Energy and Exploration Partners on Dec. 7 filed for Chapter 11 in bankruptcy court in Fort Worth, Texas, the company announced.
The company said it had a $135 million DIP facility from a group of its existing senior lenders.
The company said the filing would replace an involuntary Chapter 11 filed against its operating unit, ENXP Operating LP, by certain of its vendors.
In a statement issued late yesterday, the company said that Chapter 11 would provide it with “the greatest flexibility to continue its operations during the current period of depressed prices for oil and natural gas and adverse operating conditions.”
Hunt Pettit, the company’s founder and CEO, said in the statement, “We have taken this difficult, but necessary step in order to provide adequate time to complete ongoing discussions and processes with our lenders to restructure our balance sheet and create a strong financial foundation for the future.”
The company’s court filings were less prosaic. There, the company said it filed Chapter 11 “because it ran out of cash.”
Meanwhile, the company said in its statement, it “remains in ongoing, productive dialogue with its creditors and other stakeholders regarding the terms of the restructuring.”
Separately, the company also said in the statement that prior to the Chapter 11 filing it had reduced staff in light of an anticipated reduction in business activity in the current price environment. The list of reduced staff included a number senior executives, among them COO John Richards and CFO Brian Nelson.
The company said John Castellano of AlixPartners was named interim CFO, and that other roles would be covered by existing personnel during the restructuring process.
The DIP facility
The company said the proposed DIP facility would allow it to reorganize around current operations, rather than being forced into a “quick fire sale.”
Noting that it had run out of cash and that many vendors and suppliers had not been paid for 75–150 days and have “threatened to cease providing services unless they can be assured of prompt payments,” the company said in court filings that it was seeking immediate access to $40 million.
The company said that two competing groups of pre-petition lenders representing about 97% of the company’s first-lien debt (which has about $765.3 million in principal outstanding) “took part in an extremely competitive process to become the debtors’ DIP provider.”
According to the company, both groups “were willing to lend the same money for the same uses,” though the terms offered by each group were not identical. Ultimately, the company said, the DIP facility offered by a group known as the “Crossholder Group” provided a “superior overall financial package.”
The Crossholder Group holds roughly 42% of the company’s first-lien debt, according to court filings, compared to the competing ad hoc group of lenders, which holds 55% of the first-lien debt. But, the filings show, the Crossholder Group also holds about 71% of the company’s 8% convertible notes due 2019, of which there is roughly $375 million outstanding.
Among the members of the Crossholder Group are GoldenTree Asset Management, Beach Point Capital Management, Ensign Peak Advisors, KLS Diversified Asset Management, and Oaktree Capital Management, which are backstopping the facility.
Credit Suisse AG is the administrative and collateral agent for the facility.
The company said it also reached out to potential third-party DIP lenders, contacting six. Of the six, the company said, five showed interest, four signed confidentiality agreements, and three submitted preliminary term sheets, although ultimately none of the third-party lenders were interested in providing financing on a junior or unsecured basis behind the company’s pre-petition first-lien debt.
Meanwhile, in negotiating terms with the two competing lender groups, the company said it “put a premium on a financing that allowed the company the ability to propose and consummate a Chapter 11 plan of reorganization in a reasonable timeframe,” adding, “Given the debtors had never marketed their assets prepetition, and given the current dislocation of the market, the debtors strongly believed that, in their business judgment, an expedited sales process was not the best path for maximizing value for all stakeholders.”
Under the proposed DIP, all first-lien lenders other than the backstop parties will have the right to participate in 49% of the DIP, with the backstop parties providing the remainder of the facility (along with any unallocated portions of the 49%).
The DIP is structured as a multiple-draw senior secured term loan. Following the initial $40 million interim draw, there would be a second draw of $30 million upon final bankruptcy court approval of the facility; a third draw of $15 million on the date that the company’s liquidity falls below $10 million; and a final draw of $15 million on the date that the company’s liquidity again falls below $10 million.
Once those draws are exhausted, the company would be able to borrow the remaining $35 million under certain additional conditions.
The facility, which matures in one year, is priced at L+775, with a 1% LIBOR floor, and would be issued with a 2% OID on the first $100 million. The last $35 million, if funded, would also be issued with a 2% OID.
As for milestones, the DIP facility must be approved within 45 days of the petition date (Jan. 21, 2016), the company must file a proposed reorganization plan and disclosure statement within 90 days of the petition date (March 6, 2016), the bankruptcy court must approve the disclosure statement within 120 days of the petition date (April 5, 2016), the bankruptcy court must confirm the proposed reorganization plan within 150 days of the petition date (May 5, 2016), and the plan must go effective on the date that is the earlier of 15 days after the plan is confirmed or 240 days from the petition date (Aug. 3, 2015).
The facility contains a process, however, for the milestone deadlines to be extended with the consent of lenders and creditors six times by 30 days each.
The milestone deadlines also provide that if the Crossover Group and backstop lenders do not agree to extend the deadline for filing a proposed reorganization plan and disclosure statement, the company can alternatively commence a sale process of substantially all of its assets under Section 363.
A hearing on the proposed DIP facility, as well as other first-day matters, is scheduled for later this afternoon. — Alan Zimmerman