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Energy Future to scrap current reorg deal; sees potential new offers

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Energy Future Holdings‘ pre-arranged reorganization plan, negotiated by the company prior to its bankruptcy filing, is, for all intents and purposes, dead.

 

During a brief status update that preceded this morning’s omnibus hearing in the case in Wilmington, Del., attorneys for the company told Bankruptcy Court Judge Christopher Sontchi that while the restructuring support agreement backing the pre-arranged plan has not yet been terminated, “it remains terminable.” The attorney said he expects in coming days that parties to the RSA will either move to terminate the agreement, or the agreement will be amended to terminate by its own terms on Aug. 8, giving the parties a few weeks to work on a replacement deal (see “IRS support for Energy Future’s tax deal is the key to reorg,” LCD, May 1, 2014, for a detailed description of the pre-arranged reorganization deal).

 

Either way the termination of the company’s current pre-arranged reorganization scheme as embodied in the RSA is the result.

 

The attorney blamed the disintegration of the pre-arranged deal on the increased trading prices of Energy Future debt in secondary markets since the company’s bankruptcy filing. He said he did not know whether the increase in debt prices would be permanent or temporary, or even the reasons behind the increasing prices, but he pointedly noted, “Trading prices do impact behavior.”

 

As a result of the increased prices, “parties have been reaching out to the company to suggest transactions that were not previously available to it,” he said, citing the recently sweetened offer from NextEra to acquire the company’s regulated utility, Oncor, as an example (see “NextEra, noteholder group up offer for Energy Future Holdings,” LCD, July 17, 2014, also reported on HighyieldBond.com, for a detailed description of the NextEra offer).

 

Going forward, the attorney said, Energy Future intends to conduct a process to “vigorously pursue” new potential transactions.

 

As for the NextEra offer, the attorney characterized it as “very promising,” and said discussions over it would continue. Toward that end, he said the company would abandon its proposed $1.9 billion second-lien DIP for unit Energy Future Intermediate Holdings, the intermediate holding company for Energy Future’s 80% interest in Oncor.

 

As reported, that DIP, which was to have been provided by a combination of certain holders of unsecured toggle notes at EFIH and holders of unsecured debt at parent Energy Future Holdings, was to be converted into equity in the reorganized company and was a key feature of the pre-arranged deal negotiated by the company. But as also reported, the NextEra deal would, depending upon how it shakes out, either make such a DIP unnecessary, or would replace that proposed DIP with a different second-lien DIP facility, provided by NextEra and a group of EFIH second-lien lenders, that would be incorporated into the overall merger transaction.

 

One other area of note that generated discussion during the status update portion of the hearing was the anticipated structure of any contemplated reorganization scheme and whether it would need to be based upon a tax-free spin-off of unit Texas Competitive Electric Holdings, the intermediate holding company for the company’s unregulated power producing and retailing operations. As reported, addressing the complex tax implications of any reorganization have been a major sticking point as the company has sought to strike a deal among its creditors.

 

In opting for the tax-free spin-off in the pre-arranged plan scheme, Energy Future’s attorney said that the company had “explored the universe of potential structures.” But in comments delivered after the company provided its status update, an attorney for the indenture trustee for second-lien lenders at TCEH suggested that a transaction structure not based on retaining tax-free attributes for TCEH could be accretive by $2-3 billion of the unit, creating residual value for second-lien holders. – Alan Zimmerman

 

 

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Bankruptcy: Energy Future seeks OK for 2nd-lien DIP as it evaluates rival offer

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Energy Future Holdings’ unit Energy Future Intermediate Holdings (EFIH) filed a motion yesterday seeking approval of a $1.995 billion second-lien DIP facility, according to court filings.

The company had previously said the facility would be $1.9 billion, but added a $95 million “tranche B” to cover the facility’s closing fee.

The second-lien DIP is the final piece of Energy Future’s $11.8 billion of post-petition financing, which also includes a $5.4 billion first-lien DIP at EFIH and a $4.475 billion facility at unit Texas Competitive Electric Holdings.

