Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries Fitch Case Studies — 12th Edition January 2017
Leveraged Finance Corporates / U.S.A.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries Fitch Case Studies — 12th Edition Special Report In this update to Fitch Ratings’ recurring U.S. corporate bankruptcy case-study series, Fitch provides 22 analyses of recently resolved cases and republishes 29 sector case studies from the April 2015 edition. Disclaimer: Fitch cautions that the case studies are not intended to provide exact recovery outcomes, valuations or legal opinions. Estimates in this report may vary significantly from final case outcomes.
Related Research The Drill Bit Docket: High-Yield Oil & Gas Handbook (North American Exploration and Production) (December 2016) U.S. Leveraged Finance: Road to Recovery Ratings (Recovery Prospects Trend Lower) (December 2016) Fitch U.S. High Yield Default Insight (U.S. HY Default Rate Roughly 3%; iHeart Largest U.S. Bonds of Concern Name) (December 2016) Retail Bankruptcy Enterprise Value and Creditor Recoveries (Fitch Case Studies — 10th Edition) (September 2016) Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries (Fitch Case Studies — Edition VII) (April 2015)
Analysts Sharon Bonelli +1 212 908-0581 sharon.bonelli@fitchratings.com Joan Okogun +1 212 908-0384 joan.okogun@fitchratings.com Greg Fodell +1 312 368-3117 gregory.fodell@fitchratings.com Monica Bonar + 1 212 908-0579 monica.bonar@fitchratings.com Colin Cordes +1 312 368-3120 colin.cordes@fitchratings.com Shalini Mahajan +1 212 908-0351 shalini.mahajan@fitchratings.com
www.fitchratings.com
Record 2016 Default Volumes: Default rates in the high-yield energy and metals & mining (M&M) sectors ended 2016 at 18.8% and 17.4%, respectively. As commodity prices bottomed out in the first quarter, producer cash flows plummeted, causing highly leveraged issuers with insufficient liquidity and limited market access to file for bankruptcy. Default rates are decreasing, as most large sector filings have already occurred and prices have stabilized. Default Risk Remains: Fitch Ratings identified 21 energy and M&M issuers with $27.2 billion of bonds (U.S. and Yankee issues) and 22 term loan borrowers with $16.5 billion of loans perceived to be at high risk of defaulting within one year of Dec. 31, 2016 based on low issue trading prices, credit ratings or Fitch views. Fitch forecasts a 3% 2017 U.S. energy default rate. Smaller Companies, High-Cost Regions Exposed: Many of the recent filings were made by smaller exploration and production (E&P) companies or by drilling service providers affected by draconian capex cuts executed by producers, resulting in limited contracting opportunities. Coal defaulters affected by weak market prices and rising environmental and operating costs are also studied. Default Drivers: High leverage and weak liquidity during the price trough were compounded by factors such as lack of scale, operational issues, adverse events and environmental liabilities. Asset-based loan (ABL) borrowing base cuts, low buyer appetite for assets when market prices were volatile and spotty capital market access were additional contributors. Superior First-Lien Recoveries: The average first-lien recovery rate was 83% (equivalent to RR2 on Fitch scale) for 73 first-lien issues in the case studies, compared with 84% in the April 2015 edition of this report. While strong within Fitch’s recovery rating (RR) scale, a number of first-lien distributions included new debt and/or new equity rather than cash. Fulcrum security positions moved up in the capital structures because of relatively low valuations at the time of reorganization plans, resulting in lower recoveries for more junior debtholders. Lower Unsecured Recoveries: Depressed enterprise valuations, sluggish sector M&A/asset sale activity in the earlier part of 2016 and high leverage pressured unsecured issue recoveries. The average recovery rate for 48 unsecured claims was 30%, compared with 47% for 20 unsecured issues in the cases profiled in the April 2015 edition. The median and average second-lien issue recovery rates were 19% and 45%, respectively, for 20 issues. Shorter Duration: Fitch observed a growing trend of filings made with restructuring support agreements (RSAs). Pre-negotiation of plan terms led to shortened bankruptcy processes. The median duration for the 22 newly added sector cases was four months from filing to confirmation date, compared with 11 months for the 29 older cases in the 2015 edition. 6.3x Median Energy Multiple: The median enterprise valuation multiple for the 21 energy cases was 6.3x, with a very wide dispersion around the median. The medians for small samples of M&M and power cases were 5.6x and 11.1x, respectively. Valuation: Fitch typically values E&P companies in our recovery analysis based on reserve asset net present values and for wholesale power companies on a discrete plant NPV basis.
