. You’re a bunch of mostly white males (the CEO of the company notwithstanding), sitting around a luxury conference table in a high rise in Manhattan or Houston. Let’s keep some perspective here, people. Second, THIS IS WHAT YOU GET PAID $1000+/hour to do. If you CAN’T get to a deal, then that really says something, particularly in a situation like this where the capital structure isn’t all-too-complex.

• The bulk of the debtors’ assets were purchased from SandRidge Energy in 2013. This is like bankruptcy hot potato.

• Independent directors are really becoming a cottage industry. We have to say, if you’re an independent director across dozens of companies, it probably makes sense to keep Quinn Emanuel on retainer. That way, you’re less likely to see them on the opposite side of the table (and when you do, you may at least temper certain bulldog tendencies). Just saying.

Finally, the debtors’ bankruptcy papers provide real insights into what’s happening in the oil and gas industry today — particularly in the Permian Basin. The debtors’ assets mostly rest in the Permian, the purported crown jewel of oil and gas exploration and production. Except, as previously discussed in PETITION, production of oil out of the Permian ain’t worth as much if, say, you can’t move it anywhere. Transportation constraints, while relaxing somewhat, continue to persist. Per the company:

“Prices realized by the Debtors for crude oil produced and sold in the Permian Basin have been further depressed since 2018 due to “price differentials”—the difference in price received for sales of oil in the Permian Basin as compared to sales at the Cushing, Oklahoma sales hub or sales of sour crude oil. The differentials are largely attributable to take-away capacity constraints caused by increases in supply exceeding available transportation infrastructure. During 2018, Permian Basin crude oil at times sold at discounts relative to sales at the Cushing, Oklahoma hub of $16 per barrel or more. Price differentials have narrowed as additional take-away capacity has come online, but crude oil still sells in the Permian Basin at a discount relative to Cushing prices.”

So, there’s that teeny weeny problemo.

If you think that’s bad, bear in mind what’s happening with natural gas:

“Similarly, the Henry Hub natural gas spot market price fell from a peak of $5.39 per million British thermal units (“MMBtu”) in January 2014 to $1.73 per MMBtu by March 2016, and remains at approximately $2.62 per MMBtu as of the Petition Date. In 2019, natural gas prices at the Waha hub in West Texas have at times been negative, meaning that the Debtors have at times either had to shut in production or pay purchasers to take the Debtors’ natural gas.”

It’s the natural gas equivalent of negative interest rates. 😜🙈

*All in, this fund raised $1.8b of equity. The Sheridan Group, the manager of the debtors, has raised $4.6b across three funds, completing nine major acquisitions for an aggregate purchase price of $5.7b. Only Sheridan II, however, is a debtor (as of now?).

• Jurisdiction: S.D. of Texas (Judge Isgur)

• Capital Structure: $66 RCF (Bank of America NA), $543.1mm Term Loan (Bank of America NA), $514mm ‘22 13.5%/17% PIK Subordinated Term Loans (Wilmington Trust NA) — see below.

• Professionals:

  • Legal: Kirkland & Ellis LLP (Joshua Sussberg, Steven Serajeddini, Spencer Winters, Stephen Hackney, Rachael Marie Bazinski, Jaimie Fedell, Casey James McGushin) & Jackson Walker LLP (Elizabeth Freeman, Matthew Cavenaugh)

  • Board of Directors: Alan Carr, Jonathan Foster

    • Legal: Quinn Emanuel Urquhart & Sullivan LLP

  • Financial Advisor: AlixPartners LLP

  • Investment Banker: Evercore Group LLC

  • Claims Agent: Prime Clerk LLC (*click on the link above for free docket access)

• Other Parties in Interest:

  • Administrative agent and collateral agent under the Sheridan II Term Loan Credit Agreements: Bank of America NA

    • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Stephen Piraino, Nathaniel Sokol)

    • Financial Advisor: Houlihan Lokey Capital Inc.

  • Administrative Agent under the Sheridan II RBL: Bank of America NA

    • Legal: Vinson & Elkins LLP (William Wallander, Bradley Foxman, Andrew Geppert)

    • Financial Advisor: Houlihan Lokey Capital Inc.

  • Ad Hoc Group of Subordinated Term Loans (Pantheon Ventures US LP, HarbourVest Partners LP)

    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Gabriel Morgan, Clifford Carlson)

    • Financial Advisor: PJT Partners LP

  • Limited Partner: Wilberg Pincus LLC

    • Legal: Willkie Farr & Gallagher LLP (Brian Lennon)

Source: First Day Declaration

⛽️New Chapter 11 Filing - Alta Mesa Resources Inc. ($AMR)⛽️

Alta Mesa Resources Inc.

September 11, 2019

Man. We nailed this one. Once Alta Mesa Holdings LP’s borrowing base got redetermined down, it was f*cked.*

As we’ve previously covered, Alta Mesa Resources Inc. is an independent oil and nat gas exploration and production company focused on the Sooner Trend Anadarko Basin Canadian and Kingfisher County (otherwise known as the “STACK”) in Oklahoma. It has an upstream business and, through a non-debtor entity it is now suing in an adversary proceeding (Kingfisher Midstream LLC), a midstream business.

The fact that another oil and gas company is now in bankruptcy** is, frankly, fairly uninteresting: the debtors blame the usual factors for their demise. Depressed oil prices ✅. Over-leverage (here, a $368mm RBL and $509mm in unsecured notes)✅. Liquidity constraints✅. We’ve now seen these story — and those factors — several dozen times this year alone. Like many of its oil and gas predecessors, these debtors, too, will explore a “value-maximizing sale of all or substantially all of the [d]ebtors’ assets” while also looking at a restructuring along with non-debtor affiliates. Par for the course.

What’s most interesting to us on this one — and relatively rare in bankruptcy — is the fact that the company emanated out of a “special purpose acquisition company or “SPAC” for short (these are also known as “blank check” companies). For the uninitiated, SPACs are generally shady-as-sh*t investment vehicles with pseudo-private-equity-like characteristics (including the enrichment of the sponsors) that are offered via IPO to idiot public equity investors who are enamored with putting money behind allegedly successful founders/investors. They have a long and sordid history but, as you might imagine in frothy AF markets like the one we’re currently experiencing, they tend to rise in popularity when people have lots of money to put to work and limited avenues for yield baby yield. According to this “SPAC 101” presentation by the law firm Winston & Strawn LLP, “[i]n 2017, there were 32 SPAC IPOs raising a total of $8.7 billion, the highest total since 2007.” That number rose above $10b in 2018. Some recent prominent examples of SPACs include: (a) the proposed-but-called-off combination of SPAC Leo Holdings Corp. ($LHC) with Chuck E. Cheese, (b) Chamath Palihapitiya’s investment in Richard Branson’s Virgin Galacticspace initiative via his $600mm spac, Social Capital Hedosophia Holdings Corp ($IPOA), and (c) something closer to home for distressed players, Mudrick Capital Acquisition Corporation ($MUDS.U), founded by Jason Mudrick. The latter, despite being 18 month post-close, has yet to deploy its capital (which is notable because, typically, SPACs have a two-year life span before capital must be returned to investors).