According to the motion, the second-lien DIP facility calls for the payment of at least $146.25 million in fees, including the closing fee. Fees also include an $11.25 million participation fee specifically payable to Fidelity in connection with the exercise of its participation rights under the facility, which is described in more detail below.

Other potential fees include a $57 million alternate transaction fee, also discussed in more detail below, and a $380 million prepayment fee if the DIP is repaid in cash without consent other than upon acceleration.

Unsecured creditors of EFIH, comprised of holders of the company’s toggle notes (with about $1.57 billion outstanding) and holders of about $60 million of LBO notes issued by parent Energy Future Holdings that are guaranteed by EFIH, will have participation rights to fund up to 91% of the second-lien DIP, while Fidelity, by virtue of its ownership of unsecured debt of Energy Future Holdings that was issued through an unregistered offering, will have participation rights to fund the remaining 9% of the facility.

As reported, under the company’s proposed restructuring, the second-lien DIP facility will mandatorily convert to roughly 64% of the equity in reorganized EFIH .

As also reported, the proceeds of the facility are to be used to repurchase the company’s pre-petition second-lien debt. The company launched a tender offer to repurchase the debt, including a contested settlement offer for a disputed make-whole payment associated with the repurchase, on May 9.

The $1.9 billion of “tranche A” notes to be issued in connection with the facility carry interest of 8% per year, payable in cash, while the $95 million of “tranche B” notes – the closing fee add-on — are interest free. Interest on the “tranche A” notes will increase by 4%, payable-in-kind and compounded quarterly, if the company is unable to gain court approval by July 27 of an agreement with its 80%-owned unit, Oncor, under which Oncor would direct certain tax payments to the company (payments that were previously upstreamed to parent Energy Future Holdings) to ensure sufficient cash flow at EFIH to finance the restructuring transactions. If the Oncor agreement is not approved by April 29, 2015, according to the filing, it would also trigger an additional one-time 10% PIK fee on the outstanding “tranche A” and “tranche B” notes.

The administrative agent under the facility is Cortland Capital Market Services.

An alternate DIP?
As noted, the facility also carries an alternate transaction fee of $57 million.

According to the motion, the company said that on May 13 it received a “summary of potential terms for an alternative second-lien financing facility from certain second-lien creditors” containing many of the same terms as the second-lien DIP, but with lower fees, particularly the termination fee, a slightly lower interest rate, and certain other improvements over the existing facility.

According to a report last night from The Wall Street Journal, the alternate facility would be led by J.P. Morgan, and would carry an interest rate of 7%.

The company, however, has yet to sign on to the alternate facility.

“Although the nominal terms of the competing second-lien DIP summary appear, in some ways, economically favorable compared to the EFIH second-lien DIP facility,” the company said, “the proposal is still incomplete.” Among the factors cited by the company were the lack of a “commitment of any kind” in the facility, or even the identification of the parties that would provide the commitment.

Further, the company said that the alternate proposal could make it more difficult for Energy Future to obtain the private letter ruling from the Internal Revenue Service confirming that the division of the company called for in its restructuring scheme would constitute a tax-free transaction – the lynchpin of the entire restructuring.

“And, most critically,” the company said, “the [alternate] proposal did not address how the proposal could replace the current investment commitment while preserving the significant value created by having a restructuring support agreement in place that provides a framework for the debtors’ goal of an expedient, value-maximizing Chapter 11 proceeding that leads to a confirmable plan that avoids deconsolidation-related tax liabilities.”

The company also said, however, that it would “continue to evaluate the alternative proposal” between now and the hearing on the second-lien DIP, which is set for June 5.

According to a court filing earlier this week from the indenture trustee for the second-lien notes, if the company rejects the alternate DIP, the second-lien lenders behind the alternate loan “are likely” to object to the second-lien DIP as “not in the best interests of the estate.”