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Leveraged Finance Table of Contents Introduction Default Drivers .............................................................................................................. 4 Recovery Rates ............................................................................................................. 7 Asset and Enterprise Valuation ..................................................................................... 8 Shorter Duration of Recent Cases ...............................................................................11 Mineral Rights Issues in Bankruptcy ............................................................................11 Recent Defaults ...........................................................................................................13 Potential Sector Defaults .............................................................................................13 Appendix A: Issue Recovery Detail .............................................................................14 Appendix B: Concession Payments ............................................................................15 Appendix C: Mineral Rights .........................................................................................18 Appendix D: Bonds and Loans of Concern .................................................................19 Appendix E: Bond Defaults .........................................................................................21 Appendix F: How Reserve-Based ABLs Work ............................................................23 Appendix G: Reserve Asset Value ..............................................................................24 Case Studies Aleris International, Inc. ...............................................................................................25 Allied Nevada Gold Corp. ............................................................................................28 Alpha Natural Resources, Inc.......................................................................................31 Arch Coal, Inc. .............................................................................................................35 ASARCO LLC ..............................................................................................................38 Atlas Resources Partners LLC ....................................................................................41 Aventine Renewable Energy Holdings Inc. .................................................................44 Barzel Industries Inc. ...................................................................................................47 Baseline Oil and Gas Corporation ................................................................................50 Calpine Corporation .....................................................................................................53 Chemtura Corporation ..................................................................................................56 Crusader Energy Group ...............................................................................................59 Delta Petroleum Corporation ........................................................................................62 Dune Energy, Inc. ........................................................................................................65 Dynegy Holdings, LLC..................................................................................................68 Edison Mission Energy .................................................................................................71 Energy & Exploration Partners, Inc. ............................................................................74 Energy Partners, Ltd. ...................................................................................................77 Entergy New Orleans, Inc. ..........................................................................................80 Geokinetics, Inc. ...........................................................................................................83 Global Geophysical Services, Inc. ...............................................................................86 GMX Resources, Inc. ..................................................................................................89 Halcon Resources Corporation ...................................................................................92 Hercules Offshore, Inc. (2015) ....................................................................................95 James River Coal Company.........................................................................................98 Lyondell Chemical Company......................................................................................101 Magnum Hunter Resources Corporation ....................................................................104
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Leveraged Finance Table of Contents (Continued) Case Studies (Cont.) Mirant Corporation .................................................................................................... 107 MolyCorp, Inc. .......................................................................................................... 110 Offshore Group Investment Limited ........................................................................... 113 Pacific Energy Resources Ltd. ................................................................................. 116 Patriot Coal Corp. (2012)........................................................................................... 119 Patriot Coal Corp. (2015)........................................................................................... 122 Penn Virginia Corporation ......................................................................................... 126 Quicksilver Resources Inc. ....................................................................................... 129 RAAM Global Energy Company ................................................................................ 132 Sabine Oil & Gas Corporation .................................................................................. 135 SandRidge Energy, Inc. ............................................................................................ 138 Seahawk Drilling, Inc. ............................................................................................... 141 SemCrude L.P. (SemGroup) .................................................................................... 144 Seventy Seven Energy Inc. ....................................................................................... 147 Stallion Oilfield Services Ltd. .................................................................................... 150 Swift Energy Company .............................................................................................. 153 Teton Energy Corp. .................................................................................................. 156 Texas Competitive Electric Holdings Company LLC ................................................ 159 Trico Marine Services, Inc. ....................................................................................... 162 Tronox, Inc. .............................................................................................................. 165 Tuscany Holdings (USA) Ltd. ................................................................................... 168 TXCO Resources, Inc. .............................................................................................. 171 Venoco, Inc. (Denver Parent) ................................................................................... 174 VeraSun Energy Corporation ................................................................................... 177
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Leveraged Finance Default Drivers Cyclical Trough The filing dates for many of the 51 bankruptcy cases analyzed were clustered around two cyclical commodity price trough periods: July 2008–November 2009 (15 cases) and March 2015–July 2016 (20). The total date range for the 51 cases was July 2003–July 2016, with 16 cases occurring in non-trough markets. While markets in non-commodity sectors were more accommodating in the recent commodity price downturn, lack of market access for distressed issuers in the energy and M&M sectors was also a problem during the latest trough.