In late 2016, Riverstone Investment Group LLC formed its SPAC and commenced an IPO in Q1 ‘17. The IPO generated proceeds of over $1b. These proceeds were placed in a trust account — standard for SPACs — and ultimately used to partially fund the “business combination” that started the sh*tshow that we all now know as Alta Mesa. That transaction closed in February 2018. Public shareholders were now in the mix.

So, how did that work out for them? Well, here we are:

$AMR is no more.

May be the embodiment of peak shale era with insane deal underwriting/valuation, misaligned incentives (SPAC) and a complete failure in execution.

Everything went wrong here, in quick fashion. https://t.co/uQCbtbkW4s

— EnergyCynic (@EnergyCynic) September 12, 2019

In 577 days, Silver Run II (SPAC) went from acquiring Alta Mesa Holdings to filing for Chapter 11. Roughly ~2B in cash was lit on fire ($3.5mm a day). Interestingly, Kingfisher Midstream was not part of the filing $AMR

— WastedEnergy (@energy_wasted) September 12, 2019

So, yeah. Add this one to the list of failed SPACs. The lawyers sure have: AMR, certain of its current and former directors, Riverstone Investment Group LLC and Riverstone Holdings LLC were named defendants in securities class action lawsuits in both United States District Courts for the Southern District of New York and the Southern District of Texas that allege that the defendants “disseminated proxy materials containing materially false or misleading statements in connection with the Business Combination….” The debtors are obviously calling these claims “meritless.”

So, there you have it folks. An inauspicious start has brought us to a suspect penultimate chapter. There is no purchaser in tow, no clear direction for the bankruptcy proceeding, and an adversary proceeding that faces some recent unfavorable precedent (albeit in a different, less favorable, jurisdiction).

We can’t wait to see where this flaming hot mess goes from here.

---

*We wrote:

PETITION Note: Ruh roh. Just like that, the lenders have put the squeeze on AMH. AMH meet world of hurt. World of hurt, meet AMH.

“As provided under the Alta Mesa RBL, AMH will elect to repay the excess utilization in 5 equal monthly installments of $32.5 million, the first of which will be due in September 2019. As of July 31, 2019, AMH had cash on hand of approximately $79.7 million.”

PETITION Note: HAHAHAHAHA, yeah, sure it will. And we have a bridge to sell you.

Re-engage the bankruptcy countdown. Maybe…MAYBE…some crazy macroeconomic shock will occur and oil prices will shoot up to $1900/barrel. Like, maybe a meteor strikes Earth and annihilates Saudi Arabia, completely wiping it off the map. In that scenario, yeah, sure, AMH is copacetic. 

Interestingly, as we write this, Yemeni Houthi rebels are taking credit for a drone attack that has shut down half of Saudi Arabia’s oil output. Per the WSJ:

The production shutdown amounts to a loss of about five million barrels a day, the people said, roughly 5% of the world’s daily production of crude oil. The kingdom produces 9.8 million barrels a day.

Meteors. Drones. Let’s not split hairs.

**10% of the top 30 creditors features energy companies with prior BK experience including greatest hits like Chaparral Energy LLC, Weatherford US LP (another recent Latham client), and Basic Energy Services LP.

• Jurisdiction: S.D. of Texas (Judge Isgur)

• Capital Structure: $368mm RBL (Wells Fargo Bank NA), $509mm 7.785% unsecured notes (US Bank NA)

• Professionals:

  • Legal: Latham & Watkins LLP (George Davis, Caroline Reckler, Annemarie Reilly, Brett Neve, Andrew Sorkin) & Porter Hedges LLP (John F. Higgins IV, Eric English, Aaron Power, M. Shane Johnson)

  • Board of Directors: James Hackett (Riverstone), Pierre Lapeyre Jr. (Riverstone), David Leuschen (Riverstone), Donald Dimitrievich (HPS), William McCullen, Sylvia Kerrigan, Donald Sinclair, Jeffrey Tepper, Diana Walters, Patrick Bartels, Marc Beilinson)

  • Financial Advisor/CRO: AlixPartners LLP (Robert Albergotti)

  • Investment Banker: Perella Weinberg Partners (Kevin Cofsky)

  • Claims Agent: Prime Clerk LLC (*click on the link above for free docket access)

• Other Parties in Interest:

  • Ad Hoc Noteholder Group (Bain Capital Credit LP, Firefly Value Partners LP, Leroy DH LP, PGIM Inc., PPM America Inc.)

    • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Angela Libby, Stephanie Massman & (local) Rapp & Krock PC (Henry Flores, Kenneth Krock)

  • Issuing Lender: Wells Fargo Bank NA

    • Legal: Bracewell LLP (William A. Wood III, Jason G. Cohen)

  • Unsecured Note Indenture Trustee: US Bank NA

    • Legal: Blank Rome LLP (Ira Herman, James Grogan)

  • Creditor: Kingfisher Midstream LLC

    • Legal: Quinn Emanuel Urquhart & Sullivan LLP (Susheel Kirpalani, Patrica Tomasco, Devin va der Hahn)

  • Equity Sponsors: Riverstone Investment Group LLC/HPS Investment Partners LLC

    • Legal: Vinson & Elkins LLP (David Meyer, Michael Garza, Harry Perrin)

  • Equity Sponsor: Bayou City Energy Management LLC

    • Legal: Kirkland & Ellis LLP (Joshua Sussberg, Gregory Pesce, Anna Rotman)

  • Equity Sponsors: Orbis Investment Management Limited, High Mesa Holdings LP,

⛽️New Chapter 11 Filing - Legacy Reserves Inc.⛽️

Legacy Reserves Inc.

June 18, 2019

CNBC: What is it you like about the Permian Basin?

Munger: It's got a lot of oil in it

— Tara Lachapelle (@taralach) May 6, 2019

Even at 95 years old, you can’t get one past Charlie Munger. #Legend.