The company said it also received an alternate DIP proposal prior to its Chapter 11 filing from “certain second-lien creditors,” but it, too, had “significant drawbacks.” The company said it “chose not to engage in further negotiations … because [it] did not believe it was reasonably likely that the proponents would be willing or able to provide an acceptable level of deleveraging,” or would be willing to agree to other terms that would lead to “the level of consensus necessary to ensure a timely and successful reorganization.” – Alan Zimmerman

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Bankruptcy: Amid first-day squabbles, Energy Future DIP nets interim OK

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The bankruptcy court overseeing the Chapter 11 proceedings of Energy Future Holdings has given interim approval to unit Texas Competitive Electric Holdings to use up to $2.333 billion of its proposed DIP facility, according to a May 2 court order.

The entire facility, upon final approval, would be $4.475 billion. It is comprised of a $1.95 billion revolving credit facility (L+250, 0.75% LIBOR floor); a $1.42 billion term credit facility (L+275, 0.75% LIBOR floor); and a $1.1 billion delayed-draw term facility (L+275, 0.75% LIBOR floor) to fund a letter of credit collateral account in connection with an obligation to the Texas Railroad Commission (see “Energy Future DIP details; loans to roll up EFIH 1st- and 2nd-liens,” LCD, April 30, 2014, for details).

The company had been seeking authority to use up to $2.7 billion of the DIP on an interim basis – $800 million of the revolver ($533 million was authorized); $800 million of the term loan ($700 million was authorized); and $1.1 billion of the delayed draw facility (all of which was authorized).

According to Reuters, the lower borrowing amounts were agreed upon last night among the company and junior creditors of TCEH, who had objected to the DIP as excessive and unnecessarily cutting into their potential recoveries.

Separately, the bankruptcy court yesterday approved the payment of DIP fees in connection with the $5.4 billion first-lien DIP facility at unit Energy Future Intermediate Holdings (EFIH).

Wilmington, Del., Bankruptcy Court Judge Christopher Sontchi set a final hearing on both DIP facilities for June 5, according to the court orders.

As reported, the company’s proposed reorganization contemplates a tax-free spin-off of TCEH, which is the holding company for Luminant and TXU Energy, on the one hand, and the recapitalization of EFIH, which controls 80% of the company’s regulated utility Oncor, on the other (see “IRS support for Energy Future’s tax deal is the key to reorg,” LCD, May 1, 2014, for details of the company’s proposed reorganization scheme).

The company’s planned recapitalization of EFIH also calls for an additional $1.9 billion second-lien DIP to refinance the company’s pre-petition second-lien debt, to be provided by unsecured bondholders of EFIH and Energy Future Holdings, but the motion seeking approval of that facility has not yet been filed. That loan is slated to convert to an equity stake in the reorganized EFIH.

Total DIP borrowings would amount to about $11.8 billion.

Separately, Sontchi yesterday also approved, on an interim basis, joint administration of the case. That is unusual, insofar as joint administration of a large bankruptcy case is typically routine. A final hearing on joint administration is also set for June 5.

Sontchi’s interim order underscores the unique challenges posed by a case as large and complex as Energy Future’s.

Indeed, yesterday ‘first day” in the huge case was predictably chaotic, with an overflow crowd filling up three courtrooms. To use one measure, since the filing of the case on Tuesday, Sontchi has signed 91 orders admitting out-of-state lawyers to appear in the case “pro hac vice,” or “this time only.” No wonder several news reports on yesterday’s hearing noted that there is not a hotel room to be found in Wilmington.

Second-lien creditors at TCEH, owed about $1.6 billion, and unsecured noteholders at TCEH, owed about $4.9 billion, have emerged from the first-day hearing as the most aggressive objectors. According to court filings, under the company’s proposed reorganization plan the second-lien lenders and unsecured note holders would, along with holders of a first-lien deficiency claim, recover a pro rata portion of the company’s unencumbered assets. Court filings did not provide an amount for the recovery, but it is expected to be pennies on the dollar.

According to an affidavit filed in the case on April 30 by the company’s CFO and co-chief restructuring officer, Paul Keglevic, second-lien lenders objecting to the proposed reorganization scheme include Arrowgrass Capital, Appaloosa Management, and Marathon Asset Management. The objecting group of TCEH unsecured noteholders includes BlueCrest, Claren Road, Cyrus Capital, Deutsche Bank, DO S1 Limited, Fairway Fund, Fore, J.P. Morgan Securities, LMA SPC, and Pine River.