Low Oil Prices The chart below plots the petition dates of 26 oil-price-sensitive energy companies against the per-barrel price of West Texas intermediate (WTI) oil. Prices plunged to a sub-$30 level in late February 2016. Prices then began to recover, with another bump up from OPEC’s decision to cut production in December.
WTI Prices and Bankruptcy Filing Dates
Atlas Resources Partners LLC
(USD/bbl) 160 140 120 100
GMX Resources, Inc.
Seventy Seven Energy Inc. Dune Energy, Inc.
VeraSun Energy Corporation Energy Partners, Ltd.
Swift Energy Company
Delta Petroleum Corporation
TXCO Resources Inc. Teton Energy Corp.
60
SandRidge Energy, Inc.
Venoco, Inc. (dba Denver Parent)
80 Stallion Oilfield Services Ltd. Baseline Oil and Gas Corp.
Pacific Energy Crusader Energy Group Resources Ltd. 0 2008 2009 2010
Quicksilver Resources Inc. Sabine Oil and Gas Corp. Hercules Offshore, Inc. (2015) RAAM Global Energy
Energy & Exploration Partners, Inc. Offshore Group Investment Ltd.
Geokinetics, Inc.
40 20
Tuscany International Holdings (USA) Ltd.
Magnum Hunter Resources Corp. Swift Energy Co. Halcon Resources Corp. 2011
2012
2013
2014
2015
2016
Bbl – Barrels. Source: Bloomberg, Fitch Ratings, BankruptcyData.com.
Fitch’s base case price deck assumes a $45/barrel WTI price for 2017 based on expectations of high inventories and the potential for shale production to quickly ramp up. Fitch also assumes $55/barrel for 2018 and recently introduced a $60/barrel assumption for 2019. The long-term price assumption remains $65/barrel. Base case natural gas price assumptions are $2.75/thousand cubic feet (mcf) in 2017, $3/mcf in both 2018 and 2019, and a long-term price assumption of $3.25/mcf.
Related Criteria Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (November 2016)
The recent cyclical commodity price uptrend came too late to save many highly leveraged U.S. E&P companies and oil field service companies from bankruptcy. Capital structures were highly leveraged, as the shale producers had been focused on debt-funded growth rather than FCF generation. As a result, recent reorganization plans were prepared at a time of cyclically low fundamental valuations and minimal buyer appetite for reserves or whole-company acquisitions during the trough. As commodity prices recover, Fitch anticipates valuation fights initiated by unsecured creditors or shareholders will continue, as these junior claimants argue for a higher valuation that could result in a bigger equity ownership stake in the post-emergence company, all else equal. One example of a recent valuation dispute was Sabine Oil & Gas Corporation, an independent E&P company that emerged in August 2016 after a contentious bankruptcy process. The
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Leveraged Finance $927 million of reserve-based revolver claims received most of the new common stock and recovered in the 53%–69% range (Fitch RR3). Holders of $1.2 billion of unsecured notes argued in mediation and a court trial for an updated valuation to reflect higher oil prices since the completion of the original valuation and also advocated for a sale of the company. The unsecured holders ultimately received de minimis recoveries of 1%–2%.
Metals & Mining Cycle Fully 63% of bonds issued by U.S. coal companies included in Fitch’s default index were in default as of Nov. 30, 2016, as low prices and weak demand led to widespread distress. The case studies include five bankruptcies of leveraged coal companies. Leveraged coal companies were unable to overcome challenges from weak pricing for both steam and metallurgical (met) coal and increasing environmental compliance costs. Met coal prices in December 2015 were 75% lower than their previous high in 2011. Like the oil cycle, coal markets are showing nascent signs of price recovery. However, steam coal is in a long-term secular decline because of the move towards cleaner natural gas-fired and renewable electric energy generation sources. Relatively higher-production-cost Appalachian steam coal is particularly challenged. Higher prices, particularly for met coal, in the latter half of 2016 came too late for coal producers that had leveraged up to make acquisitions during the market peak earlier in the decade and were unable to sustain their capital structures or raise new capital in the downturn. For example, Alpha Natural Resources, Inc. purchased Massey Coal in a $6.7-billion debtfunded acquisition at the peak of the coal cycle in 2011, and the debt burden became unsustainable when demand and market prices dropped. Other types of metals and mining companies also placed some blame for their bankruptcies on low commodity pricing. For example, Molycorp, Inc., a producer and processor of rare earth metals, experienced declining cash flow as a result of steep declines in market pricing as Chinese supply increased on the back of reduced export restrictions and decreases in export tariffs.