The Permian Basin in West Texas is where it’s at in the world of oil and gas exploration and production. Per Wikipedia:

As of 2018, the Permian Basin has produced more than 33 billion barrels of oil, along with 118 trillion cubic feet of natural gas. This production accounts for 20% of US crude oil production and 7% of US dry natural gas production. While the production was thought to have peaked in the early 1970s, new technologies for oil extraction, such as hydraulic fracturing and horizontal drilling have increased production dramatically. Estimates from the Energy Information Administration have predicted that proven reserves in the Permian Basin still hold 5 billion barrels of oil and approximately 19 trillion cubic feet of natural gas.

And it may be even more prolific than originally thought. Norwegian research firm Rystad Energy recently issued a report indicating that Permian projected output was already above 4.5mm barrels a day in May with volumes exceeding 5mm barrels in June. This staggering level of production is pushing total U.S. oil production to approximately 12.5mm barrels per day in May. That means the Permian now accounts for 36% of US crude oil production — a significant increase over 2018. Normalized across 365 days, that would be a 1.64 billion barrel run rate. This is despite (a) rigs coming offline in the Permian and (b) natural gas flaring and venting reaching all-time highs in Q1 ‘19 due to a lack of pipelines. Come again? That’s right. The Permian is producing in quantities larger than pipelines can accommodate. Per Reuters:

Producers burned or vented 661 million cubic feet per day (mmcfd) in the Permian Basin of West Texas and eastern New Mexico, the field that has driven the U.S. to record oil production, according to a new report from Rystad Energy.

The Permian’s first-quarter flaring and venting level more than doubles the production of the U.S. Gulf of Mexico’s most productive gas facility, Royal Dutch Shell’s Mars-Ursa complex, which produces about 260 to 270 mmcfd of gas.

The Permian isn’t alone in this, however. The Bakken shale field in North Dakota is also flaring at a high level. More from Reuters:

Together, the two oil fields on a yearly basis are burning and venting more than the gas demand in countries that include Hungary, Israel, Azerbaijan, Colombia and Romania, according to the report.

Permian Slowdown Continues; U.S. Rig Count Declines by Six: Led once again by declines in the Permian Basin, the U.S. rig count declined by six units in the week ended June 14 to finish at 969, according to the latest data from Baker Hughes... https://t.co/huCTiSD0i2 #NatGas pic.twitter.com/RxHsCiCt5B

— Shale Daily (@shaledaily) June 14, 2019

All of which brings us to Legacy Reserves Inc. ($LGCY). Despite the midstream challenges, one could be forgiven for thinking that any operators engaged in E&P in the Permian might be insulated from commodity price declines and other macro headwinds. That position, however, would be wrong.

Legacy is a publicly-traded energy company engaged in the acquisition, development, production of oil and nat gas properties; its primary operations are in the Permian Basin (its largest operating region, historically), East Texas, and in the Rocky Mountain and Mid-Continent regions. While some of these basins may produce gobs of oil and gas, acquisition and production is nevertheless a HIGHLY capital intensive endeavor. And, here, like with many other E&P companies that have recently made their way into the bankruptcy bin, “significant capital” translates to “significant debt.”

Per the Company:

Like similar companies in this industry, the Company’s oil and natural gas operations, including their exploration, drilling, and production operations, are capital-intensive activities that require access to significant amounts of capital.  An oil price environment that has not recovered from the downturn seen in mid-2014 and the Company’s limited access to new capital have adversely affected the Company’s business. The Company further had liquidity constraints through borrowing base redeterminations under the Prepetition RBL Credit Agreement, as well as an inability to refinance or extend the maturity of the Prepetition RBL Credit Agreement beyond May 31, 2019.

This is the company’s capital structure:

The company made two acquisitions in mid-2015 costing over $540mm. These acquisitions proved to be ill-timed given the longer-than-expected downturn in oil and gas. Per the Company:

In hindsight, despite the GP Board’s and management’s favorable view of the potential future opportunities afforded by these acquisitions and the high-caliber employees hired by the Company in connection therewith, these two acquisitions consumed disproportionately large amounts of the Company’s liquidity during a difficult industry period.

WHOOPS. It’s a good thing there were no public investors in this thing who were in it for the high yield and favorable tax treatment.*

Yet, the company was able to avoid a prior bankruptcy when various other E&P companies were falling like flies. Why was that? Insert the “drillco” structure here: the company entered into a development agreement with private equity firm TPG Special Situations Partners to drill, baby, drill (as opposed to acquire). What’s a drillco structure? Quite simply, the PE firm provided capital in return for a wellbore interest in the wells that it capitalized. Once TPG clears a specified IRR in relation to any specific well, any remaining proceeds revert to the operator. This structure — along with efforts to delever through out of court exchanges of debt — provided the company with much-needed runway during a rough macro patch.

It didn’t last, however. Liquidity continued to be a pervasive problem and it became abundantly clear that the company required a holistic solution to its balance sheet. That’s what this filing will achieve: this chapter 11 case is a financial restructuring backed by a Restructuring Support Agreement agreed to by nearly the entirety of the capital structure — down through the unsecured notes. Per the Company:

The Global RSA contemplates $256.3 million in backstopped equity commitments, $500.0 million in committed exit financing from the existing RBL Lenders, the equitization of approximately $815.8 million of prepetition debt, and payment in full of the Debtors’ general unsecured creditors.

Said another way, the Permian holds far too much promise for parties in interest to walk away from it without maintaining optionality for the future.

*Investors got burned multiple times along the way here. How did management do? Here is one view (view thread: it’s precious):

Time for another round of:

"These incompetent fucks bankrupted an energy company...now how much will they pay themselves for it?"

This week's edition: Legacy Reserves $LGCY

Real ones will remember that $LGCY had a #4 seed in the Worst Midstream / MLP Management Team Bracket

— Mr. Skilling (Parody) (@mr_skilling) May 24, 2019

😬

• Jurisdiction: S.D. of Texas (Judge Isgur)

• Capital Structure: See above.