Keglevic’s affidavit said that Energy Future’s proposal had the support of a “majority” of creditors, which he described as a “consenting group of creditors…which lays the groundwork for a prearranged plan.”

On the EFIH side of the company, where senior creditors are to be paid in full and junior creditors will acquire equity in the reorganized unit, the company enjoys significant support. But even there, there are holdouts, as some first- and second-lien creditors have rejected a settlement and signaled they will litigate over whether they are entitled to a make-whole payment due to the payoff of their claims.

Drilling down on the TCEH side of the company, however, the company’s outlook is more uncertain. Keglevic said holders of about $9.9 billion, or 41% of the first-lien debt, consisting of Apollo, Oaktree, Centerbridge, Mason Capital, Fortress, Och-Ziff, Franklin, and Fidelity, supported the proposed plan.

The company has said it expects that level of support to grow, but it is a long way to the Bankruptcy Code’s threshold of two-thirds approval by amount and a majority by number that would be required to confirm the proposed reorganization plan, even assuming a cram-down of the junior debt holders. – Alan Zimmerman

 

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Energy Future (TXU)’s path to Chapter 11: A long and winding road

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Energy Future Holdings‘ Chapter 11 filing today in Wilmington, Del., represents the beginning of the final act for the largest leveraged buyout in history.

The extent to which the deal announced this morning will hold up in the face of the many risks and uncertainties inherent in any Chapter 11 filing remains to be seen, but in gaming out the company’s potential paths through Chapter 11, it is worth remembering that the road to this point has been, as the Beatles might put it, a long and winding one.

The LBO
As has been widely reported, Energy Future’s troubles stem from 2007′s $45 billion LBO of the company, which at the time was known as TXU Energy. KKR, TPG and the buyout arm of Goldman Sachs engineered the deal, the largest in history. It was essentially a bet that increasing natural gas prices would provide the company’s coal-based generation plants with an edge, allowing them to charge increased prices. However, natural gas prices declined in the wake of the LBO, a trend that had the precise opposite effect, depressing the company’s earnings in the face of a mountain of debt.

Indeed, it didn’t take long for the company’s situation to head south. As early as November 2009, Energy Future was included in S&P’s speculative-grade default rate after being downgraded to SD on account of a distressed exchange. What’s more, the first-lien loan at unitTexas Competitive Electric Holdings has not traded higher than the low 70s since August 2011.

The challenge
More concretely, bankruptcy has been looming over the company since at least late 2012, when Energy Future began publicly discussing Chapter 11 as an option, and investors began gaming out the implications of a bankruptcy filing for the company’s complex capital structure.

The primary issue faced by the company, its creditors, and its equity sponsors as they have struggled over the past 18 or so months to develop a consensual reorganization plan has been how to apportion the company’s current value among a complicated, multi-tiered capital structure split between creditors of the company’s regulated utility business on the one hand and creditors of its unregulated power-producing and retail units on the other.

Layered over that already daunting challenge was the fact that the most efficient structure for addressing those complex capital structure and organizational issues – splitting the company between its regulated and unregulated businesses – would give rise to significant tax liabilities estimated in the neighborhood of $7-$9 billion. The issues are complex, but the liability would potentially negatively affect recoveries for, among others, holders of unsecured notes – representing the fulcrum security – at the company’s Energy Future Intermediate Holdings unit – the holding company for Energy Future’s regulated utility, Oncor, and would potentially impose a liability on TCEH first-lien lenders, as well.

Meanwhile, the equity sponsors that engineered and backed the deal, KKR, TPG, and Goldman, had already written down their $8.3 billion investment in the company to 5 cents on the dollar, but the private equity firms were nonetheless intent on using their operational control over the company during the negotiations to salvage whatever equity stake they could from a reorganization.