Smaller, Less-Diverse Companies Many of the companies in this study were relatively small companies with operational weaknesses and limited geographic or operational diversity. Twenty-five of the companies had EBITDA of less than $100 million in the year prior to the filing, and the median EBITDA for the group was $95 million. Companies with material geographic concentration included a number of shale producers and also oil and gas drilling service companies that suffered revenue losses when producers reduced activity in their region and/or demanded price concessions on drilling service contracts.
Legacy Liabilities and Litigation Burdensome legacy liabilities and/or litigation, including environmental and labor issues, were key bankruptcy drivers for Alpha Natural Resources, Patriot Coal Corp. and Chemtura Corporation. Alpha Natural Resources received a regulatory bonding request that added to liquidity strains. Alpha Natural Resources was notified by the Wyoming Department of Environmental Quality in May 2015 that it no longer qualified for self-bonding and had to provide more than $400 million in the form of surety bonds, cash or letters of credit to secure reclamation obligations within Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance 90 days. In July 2015, the West Virginia Division of Mining and Reclamation also made a thirdparty bonding request. Patriot Coal was burdened by large retiree healthcare benefit and labor obligations, along with coal assets, when it was formed via a spinoff and in a subsequent acquisition. In the face of other emerging challenges, such as reduced coal demand and increasing environmental regulation, the company sought bankruptcy protection to resolve these legacy liabilities. Chemtura had environmental liabilities relating to diacetyl that contributed to the filing. Fitch’s recovery criteria allows for the inclusion of non-debt liabilities in the recovery waterfall as deemed appropriate by the rating committee.
Extreme Events A handful of the case studies, such as those of Venoco, Inc., Energy Partners Ltd. and Geokinetics, Inc., had filings that were partially triggered by extreme events further compounding cyclical challenges. Venoco, an E&P company, was adversely affected by an oil spill from a pipeline owned by Plains All American that served some of Venoco’s major drilling locations near the Santa Barbara, CA shore. The spill forced the shut-in of about half of production and further strained already-tight liquidity. For Energy Partners, a hurricane caused damage to a third-party pipeline that also led to a shut-in of production for an extended period. In Geokinetics’ case, an accident caused fatalities on a mapping expedition in Mexico, and this was a contributing factor to the bankruptcy filing.
ABL Borrowing Base Resets Many E&P companies in the case studies relied on ABL revolving credit facilities to fund their liquidity needs. However, facility borrowing bases were cut following declining oil prices and lower hedge protection, which led to erosion of reserve values. The downward borrowing base redeterminations, which occurred primarily in the spring of 2016 further reduced liquidity when cash flows were already negative for most high-yield E&Ps. Halcon Resources Corporation is a notable case discussed in this report. Fitch observed aggressive actions as commodity prices declined, Some distressed E&P companies chose to fully utilize their ABLs in advance of redetermination dates. Such actions were used both as a negotiating tactic during restructuring and to boost cash liquidity before filing Chapter 11 to obviate the need for a debtor in possession (DIP) facility. For example, Sabine utilized all remaining availability ($356 million draw) on Feb. 24, 2015, prior to a borrowing base reduction scheduled for April 2015. The borrowing base was revised downward to $750 million from $1 billion on April 27, 2015, resulting in a deficiency. The company filed for bankruptcy on July 15, 2015. SandRidge Energy, Inc. also fully drew its revolver prior to filing. Linn Energy, LLC, a large E&P company that filed in May 2016 and remains in bankruptcy, is a third example of a company that fully utilized its reserve-based revolver prior to filing. Linn drew the approximately $919 million of remaining availability under its $3.1 billion facility shortly before filing. Asset-based lenders across all sectors traditionally strive to limit loans to levels that ensure that underlying collateral is sufficient to fully repay loans in a default situation. Market participants refer to this as a “second way out.” The lenders to the ABL facilities in the Fitch energy and Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance commodity sector case studies were, for the most part, successful in this regard, but there were some notable exceptions, including the aforementioned Sabine example as well as in the Teton Energy Corp. case. Teton’s lenders received recoveries of 79% (equivalent to a Fitch RR2 recovery rating). This facility had a borrowing base overage on the bankruptcy petition date with borrowings of $22.5 million, compared with a base of $14 million. In other cases, the ABL was converted to a DIP that in turn converted to an exit facility, or ABL lenders received distributions in new stock. For information on the mechanics of ABLs, refer to Appendix F.