• Professionals:

  • Legal: Sidley Austin LLP (Duston McFaul, Charles Persons, Michael Fishel, Maegan Quejada, James Conlan, Bojan Guzina, Andrew O’Neill, Allison Ross Stromberg)

  • Financial Advisor: Alvarez & Marsal LLC (Seth Bullock, Mark Rajcevich)

  • Investment Banker: Perella Weinberg Partners (Kevin Cofsky)

  • Claims Agent: KCC (*click on the link above for free docket access)

• Other Parties in Interest:

  • Official Committee of Unsecured Creditors (Wilmington Trust NA, Dalton Investments LLC, Paul Drueke, John Dinkel, Nicholas Mumford)

  • GSO Capital Partners LP

    • Legal: Latham & Watkins LLP (George Davis, Adam Goldberg, Christopher Harris, Zachary Proulx, Brett Neve, Julian Bulaon) & (local) Porter Hedges LLP (John Higgins, Eric English, M. Shane Johnson)

  • DIP Lender: Wells Fargo Bank NA

    • Legal: Orrick LLP (Raniero D’Aversa, Laura Metzger)

  • Prepetition Term Agent: Cortland Capital Market Services LLC

    • Legal: Arnold & Porter Kaye Scholer LLP (Gerardo Mijares-Shafai, Seth Kleinman)

  • Indenture Trustee: Wilmington Trust NA

    • Legal: Pryor Cashman (Seth Lieberman, Patrick Sibley, Andrew Richmond)

  • Ad Hoc Group of Senior Noteholders (Canyon Capital Advisors LLC, DoubleLine Income Solutions Fund, J.H. Lane Partners Master Fund LP, JCG 2016 Holdings LP, The John C. Goff 2010 Family Trust, John C. Goff SEP-IRA, Cuerno Largo Partners LP, MGA insurance Company Inc., Pingora Partners LLC)

    • Legal: Davis Polk & Wardwell LLP (Brian Resnick, Stephen Piraino, Michael Pera) & (local) Rapp & Krock PC (Henry Flores)

Updated 7/7/19 #188

New Chapter 11 Bankruptcy Filing - Parker Drilling Inc.

Parker Drilling Inc.

12/12/18

Back in October, in “Still Work to Do in Oil Country (Short Oil Field Services Companies),” we wrote the following:

Restructuring professionals attempting to extricate themselves from oil and gas work may have to wait a little bit longer. With companies like Houston-based Parker Drilling Corporation ($PKD) continuing to tread water, there may continue to be action in the space in the very near future. 

We added:

The signs of a near-term (read: Q4 ‘18) bankruptcy filing for Parker Drilling continue to shine through. Back in July, the company implemented a reserve stock split and adopted a short-term shareholder rights plan. While neither initiative, on its own, is dispositive of a chapter 11 filing, they are indicia. The former increases the market price per share of the common stock, ensuring compliance with NYSE listing requirements. Given a delisting notice received back in the spring, some level of stock split was basically a fait accompli. The latter is intended to “protect the best interests of the Company and its stakeholders”and is meant to preserve certain tax attributes that, if lost, would be tremendous value leakage to the estate…uh, company. The company noted:

“The Company believes these Tax Benefits are valuable assets that could offset potential future income taxes for federal income tax purposes. As of December 31, 2017, the Company had approximately $456 million of federal NOLs and $47 million of foreign tax credits.”

Of course, net operating losses only emanate out of a business that is (or was during a given fiscal year) unprofitable for tax purposes. So, there’s that. Which, putting the aforementioned shenanigans aside, is seemingly the bigger problem here.

For its second quarter ended June 30, 2018, PKD reported a net loss of $23.8mm on $118.6mm of revenue, a loss of $2.56/share. Adjusted EBITDA was $18.7mm. While those numbers aren’t so good, to say the least, they actually include a Q-over-Q increase of 8.1% in revenue (thanks to an increase in gross margin). Of course G&A expenses increased by $2.1mm because…wait for it…there were “professional fees fees related to ongoing capital structure analysis during the quarter.” You bet there were, homies.

We continued:

This capital structure isn’t complex and refinancing options, while theoretical, may be difficult given the company’s continued cash burn.

This is the company’s capital structure:

And so we concluded:

The path forward here given the liquidity needed seems pretty obvious: we expect to see a restructuring support agreement on this bad boy sometime soon with an attempted quick trip through bankruptcy court that de-levers the balance sheet, eliminates interest expense, and positions the company to make the capex necessary to capture the growth projected in the business plan.

So, what’s the latest? Well, as predicted, Houston-backed Parker Drilling Company, an international provider of contract drilling and drilling-related services and rental tools, filed an earnest bankruptcy petition and accompanying papers in the Southern District of Texas. Earnest? Why “earnest”? The company stated:

Adverse macro trends, including and especially the sustained downturn in commodity prices, have reduced demand for oilfield services provided by the Debtors, resulting in idle rigs, and placing downward pressure on the prices the Debtors are able to charge. Moreover, the Debtors are facing near term 2020 maturities of their 2020 Notes and ABL (each as defined in the First Day Declaration), for which the borrowing base has been tightened and which may not be re-financeable in the current environment under the existing capital structure.

Rather than hold out hope for a market recovery, or execute an inferior transaction that would at best provide more onerous financing without addressing their capital structure in a comprehensive manner, the Debtors have negotiated a comprehensive balance sheet reorganization to both reduce leverage and increase liquidity.

“Rather than hold out hope for a market recovery.” Those are poignant words that say a lot about the company’s outlook for oil in the near-term. It also says a lot about the company’s capital structure: clearly, there was no chance this company could grow into its balance sheet and/or refinance its upcoming debt. And, so, as we also predicted, the company’s bankruptcy filing is accompanied by a deal in hand with the major players in the company’s capital structure and equity profile: Brigade Capital Management, Highbridge Capital Management, Varde Partners, Whitebox Advisors. These four institutions collectively hold approximately 77% of the unsecured notes, approximately 62% of the outstanding preferred stock, and approximately 15% of the outstanding common stock. They’ve agreed to equitize the notes in exchange for equity in the reorganized company and to participate in a rights offering that will have the effect of capitalizing the reorganized entity with $95mm of new equity. The net effect of all of this will be a $375mm deleveraging of the company’s balance sheet.

The company has a commitment for a $50 DIP credit facility to fund the cases and a $50mm exit facility (with an upsize option up to $100mm) upon its emergence from chapter 11.

• Jurisdiction: S.D. of Texas (Judge Isgur)

• Capital Structure: $80mm ABL (unfunded - Bank of America NA), $225mm ‘20 notes (The Bank of New York Mellon Trust Company, N.A.), $360mm ‘22 notes (The Bank of New York Mellon Trust Company, N.A.)