The negotiations
Following the company’s first public discussion of the implications of a bankruptcy filing in late 2012 (see, for example, “TXU bonds hit by tax-benefit disclosure,” LCD, Oct. 31, 2012, and “TXU offers tax clarification; EFH/EFIH parent bonds partly recover,” LCD, Nov. 6, 2012), the company embarked on a series of distressed exchanges aimed at extending debt maturities and improving liquidity (see, for example, “TXU debt advances after EFIH inks another distressed bond exchange,” LCD, Dec. 5, 2012; “TXU bonds mixed after co. launches RC extension, bond exchange deal,” LCD, Dec. 28, 2012; “TXU extends RC to 2016; inks $340M incremental TL,” LCD, Jan. 7, 2013; “TXU lowered again to D after EFIH inks 7th distressed exchange,” LCD, Feb. 1, 2013).

The exchanges came to a halt in mid-February of 2013, after Debtwire reported the company had hired Kirkland & Ellis to assist it with a restructuring (see “TXU debt dips further on report of Kirkland & Ellis hire,” LCD, Feb. 7, 2013). Given Kirkland & Ellis’ Chapter 11 expertise, the hire clearly suggested that whatever deal the company was ultimately able to work out, the likelihood was that it would involve a trip through bankruptcy court.

Indeed, on April 15, 2013, the company filed a Form 8-K with the Securities and Exchange Commission confirming that it had floated a prepackaged reorganization proposal to creditors.

The company also said it would make a scheduled May 1 bond interest payment in order to buy time to iron out details of a proposed plan.

Under that proposed prepackaged deal, first-lien creditors of TCEH would exchange their claims for a combination of reorganized EFH equity and their pro rata share of $5 billion of cash or new long-term debt of TCEH and its subsidiaries on market terms. TCEH would obtain access to $3 billion of new liquidity through a $2 billion first-lien revolver and a $1 billion letter of credit facility.

The equity distribution was to be in an amount to be determined, but the company’s equity sponsors told creditors they would support the proposal if they retained 15% of the reorganized equity, with the TCEH first-lien lenders receiving 85%.

The SEC filing did not provide further details, but emphasized that no deal had been reached and said that the company and its creditors were “currently not engaged in ongoing negotiations,” suggesting the disclosed terms were unlikely to lead anywhere.

Little was disclosed about the state of negotiations during the ensuing months as the company and its creditors negotiated with a non-disclosure agreement in place. Meanwhile, market attention turned to October, as the company’s next coupon payment was due Nov. 1, 2013. Indeed, this coupon payment was generally viewed as the final tripwire for Chapter 11, since it involved a $270 million payment to junior unsecured noteholders who, under virtually any restructuring scenario, would be far out of the money.

As a result, in September 2013, stories began to appear in the financial press about an imminent bankruptcy filing and details of a $2 billion DIP loan. The rumors suggested, again, that a prepackaged bankruptcy might be in the offing.

Confidentiality agreements prevented any on-the-record disclosure of the status of negotiations, however, until Oct. 15, 2013, when the company said in another Form 8-K filed with the SEC that a deal had not been reached.

At that time, the company detailed three competing proposals that were on the table, one from a creditor described in the filing only as a “significant creditor,” but widely reported to be Fidelity; one submitted by first-lien lenders at TCEH; and one submitted by certain creditors of EFIH (see “TXU Energy Future says no deal yet as creditors retreat from talks,” LCD, Oct. 15, 2013).

Over the next two weeks, negotiations and brinksmanship continued in the face of the looming coupon payment due Nov. 1, 2013. Given that the unsecured noteholders were well out of the money and trading in the low single digits, the company was widely expected to file Chapter 11 in lieu of making the payment.

But the company surprised the market and made the payment, saying it did so in order to buy more time to work out an out-of-court deal.

In a Nov. 1, 2013, Form 8-K disclosing the coupon payment and the status of negotiations, the company set forth the restructuring proposals still on the table, namely, a proposal from the company and its equity sponsors; a revised proposal from the first-lien lenders of TCEH; a new proposal from unsecured creditors of EFIH; and the proposal from a “significant creditor” that was unidentified in the filing, but was widely believed to be Fidelity.

If nothing else, the filing provided a roadmap for identifying the disputes among creditors standing in the way of a deal (see “Energy Future’s competing restructuring proposals underscore rifts,” LCD, Nov. 1, 2013).