Recovery Rates First Lien Recovery rates on first-lien claims tended to be strong and averaged 83% for the sector cases studied. First-lien claims included revolving facilities, term loans and first-lien secured bonds. Forty-seven of the 73 first-lien issues (64%) had recoveries of 91% of more, which is equivalent to Fitch’s strongest RR1 recovery category (although many of these payments were not paid solely in cash). There were, however, a handful of low-recovery-rate first-lien claim outliers as a result of depressed valuations combined with a large component of first-lien debt in the capital structures. One example is Energy & Exploration Partners, Inc. The E&P company’s plan was confirmed in April 2016, which was shortly after oil prices bottomed. The third-party valuation advisor estimated the total enterprise value of the reorganized company to be approximately $175 million–$225 million, with a midpoint of $200 million, relative to first-lien term loan claims of $764 million. The distribution of first-lien debt issue recoveries is shown in the chart below. Recovery rate details by debt seniority are summarized in Appendix A and shown with greater detail in the case studies.
First-Lien Recovery Distribution (Number of Issues) 50 40 30 20 10 0 ≥91
71–90
51–70 31–50 (% of Par Value)
11–30
≤10
Source: Company disclosure statements, Fitch Ratings.
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Leveraged Finance Unsecured Unsecured claim recoveries were much more varied than secured and averaged 30% of par value for 73 issues, compared with 47% for 43 first-lien issues in the April 2015 edition of the sector bankruptcy study. The lower recoveries reflect the depressed enterprise valuations that resulted from low commodity prices in more recent cases. The distributions made to unsecured creditors (or other classes) were sometimes the result of a negotiated settlement executed prior to or during the bankruptcy process. Fitch refers to these settlement payments as concession payments in its recovery tools and does not speculate whether the negotiation would occur prior to filing or during the bankruptcy. Details of concession payments are in Appendix B. Arch Coal, Inc.’s plan of reorganization is an example of a plan that was the product of a negotiated settlement. In this case, unsecured creditors received recoveries because the firstlien lenders consensually agreed that unsecured claimholders would receive 6% of the common stock of the reorganized company, warrants for 12% of the common stock and $30 million in cash. Senior management also agreed to waive $5 million of payments in the settlement.
Second Lien Second-lien debt was a popular financing method used by leveraged E&Ps that ultimately filed for bankruptcy protection. It was sometimes issued as currency in so-called “up-tiering” debt exchanges that provided new second-lien paper to unsecured debtholders that elected to tender unsecured issues (often at a significant discount to par value). Several companies accessed the second-lien market in the spring of 2015 when there was a temporary upward rebound in oil prices. However, the value of these bonds quickly eroded when oil prices resumed their downward march that summer. Venoco completed an up-tier exchange of unsecured for second-lien debt in the spring of 2015. The company filed about a year after the issuance. Holders of the $172 million second-lien issue recovered 0%–6% on their claims in the form of 10% of the new common equity. In a second example, Energy XXI Ltd. issued $1.45 billion of second-lien notes in March 2015. The company filed in April 2016 and the plan of reorganization was confirmed on Dec. 13, 2016. Under the plan, holders of second-lien claims are expected to receive a recovery of 24.5%–36.2% in the form of new equity. SandRidge Energy’s plan provided second-lien holders with 85% of the new common stock for a 68% recovery rate. The plan was the product of an RSA. Recovery rates on average (45%) tended to look more like unsecured debt than secured debt rates. The median second-lien recovery was 19% on 20 second-lien issues analyzed.