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Christopher Marcus, Brian Schartz, Anna Rotman, Matthew Fagen, Jamie Netznik) & (local) Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh)

  • Financial Advisor: Alvarez & Marsal North America LLC (Lacie Melasi, John Walsh)

  • Investment Banker: Moelis & Co. (Bassam Latif)

  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)

• Other Parties in Interest:

  • Consenting Noteholders: Brigade Capital Management, Highbridge Capital Management, Varde Partners, Whitebox Advisors

    • Legal: Akin Gump Strauss Hauer & Feld LLP

    • Financial Advisor: Houlihan Lokey Capital Inc.

New Chapter 11 Bankruptcy Filing - Gastar Exploration Inc.

Gastar Exploration Inc.

October 31, 2018

The fallout from the oil and gas downturn appears to have a long tail.

Gastar Exploration Inc. ($GST), an oil and natural gas exploration and production company focused on shale resource plays in Oklahoma filed a prepackaged bankruptcy in the Southern District of Texas.

For anyone looking for a short primer on what exactly transpired in oil and gas country upon the 2014 downturn in commodity prices is in luck: the company provides a succinct explanation in its bankruptcy filings. It notes:

The market difficulties faced by the Debtors are consistent with those faced industry-wide. Oil and gas companies and others have been challenged by low natural gas prices for years. Since January 2014, natural gas prices fell from a peak of $5.39 per MMBtu in January 2014 to $1.73 per MMBtu by March 2016, and remain at approximately $3.17 per MMBtu. The price of crude oil has similarly plummeted from a high of $107.26 per barrel in June 2014 to a low of $29.64 per barrel in January 2016. Crude oil prices remain at approximately $67 per barrel. Additionally, NYMEX futures curves for both natural gas and crude oil are backward dated, indicating an expectation among real-money traders in the derivatives market that these commodity prices are expected to decline over the next several years.

These market conditions have affected oil and gas companies at every level of the industry around the world. All companies in the oil and gas industry (not just E&P companies) have felt these effects. However, independent oil and gas companies have been especially hard-hit, as their revenues are generated from the sale of unrefined oil and gas. Over 160 oil and gas companies have filed for chapter 11 since the beginning of 2015. Numerous other oil and gas companies have defaulted on their debt obligations, negotiated amendments or covenant relief with creditors to avoid defaulting, or have effectuated out-of-court restructurings.

The Debtors were not immune to these macro-economic forces.

With hundreds of millions of dollars of debt, the company managed to avoid a bankruptcy filing during that time. This is primarily due to a 2017 refinancing transaction that it consummated with Ares Management LLC pursuant to which the company took on new first lien term loans, new second lien converts, and obtained a $50mm equity investment from Ares. The capital structure, at the petition date, is comprised of these term loans and converts. The company intended the new financing to help it weather the downturn and bridge it to a more favorable operational performance and capital markets environment. Alas, it’s in bankruptcy. So, we guess we know how those intentions played out in reality. Indeed, the company experienced significant operational challenges that resulted in a decreased in well production performance — a result that came to pass only after the company incurred the costs of production. Sheesh.

Now the company seeks, in partnership with Ares, to push through a speedy chapter 11 bankruptcy that would have the effect of deleveraging the balance sheet by approximately $300mm, handing all of the equity to Ares (on account of their second lien notes claims), and wiping out the preferred and common equity — which would only be entitled to warrants in reorganized Gastar if they don’t object to the restructuring or seek the appointment of an official committee of equity security holders. Which in the case of both common equityholders (Fir Tree Capital Management LP & York Capital Management Global Advisors LLC) and preferred equityholders…uh…is exactly what they’re doing. Clearly those warrants weren’t much of a carrot. And Judge Isgur happens to have previously demonstrated a soft spot in his heart for equity committees. See, e.g., Energy XXI.

Prior to the first day hearing, Fir Tree and York (by attorneys Quinn Emanuel - a sign of seriousness) filed an emergency motion seeking the appointment of an equity committee alleging, among other things, that the company’s plan is a pure Ares jam fest. They seek an investigation of Ares’ actions (including the refinancing transaction), citing the Energy XXI case, and noting in the process that with unsecured creditors riding through the plan, there is no viable adversary to the debtor other than the zeroed-out equity. Which makes this a private equity vs. hedge fund hootenanny!

Subsequently, an ad hoc committee of preferred stockholders filed a motion joining the arguments of Fir Tree and York, noting, however, that as a preferred equity they’re liquidation preference trumps the interest of the common stockholders. They, too, want an investigation into Ares’ involvement in these cases.

A hearing is scheduled for later this week.

• Jurisdiction: S.D. of Texas (Judge Isgur)

• Capital Structure: see below (+$13.3mm in hedging obligations).     

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (Ross Kwasteniet, Anna Rotman, John Luze, Ciara Foster, Brett Newman) & (local) Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh)

  • Financial Advisor: Dacarba LLC

  • Investment Banker: Perella Weinberg Partners LP (Kevin Cofsky)

  • Claims Agent: BMC Group (*click on company name above for free docket access)

• Other Parties in Interest:

  • Financial Sponsor: Ares Management LLC

    • Legal: Milbank Tweed Hadley & McCloy LLP (Paul Aronzon, Thomas Kreller, Robert Liubicic, Haig Maghakian)

  • Minority Shareholders: Fir Tree Capital Management LP & York Capital Management Global Advisors LLC

    • Legal: Quinn Emanuel Urquhart & Sullivan LLP (Emily Smith, K. John Shaffer, Benjamin Finestone, Kate Scherling)

  • Ad Hoc Committee of Preferred Stock Holders (Aedes LLC)

    • Legal: Hunton Andrews Kurth LLP (Paul Silverstein, David Zdunkewicz, Brian Clarke, Timothy Tad Davidson II)

  • DIP Agent & TL Agent: Wilmington Trust NA

    • Legal: Arnold & Porter Kaye Scholer LLP (Christopher Odell, Hannah Sibiski, Brian Lohan, Seth Kleinman)

Source: First Day Declaration

🔥New Chapter 11 Filing - Westmoreland Coal Company🔥

Westmoreland Coal Company

October 9, 2018

In our April piece entitled "🌑Trouble Brews in Coal Country🌑," we noted how Westmoreland Coal Company ($WLB) was headed towards a bankruptcy filing. Subsequently, in May, the company obtained a small round of financing ($90mm) to bridge itself to a chapter 11 bankruptcy filing. Alas, we're upon that filing — a “Chapter 33,” of sorts, for good measure.