Still, the payment appeared to come at a cost beyond the dollars involved. Upset holders of TCEH’s first-lien debt reportedly withdrew from the negotiations. Meanwhile, following the spate of SEC filings surrounding the critical Nov. 1, 2013, coupon payment, the company returned to radio silence. But given the atmosphere, and the withdrawal of the TCEH lenders – arguable the most important creditor class in the company – it is unclear the extent to which the company and its creditors made any progress over the next four months.

In late March, however, the TCEH lenders reportedly signed a confidentiality agreement and returned to the negotiating table.

The endgame
By this time, of course, Chapter 11 was a foregone conclusion, although the specific timing was still up in the air.

Following payment of the Nov. 1, 2013, coupon, attention turned to March 31 as the next critical date for the company. The company had another coupon to pay on April 1, so there was the potential of a financial default, but Energy Future had dodged those bullets before.

What made the March 31 deadline different was the fact the company’s 2013 Form 10-K was required to be filed on that date. The filing was widely expected to include a going concern warning from the company’s auditors that would trip a covenant violation that would be impossible to cure. That covenant violation, in turn, would trigger a cascade of debt accelerations and defaults.

Still, on March 31, the company managed to buy itself a little more time. Rather than file Chapter 11, the company said it would, indeed, skip $119.3 million of April 1 coupon payments with respect to certain of its first-lien notes, second-lien notes, and pollution-control revenue bonds at TCEH, and instead “use the permitted grace periods” the debt indentures provide.

Separately, the company also said that it would not be filing its Form 10-K with the SEC, as required, even as it confirmed that the filing, when made, would indeed include the expected statement from the company’s auditors substantially doubting Energy Future’s ability to continue as a going concern.

The non-timely 10-K notice gave the company until April 15 to file its Form 10-K, but on that date the company said it would not be filing the annual report, effectively triggering the covenant breach.

Given the 30-day cure period for the breach, that maneuver didn’t have much of a practical effect on the bankruptcy timetable – the termination of the grace period for the missed April 1 coupon payments still loomed on April 30 as the key deadline – but it underscored the fact that, finally, Energy Future had run out of time. That set the stage for key creditors to either agree to a structure for Chapter 11 reorganization, or leave their fates to vicissitudes of the unrestrained Chapter 11 litigation gods.

The company had finally reached the final fork in the road. – Alan Zimmerman

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Looking To Shed $40B In Debt, Energy Future (TXU) Files Ch. 11

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Energy Future Holdings filed for Chapter 11 protection in Wilmington, Del., this morning, after reaching a long-awaited deal with creditors on a restructuring that would shed about $40 billion in debt.

Energy Future said it expects confirmation of the plan will take about nine months, with a Chapter 11 exit expected in 11 months. The company said it has secured two debtor-in-possession credit facilities: $4.475 billion for Texas Competitive Electric Holdings Company, and $7.3 billion for Energy Future Intermediate Holding Company.

The pre-arranged restructuring plan, which EFH said it expects to file “in the near term,” will separate Texas Competitive Electric Holdings and its subsidiaries from Energy Future Holdings without triggering any material tax liability, the company said. TCEH’s first-lien lenders will receive all equity in reorganized TCEH and the cash proceeds from new debt issued by TCEH in exchange for eliminating about $23 billion of TCEH’s funded debt.

At Energy Future Intermediate Holding Company, the holding company for Oncor Electric Delivery Company, EFH’s regulated business, the plan would eliminate about $2.5 billion of EFIH’s funded debt through a capital infusion of up to $1.9 billion from certain EFIH unsecured note holders, EFH said. The capital will convert, along with all EFH and EFIH unsecured notes, into equity in reorganized EFH when the company exits Chapter 11. Certain EFIH unsecured note holders will also receive cash under the plan, the company said.

At EFH, the plan will eliminate about $600 million of funded debt. The reorganized EFH will continue to own EFIH, and EFIH will retain its interest in Oncor.

The newly filed case has already prompted a battle over the company’s choice of bankruptcy venue. Wilmington Savings Fund Society, the trustee for TCEH’s second-lien notes, filed a motion this morning seeking to transfer the case from Wilmington to the bankruptcy court in Dallas, a “nine-minute walk” from EFH headquarters.