Asset and Enterprise Valuation Given the volatility of commodity prices, E&P companies are less often valued using LTM EBITDA or other earnings multiples typically used in other corporate sectors. Instead, when analyzing recovery prospects of upstream exploration and production companies, a discrete net present value (NPV) of the oil and gas reserve assets is the approach usually employed. However, a per-barrel approach (for production or proven reserves) is also commonly used in the market to describe M&A transaction valuations in the subsector. Fitch analysts assume the reserves would be sold to another operator that would continue to produce oil or gas from these assets, perhaps sold via a credit bid by lenders. Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Most companies in this case study were reorganized as public or private companies and nine companies sold all assets as a going concern. Eight of the companies in the Fitch sector study were fully liquidated, including piecemeal sales of all assets. The ongoing Paragon Offshore case had an unusual twist on valuation issues. The bankruptcy judge, on Oct. 30, 2016, denied the reorganization plan proposed by the drilling rig operator. The decision stemmed from what was considered to be an overly optimistic management forecast with regard to cash flow growth from higher day rates and fleet utilization. The decision in the case highlighted the view that too much cash was being paid out to unsecured creditors given the depth of the servicer market downturn and that the company would emerge with too much debt and insufficient liquidity. The plan would have left prepetition shareholders still owning a 53% stake in the company. The term loan lenders, which would have had their claims reinstated, also opposed the plan. The multiples in recent coal sector reorganization plans tended to be relatively low, as the business is in secular decline for reasons including competition from natural gas and increasing environmental costs. Patriot Coal reorganized at a 6.8x multiple in its 2012 bankruptcy and was valued at just 4.2x forward cash flow in its 2015 case.
Fitch E&P Valuation Approach Recovery values for upstream E&P companies are based on the higher of a GC approach or the estimated liquidation value of proven (1P) oil and gas reserves, which Fitch estimates using several techniques. These include the NPV/barrel of oil equivalent (boe) for 1P reserves using Fitch’s base case price deck, the standardized measure/boe as defined by the SEC and disclosed in company 10-K filings (present value of estimated future cash inflows from proven reserves, less operating costs, capital costs and taxes, then discounted at 10% per year) and other techniques, including peer comparisons and market transaction multiples, adjusted for production mix as well as location and quality of reserves. Fitch also attributes value to nonE&P segments, such as midstream subsidiary assets and in-the-money hedges, where applicable. When allocating the asset value to estimated claims in a recovery waterfall, Fitch may elect to include estimates for material non-debt claims, such as legal, employee benefit or environmental liabilities (e.g. plugging, abandonment, asset retirement obligations or operating lease obligations).
E&P Liquidations and Sales of All Assets at Low Prices Several of the court-supervised sales were done through credit bids by the lenders (non-cash bids for the assets in exchange for canceling the remaining loan amount). The market for assets was stagnant for a period in 2016 amid uncertainty on the timing and extent of market recovery and distressed investors kept their powder dry. RAAM Global Energy Company is one example where lenders, in addition to other parties, bought the company’s assets in exchange for cancellation of their debt. Many of the reorganization plans were based on RSA settlement values that were negotiated among creditors, the debtor and other parties for purposes of the plan rather than a third-party valuation advisor’s fundamental valuation estimate. In these instances, the settlement value was used to calculate the multiple. In other instances, Fitch estimated a multiple using the value estimated by summing various creditor distributions or by summing the proceeds from piecemeal asset sales.
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Leveraged Finance Reorganization Multiples Fitch estimated exit multiples of enterprise value (or asset sale value) to forward EBITDA for 33 of 51 cases. This facilitates cross-sector multiple comparisons with all corporate sectors (even though this method is a less common valuation approach in the E&P and power sectors). Fitch observed a wide range of multiples in energy and commodity case studies, with more than half in the 5x–9x range, as shown in the Reorganization Multiples table at right. The median sector multiples for the energy cases (6.3x) and power cases (11.1x) were higher than the 6.0x cross-sector corporate reorganization median in Fitch’s U.S. ultimate recovery database. The higher multiples were the result of cyclically low cash flow in the year following emergence. In cases where there was a very high multiple, this was because year one forecasted post-emergence EBITDA was still quite low. In year two and beyond, EBITDA was projected to substantially ramp up due to the expectation of higher commodity prices and production. For example, Offshore Group Investment Limited’s (formerly Vantage Drilling) EBITDA forecast is $99 million for the first year following emergence (2017), resulting in a 12x exit multiple. For year two after emergence (2018), EBITDA is projected to grow to $211 million based on expectations of increasing day rates, utilization and efficiency for existing contracts and future speculative contracts on currently idle rigs. Should such an increase in EBITDA pan out, this would bring the multiple using year two cash flow down to near 6x.