And it’s an…interesting…one. The company’s First Day Declaration leads with “What is Coal” and then goes on to mansplain what coal is. It’s beautiful. It’s educational. It’s…odd. Per the Declaration:

Coal is a fossil fuel that forms from the remains of vegetation as long as 400 million years ago. The plants from eons ago captured energy through photosynthesis to create compounds (carbon) in plant tissue. When those plants and trees died, they ultimately sank to the bottom of swamps and formed a dense material called peat, which progressively carbonized under the earth’s pressure and changing temperatures and eventually became a combustible sedimentary and metamorphic rock, which is referred to as coal.

There are at least four ranks of coal, depending on the carbon content: lignite; subbituminous; bituminous; and anthracite. Some estimate that 90 percent of the coal in America is bituminous (i.e., soft) coal, which is primarily used to make electricity through combustion in boilers to make steam that is used to generate power (called steam or thermal coal) and coke for the steel industry (metallurgical or coking coal). The Debtors mine lignite, subbituminous, and bituminous coal.

We are thankful for the explanation. After all, there haven’t been many opportunities over the last decade to explore the intersection of coal and bankruptcy. Oh…wait. Hang on. Right. Ok, sure, there was Peabody Energy. Ah, yeah, and Alpha Natural Resources. And Edison Mission Energy, Patriot Coal (x2), Walter Energy, Arch Coal, Xinergy, Armstrong Energy and James River Coal. To name a few. But we digress.

Anyway, THIS bankruptcy implicates Westmoreland (with affiliates, “WLB”), a thermal coal producer that sells coal to “investment grade power plants under long-term cost-protected contracts, as well as to industrial customers and barbeque charcoal manufacturers.” The company’s mines are located in Montana, North Dakota, Texas, Ohio and New Mexico, of which only 4 of a total of 23 are active. The company’s strategy generally revolves around focusing on coal markets where the company can leverage geographic proximity to power plants, some of which were specifically designed to use the company’s coal. Close proximity also permits the company to avoid onerous transportation costs, which, in turn, provides the company with flexibility to be a low(er) cost provider. There is a bit of an export business as well.

The problem is that “[t]he American coal industry is intensely competitive.” The company adds:

In addition to competition from other coal producers, the Debtors compete with producers of alternative fuels used for electrical power generation, such as nuclear energy, natural gas, hydropower, petroleum, solar, and wind. Costs and other factors such as safety, environmental, and regulatory considerations related to alternative fuels affect the overall demand for coal as a fuel. Political dynamics in the United States and Canada have additionally resulted in a reduction of the market demand for coal-based energy solutions.

Tack on a hefty chunk of debt:

And then mix in that the company is (i) subject to 7 collective bargaining agreements and, (ii) in addition to a multi-employer pension plan, that it also provides defined benefit pension plans to qualified employees — which, naturally, are underfunded by approximately $29mm and carry a termination liability of approximately $77.3mm. But wait, there’s more. The company also has, among other things, approximately (i) $1.3mm in retiree medical obligations, (ii) $18.2mm in federal regulatory Black Lung Act obligations, (iii) $334mm of “other post-employment benefit” obligations and (iv) asset retirement obligations of approximately $474.5mm. Why anyone would want to get into the coal business is beyond us. That all sounds outright depressing.

The company blames the following for its bankruptcy filing: (a) a challenging macro environment (⬇️ production and ⬇️demand); (b) a capital intensive business model; (c) the rise of natural gas as a lower cost alternative to coal (score one for the frackers!); and (d) regulation which, as you can see from the panoply of liabilities noted above, helps create a quite a heavy hitter lineup of economic obligations. Per the company:

When coupled with the external pricing pressure, increased regulation, political opposition to coal in the United States and Canada, and other costs associated with WLB’s businesses, these liabilities have hindered WLB’s ability to operate competitively in the current market environment.

And so the company has filed its chapter 11 bankruptcy with the consent of 76% of its term lenders, 57.9% of its senior secured noteholders and 79.1% of its bridge lenders to pursue a dual-track sale of its core assets to an entity to be formed on behalf of the senior secured noteholders and term lenders, subject to highest or best offers for the core assets at an auction. The sale will be consummated through a plan to, among other things, preserve tax benefits. The company will also continue to market its non-core assets. Likewise, the master limited partnership 94% owned by the company (“WMLP”) is for sale. Notably, with no prospect of a restructuring on the horizon, there is no deal in place with the unions and retirees and WLB may have to proceed on a non-consensual basis.

The company marched in to court with a commitment for a $110mm DIP. It will roll-up the bridge loan and fund the cases while the sale processes progress.

Update: In “Grocery Workers, Miners, and Who Ain’t Getting Paid (Short #MAGA),” we noted how coal miners employed by Westmoreland Coal Company were, due to a recent decision by Judge Jones in the Southern District of Texas, in for a world of hurt. Now the company has officially filed its motion seeking to reject certain collective bargaining agreements and modify certain retiree benefits pursuant to sections 1113 and 1114 of the Bankruptcy Code. #MAGA!!

Update: On January 21, 2019, the company filed a “Notice of Cancellation of Auction and Designation of Successful Bidder” after the company didn’t receive any qualified bids for its core assets other than the original stalking horse bid. The company’s Buckingham Mine, a non-core asset, did, in contrast, receive some interest and the company, therefore, will seek to sell that mine in due time.

• Jurisdiction: S.D of Texas (Judge Jones)

• Capital Structure: See above.

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Edward Sassower, Stephen Hessler, Michael Slade, Greg Pesce, Anna Rotman, Christopher Koenig, Gerardo Mijares-Shafai, Timothy Bow) & (local) Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh)

  • Legal Conflicts Counsel to Westmoreland Resource Partners LP and the Conflicts Committee of the Board of Directors of Westmoreland Resources GP LLC: Jones Day (Heather Lennox, Timothy Hoffman, Oliver Zeltner)

  • Financial Advisor to Westmoreland Resource Partners LP and the Conflicts Committee of the Board of Directors of Westmoreland Resources GP LLC: Lazard Freres & Co. LLC (Tyler Cowan)

  • Financial Advisor: Alvarez & Marsal North America LLC (Robert Campagna)

  • Investment Banker: Centerview Partners LLC (Marc Puntus)

  • Claims Agent: Donlin Recano & Co. (*click on company name above for free docket access)

• Other Parties in Interest:

  • WMLP Ad Hoc Group

    • Legal: Schulte Roth & Zabel LLP (David Hillman, Kristine Manoukian, Lucy Kweskin, Kelly Knight) & (local) Jones Walker LLP (Joseph Bain, Mark Mintz)

    • Financial Advisor: Houlihan Lokey Capital, Inc.