Kirkland & Ellis is serving as EFH’s lead bankruptcy counsel. Evercore Partners is serving as financial advisor, with Alvarez & Marsal as restructuring advisor. — John Bringardner

 

 

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Ares Capital hires two to expand senior debt business for energy sector

ares logoAres Capital Management added two people to expand senior and subordinated debt financing to the oil-and-gas industry.

Owen D. Hill and Jonathan M. Shepko will be based in Dallas, and join as managing directors. They will expand the Ares energy team’s focus from project finance and power-generating assets to include senior and subordinated debt financing opportunities to the upstream, midstream, and energy-service sectors.

Hill and Shepko co-founded CLG Energy Finance, the division of Beal Bank focused on lending to the energy industry. From 2009-2013, their team originated more than $1 billion in financing to the oil-and-gas industry, mainly as senior secured term loans.

The move “is a direct result of the growing market for domestic energy solutions and the changing appetite and risk tolerance of traditional banks for providing debt financing in the industry,” Ares Capital said in a statement today.

Ares Capital Management is the investment adviser to specialty finance company Ares Capital. Ares Capital, a business-development company, focuses on secured loans and mezzanine debt to U.S. middle-market companies and private equity sponsors. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, distressed debt, private equity, and more

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Sale of ATP Oil & Gas assets (to Bennu Oil & Gas, DIP lender’s vehicle) nets final bankruptcy court nod

ATP-Oil-Gas_optThe bankruptcy court overseeing the Chapter 11 proceedings of ATP Oil & Gas gave final approval to the sale of the company’s Gulf of Mexico assets to its DIP lenders, according to an Oct. 17 court order.

The assets include the so-called “Clipper Wells,” which according to court filings are expected to be operational this month.

As reported, the Houston, Texas, bankruptcy court gave conditional approval to the lenders’ purchase of the assets following a two-day hearing on June 21, signing a formal interim approval order on July 9.

The purchaser of the assets is Bennu Oil & Gas, which is the vehicle formed by the DIP lenders to implement the transaction.

As reported, the purchase price is comprised of a credit bid of $580 million, cash of $55 million to fund an escrow for the purpose of satisfying legitimate liens on the purchased assets that are senior to the DIP liens, and additional cash of about $1.8 million. In addition, court documents show, Bennu will pay about $44.3 million to settle federal regulatory claims related to decommissioning obligations on the purchased assets.

The court order notes that the total amount of DIP claims as of June 27 was $792.5 million, and that claims in excess of the credit bid would remain outstanding against ATP and its remaining assets.

Bennu said in court documents filed earlier this month that it would fund the transaction through a term loan of at least $200 million, but possibly as much as $350 million. Bennu said in the filing that assuming the loan was funded at the minimum $200 million level, about $86 million of the proceeds would be available to fund the post-reorganization company’s working capital, after payment of, among other things, $55 million for the escrow, $24 million for professional fees in the Chapter 11 case, $11 million for closing costs for the term loan, $11 million for cure amounts, and $4.1 million for the regulatory settlement detailed above.

Bennu also said that its projections, assuming a $200 million term loan, show that the company would have positive cash balances annually through 2020.

That said, as reported Credit Suisse set a bank meeting for tomorrow morning to launch a $350 million second-lien term loan. Price talk on the five-year term loan is L+1,000, with a 1.25% LIBOR floor, offered at 97, sources said. At current talk the loan would yield 12.62% to maturity (see “Bennu Oil & Gas readies $350M 2nd-lien term loan for Friday launch,” LCD, Oct. 16, 2013).

Bennu said that it also contemplates obtaining a $50 million revolving loan to provide additional working capital, and that it “may also seek additional financing post-closing for the purpose of funding buy-outs of the remaining overriding royalty interests and net profits interests that burden the purchased assets.”

But, Bennu said, its projections show the company “remaining cash positive whether or not these additional sources of financing are obtained.” – Alan Zimmerman

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Terreal completes restructuring; lenders take the keys

Park Square has announced that a lender-led restructuring of Terreal has been signed, resulting in lenders taking the keys to the company through a debt-for-equity swap.