  • Administrative Agent under Bridge Loan & DIP Agreements: Wilmington Savings Fund Society FSB

    • Legal: Wilmer Cutler Pickering Hale and Dorr LLP (Andrew Goldman, Benjamin Loveland) & (local) Okin Adams LLP (Matthew Okin, David Curry Jr.)

  • WMB Ad Hoc Group of Term Lenders

    • Legal: Kramer Levin Naftalis & Frankel LLP (Thomas Mayer, Stephen Zide)

  • Official Committee of Unsecured Creditors

    • Legal: Morrison & Foerster LLP (Lorenzo Marinuzzi, Todd Goren, Jennifer Marines, Dimitra Doufekias) & (local) Cole Schotz PC (Michael Warner, Felice Yudkin, Nicholas Brannick, Benjamin Wallen)

  • United States Trustee

    • Legal: Debevoise & Plimpton LLP (M. Natasha Labovitz, Erica Weisgerber) & (local) Zach Clement PLLC

New Chapter 11 Filing - Neighbors Legacy Holdings Inc.

Neighbors Legacy Holdings Inc.

7/12/18

Look! Some healthcare distress. 

Neighbors Legacy Holdings Inc., an operator of 22 freestanding emergency centers throughout the state of Texas filed for bankruptcy on July 12, 2018. The company blames its filing on "financial difficulties caused in large part by increased competition, less favorable insurance payor conditions, declining revenues, and disproportionate overhead costs as compared to their operational income." In other words, its owners did too much too fast, taking on too much debt to expand too rapidly in a space that requires significant upfront capital investment in exchange for a 12-18 month lag in cash flow generation. Initiate death spiral. 

The company's financial numbers look brutal. Per the First Day Declaration:

"...the Debtors’ consolidated EBITDA dropped from $49 million in 2015, to $45 million in 2016, to $10.3 million in 2017. This drop has been caused, in part, by the increased competition in the industry, which has led to lower patient volumes per Emergency Center. For the Emergency Centers opened prior to 2016, the average claims per day fell from approximately 13 in the first quarter of 2017 to approximately 10 currently. For Emergency Centers opened during 2016, there continues to be, on average, fewer than 10 claims per day. This marked reduction in patient volume led to a strain at previously profitable locations and underperformance at new locations."

The company, therefore, has been engaged in a game of whack-a-mole, trying to plug leakages in the enterprise in order to survive. The company had to close several unprofitable locations and abandon planned (but never opened) locations. It also took down SG&A, all the while alienating relationships with critical parties like landlords, vendors and doctors. You know, like, critical cogs in a medical service machine. 

On the bright side, the company does have a stalking horse bidder in tow. Altus Health Systems OPCO LLC and Altus Health System Realty LLC are the staking horse bidder for Houston assets. The company will utilize the "breathing spell" provided by the filing to conduct an auction and attempt to maximize the value of the assets in a competitive process. 

• Jurisdiction: S.D. of Texas (Judge Isgur)
• Capital Structure: $30mm RCF & $120mm term loan (KeyBank National Association)
• Company Professionals:
  • Legal: Porter Hedges LLP (John Higgins, Eric English, Genevieve Graham)
  • CRO/Financial Advisor: CohnReznick LLP (Chad Sandler)
  • Investment Banker: Houlihan Lokey Inc. 
  • Claims Agent: KCC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Prepetition Lender: KeyBank National Association
    • Legal: Reed Smith LLP (Lloyd Kim, Matthew Tashman)

New Chapter 11 Bankruptcy - EXCO Resources Inc.

EXCO Resources Inc.

• 1/15/18 Recap: Dallas-based oil and gas exploration and production company filed for bankruptcy with no plan, no buyer, and a $250mm DIP credit facility in hand from the likes of Fairfax Financial Holdings Limited, Bluescape Resources Company LLC, and JPMorgan Chase Bank, N.A. ($JPM). The company intends to use bankruptcy to try and find a strategic buyer. Shockingly, it doesn't have a stalking horse bidder, all-the-more-surprising because this bankruptcy filing has been anticipated for a year, if not more. W.L Ross & Co. LLC, the former firm of Commerce Secretary Wilbur Ross (#MAGA!!), and Oaktree Capital Management Funds ($OAK) are two large equityholders with holdings of 12.5% and 8.29%, respectively. Companies in EXCO's list of top unsecured creditors is a who's who lineup of once-stressed, distressed, or bankrupt companies, including Azure Midstream, Goodrich Petroleum ($GDP), Chesapeake Energy ($CHK), Stallion Oilfield Services, Nuverra Environmental Solutions, and Light Tower Rentals, among others. At the time of this writing, the company hasn't completed its first day filing but do we even need to read the papers to understand why this company with $1.3 billion of total debt is in bankruptcy court? RIght, probably not. 
• Jurisdiction: S.D. of Texas (Judge Isgur)
• Capital Structure: $1.35b of debt including $131.5mm 7.5% '18 Senior Notes (Wilmington Savings Fund Society), $70.1mm 8.5% '22 Senior Notes (Wilmington Savings Fund Society). 
• Company Professionals:
  • Legal: Kirkland & Ellis LLP (Patrick Nash, Christopher Greco, Alexandra Schwarzman, Stephen Hackney, Ryan Moorman) & (local) Gardere Wynne Sewell LLP (Marcus Helt)
  • Financial Advisor: Alvarez & Marsal LLC (John Stuart)
  • Investment Banker: PJT Partners (Steven Zelin, Michael O'Hara, Adam Schlesinger, Zachary Rigoni, Keith Lord, Jeremey Woodard, Scott Meyerson, Gregory Nelson, Emmanuel Recachinas, Aaron Brenner, Tony Yang, Jennifer Wang)
  • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • DIP Lender: JPMorgan Chase Bank NA
    • Legal: Simpson Thatcher & Bartlett LLP (Nicholas Baker, Sandeep Qusba) & (local) Norton Rose Fulbright US LLP (Louis Strubeck, Kristian Gluck, Ryan Manns)
  • DIP Lender: Fairfax Financial Holdings Limited
    • Legal: Kasowitz Benson Torres LLP (Andrew Glenn, Eric Taube, Adam Shiff, Emily Kuznick, Shai Schmidt)
  • Indenture Trustee: Wilmington Savings Fund Society FSB
    • Legal: Seward & Kissel LLP (John Ashmead, Robert Gayda, Catherine LoTempio)
  • Cross Sound Management
    • Legal: Quinn Emanuel Urquhart & Sullivan LLP (Benjamin Finestone, K. John Shaffer) & (local) Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh)
  • Gen IV Investment Opportunities LLC and VEGA Asset Partners LLC
    • Legal: White & Case LLP (Thomas Lauria, Michael Shepherd) & (local) Gray Reed & McGraw (Jason Brookner)
  • Bluescape Resources Company LLC
    • Legal: Bracewell LLP (Kurt Mayr, David Lawton, Jason Cohen)
  • Official Committee of Unsecured Creditors
    • Legal: Brown Rudnick LLP (Robert Stark, Kenneth Aulet, Sigmund Wissner-Gross, Gerard Cicero, Steven Levine) & (local) Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh)
    • Financial Advisor: FTI Consulting Inc. (Andrew Scruton)
    • Investment Bank: Intrepid Partners LLC (Matthew Hart)

Updated 4/1/18 at 12:13 CT

New Chapter 11 Bankruptcy - Cobalt International Energy Inc. ($CIE)

Cobalt International Energy Inc.

• 12/13/17 Recap: Houston-based publicly-traded ($CIE) deepwater exploration and production company operating in the U.S. Gulf of Mexico and offshore Angola and Gabon in West Africa has filed for bankruptcy. The company blames "a failed sale of Cobalt’s Angolan assets and the related litigation, the prolonged downturn in the exploration and production industry, and nearly $3.0 billion of funded indebtedness" for its filing. The company seeks a sale in bankruptcy. Other than the failed 2016 Angolan transaction, this story is pretty similar to other E&P bankruptcies we've seen in the past. Upshot: offshore exploration is expensive and with oil in the high 50s (a relatively high number), the economics aren't there to support the capital structure. 
• Jurisdiction: S.D. of Texas (Judge Isgur)
• Capital Structure: $500mm '21 first lien notes (Wilmington Trust NA), $934.7mm '23 second lien notes (Wilmington Trust NA), $619.2mm '19 2.625% unsecured notes (Wells Fargo Bank NA), 3.125% $786.9mm '24 unsecured notes (Wells Fargo Bank NA)
• Company Professionals:
  • Legal: Kirkland & Ellis LLP (James Sprayragen, Marc Kieselstein, Chad Husnick, Brad Weiland, Laura Krucks, Gabor Balassa, Stacy Pepper) & (local) Zach A. Clement PLLC (Zach Clement)
  • Investment Banker: Houlihan Lokey Capital
  • Claims Agent: KCC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Ad Hoc Group of First Lien Notes
    • Legal: Weil Gotshal & Manges LLP (Matt Barr)
  • Ad Hoc Group of Second Lien Notes
    • Legal: Akin Gump Strauss Hauer & Feld LLP (James Savin)
  • First Lien Indenture
    • Legal: Wilmer Cutler Pickering Hale & Dorr LLP (Andrew Goldman)
  • Significant Equityholders: First Reserve GP XI Inc., The Carlyle Group, Riverstone Holdings LLC, Paulson & Co., Hotchkis and Wiley Capital Management LLC

New Chapter 11 Filing - Castex Energy Partners LP

Castex Energy Partners LP

• 10/17/17 Recap: People have been saying that there is still more oil and gas distress to work its way through the system, particularly offshore-related companies. Well, here, Castex Energy Partners LP, a Houston-based onshore and offshore oil and natural gas exploration and production company located primarily on the coasts of Louisiana and Texas filed for bankruptcy to effectuate a restructuring support agreement with its major parties in interest. The company owns interests in approximately 375 wells (predominantly onshore); it also holds interests in certain seismic interests and specific lands. Like most other oil and gas E&P companies, Castex faced "intense financial pressure" due to the decrease in price of oil and gas and consequent decrease in demand for drilling. The company's EBITDA declined 70% from 2014 to 2016. Yes, you read that right: 70%. Of course, it didn't help that the company made an inopportune decision to invest heavily in offshore development in 2014, outlaying $259mm "in anticipation of future developmental drilling." Timing couldn't have been worse, it seems. Also, the company simply forgot to hedge, apparently; it "was mildly hedged and was exposed to [a massive nat gas] drop." Given all of that, the playbook is pretty un-extraordinary: strapped with a nice chunk of bank debt, the company attempted to make operational cuts to help sustain cash flow while simultaneously running a sales process through Evercore Partners Inc. That process failed. So, now, the company has $4mm of cash on hand and a $15mm DIP credit facility commitment from its prepetition lenders and a restructuring support agreement between it, Capital One Bank, Castex Energy Inc., and the RBL Lenders. The company plans to equitize certain prepetition lenders' debt and emerge from bankruptcy in Q1 of '18. 
• Jurisdiction: S.D. of Texas (Judge Isgur)
• Capital Structure: $400mm debt (Capital One Bank (USA) NA)    
• Company Professionals:
  • Legal: Kelly Hart & Pitre LLP (Louis Phillips, Peter Kopfinger, Amelia Bueche, Patrick Shelby)
  • Restructuring Advisor: Alvarez & Marsal LLC (Ryan Omohundro)
  • Financial Advisor: Evercore Partners Inc.
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Castex Energy Inc.
    • Legal: Norton Rose Fulbright LLP (Kristian Gluck, Gregory Wilkes, Shivani Shah)
  • Prepetition & DIP Admin Agent: Capital One Bank (USA) NA & Consenting Lenders (Amegy Bank, Whitney Bank, IberiaBank, Frost Bank, Cross Ocean, Comerica Bank, Citibank NA, Bank of America Credit Products Inc., Capital One NA)
    • Legal: O'Melveny & Myers LLP (George Davis, Michael Lotito, Daniel Shamah) & (local) Porter Hedges LLP (John Higgins, Amy Geise)
    • Financial Advisor: RPA Advisors LLC
  • Riverstone V Castex 2005 Intermediate Holdings LLC
    • Legal: Vinson & Elkins LLP (Bradley Foxman, Paul Heath)

Updated 10/26/17

New Chapter 11 Filing - The Engy Group LLC

The Engy Group LLC

• 8/8/17 Recap: Houston-based energy-focused private equity shop has filed for bankruptcy. The pleadings are limited but it's safe to assume that this bankruptcy is a tack-on effect of the prior year+ bloodbath in oil and gas.
• Jurisdiction: SD of Texas (Judge Isgur)
• Company Professionals:
  • Legal: Diamond McCarthy LLP (Kyung Lee)

Updated 8/8/17