The restructuring plan, spearheaded by Park Square and ING, envisages financial stability for the company through reduced interest costs and leverage, operating flexibility through long-dated debt maturities, no debt amortisation, and a covenant holiday for a year, as well as improved corporate governance.

Post-restructuring, the capital structure comprises €300 million of senior debt due in 2017, sources said,xa and €70 million of cash on its balance sheet. Due to a smaller debt size, Terreal’s annual interest expense decreases by €7 million. Finally, the equity-like instruments held by senior lenders following the 2009 restructuring have been reduced to €157.5 million, sources said.

Although the market in which Terreal operates is cyclical, the company has new facilities and operations are starting to stabilise, sources added. Annual EBITDA for the group is roughly €45-50 million, sources said

Following the restructuring, Park Square is the largest shareholder, and the second-largest lender to Terreal. According to the statement, Park Square accumulated a position in Terreal’s debt at a significant discount over several years.

Last summer, the French roof-tile maker breached its June covenants, and a mandataire ad hoc was appointed later in the autumn, according to sources.

This is Terreal’s second restructuring, having undergone the first in 2009, when it breached its September 2008 covenant. Then, the restructuring took Terreal’s total debt from €902 million to €500 million due in June 2014, and the facility paid an unchanged margin of E+250, with a one-year extension option, according to sources. However, senior lenders converted part of their debt into €402 million of notes redeemable in shares and preferred shares, paying 4% PIK – therefore not completely right-sizing its capital structure. Covenants were also reset, and lenders provided an additional super-senior €40 million through a short-term revolver facility and a factoring line.

Terreal was owned by LBO France prior to the current restructuring. It operates in the French roofing market for plain tiles, barrel tiles, and Roman-style interlocking tiles. – Sohko Fujimoto

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Norway’s Beerenberg Holding inks NOK950M loan backing LBO by Segulah

Beerenberg Holding, a Norwegian oil services group, has signed a NOK950 million (€127.5 million) loan via coordinator and bookrunner Danske Bank to support its Segulah-led buyout.

Segulah is buying the firm from Hercules Capital, a Norwegian private equity firm, and management. In a statement, Segulah said management will reinvest and remain a significant shareholder in the group.

Beerenberg is headquartered in Bergenand, and is primarily active on the Norwegian continental shelf. Estimated revenue for 2012 is roughly NOK1.5 billion. – Staff reports

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Bankruptcy: ATP nets final court approval of hotly contested DIP amendment

The bankruptcy court overseeing the Chapter 11 proceedings of ATP Oil & Gas gave final approval to an amendment to the company’s DIP facility, which will provide the company with roughly $99 million of additional liquidity.

As reported, the bankruptcy court gave the DIP amendment its interim approval on Feb. 12.

As also reported, earlier this month the company sought emergency approval of the amendment, which is the DIP’s third. The proposed new financing’s onerous terms, however, including a 30% OID and several additions to the existing DIP facility’s interest rate, drew both the ire of the creditors’ committee in the case, which called it “shocking and offensive,” and concern from Bankruptcy Court Judge Marvin Isgur, who refused to grant the company’s emergency motion at a Feb. 5 hearing. Rather, Isgur told the company to return to court the following week to argue for, first interim, and later, final, approval of the amended facility. Ominously, at the time Isgur suggested he might not approve the loan if the terms were not eased, even though that would mean closing the company’s operations. “If it’s time to shut it down, it’s time to shut it down,” Isgur reportedly said at that initial emergency hearing (which was delayed one day) with better financing terms (see “Monday hearing on ATP DIP brouhaha could decide company’s fate,” LCD News, Feb. 6, 2013).

By the following Monday, the company submitted revised borrowing terms which it said were “substantially better” than those it had initially submitted to the court (see “Hoping to address court’s concerns, ATP submits revised DIP terms,” LCD News, Feb. 12, 2013). Among other revisions, the revised terms reduced the OID to 15% (and possibly lower, under certain circumstances), and the pricing was pared back to match the L+850 pricing of the existing DIP facility. – Alan Zimmerman