Reorganization Multiples Company Energy Sector Global Geophysical Services, Inc. Geokinetics, Inc. Penn Virginia Corporation Venoco, Inc. (Denver Parent) Stallion Oilfield Services Ltd. Aventine Renewable Energy Holdings, Inc. Seventy Seven Energy Inc. Tuscany International Halcon Resources Corporation Energy & Exploration Partners, Inc. Energy Partners , Ltd. Atlas Resource Partners LP Sabine Oil & Gas Corporation SandRidge Energy, Inc. Swift Energy Company SemCrude L.P. (SemGroup) Delta Petroleum Corp. Offshore Group Investment Limited Hercules Offshore, Inc. (2015) Magnum Hunter Resources Corporation GMX Resources, Inc. Energy Median Metals & Mining Sector ASARCO LLC Alpha Natural Resources, Inc. Patriot Coal Corp. (2015) Aleris International Arch Coal, Inc. Patriot Coal Corp. (2012) Molycorp, Inc. Metals & Mining Median Power Sector Mirant Corporation Texas Competitive Electric Holdings Company LLC Entergy New Orleans, Inc. Calpine Corporation Dynegy Corp Power Median Commodities Sector Chemtura Corp Tronox Incorporated Lyondell Chemical Company Commodities Median
Midpoint EV/EBITDA (x) 2.2 2.6 4.4 4.4 5.0 5.3 5.6 5.6 5.8 6.1 6.3 6.7 6.8 6.9 7.0 7.9 9.6 12.1 17.0 37.9 42.5 6.3
2.6 3.3 4.2 5.6 5.7 6.8 8.9 5.6
8.0 9.8 11.1 11.4 15.0 11.1
5.2 5.9 7.7 5.9
Oilfield servicers tended to reorganize EV – Enterprise value. Source: Company disclosure statements, Fitch Ratings. at below-median multiples in recent cases given opaque visibility regarding sector recovery, amongst other factors. Valuations would consider costs to move the rigs to areas with higher drilling activity, low asset utilization, idle crew costs and relatively older rig fleets owned by defaulters that were more difficult to monetize. Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance For this edition of the case study series, Fitch estimated reserve asset values for certain bankruptcies filed between 2008 and 2016, where reliable public information was available to supplement the reorganization multiple enterprise valuation data summarized above and common to all U.S. corporate sector case study reports. These asset valuations were completed on a reserve basis using inputs that included third-party estimated enterprise valuations or actual sales of all or a majority of the company’s assets during or shortly after the bankruptcy process. The median realized multiple was $6.42/boe, with a wide range of $1.30–$61.00/boe. The mean realized multiple was $10.80/boe, with over 77% of companies below this threshold. This analysis may have some variability based on timing of data, as reserve estimates were completed up to a year prior to the bankruptcy filing date, reflecting pricing economics at that time. This data is provided in Appendix G and gives additional perspective on boe values by factoring in other market transactions and information on some older cases that were not included in our case study sample.
Shorter Duration of Recent Cases The trend towards filing bankruptcy with pre-negotiated RSAs in place picked up in 2016 because the objective of many recent sector filings was limited to a debt-to-equity conversion. As a result, the bankruptcy periods were shorter than in earlier cases. The median duration for the 22 newly added sector cases was just four months, compared with 11 months for the 29 older cases analyzed in the April 2015 edition that were filed between July 2003 and March 2014. Five energy cases were completed in roughly one month from filing to confirmation date. Texas Competitive Electric Holdings Company LLC was an outlier among the recent crop. This case took 28 months to resolve, as there was a highly complex and layered capital structure and creditor disputes and the company was split off from its parent, Energy Future Holdings Corp., which remains in bankruptcy. Many of the earlier cases also took a long time to resolve because of complex and contentious labor, contracts or creditor arrangements. Cases with one or more of these complex issues that took longer than average to resolve include ASARCO LLC (52 months), Mirant Corporation (29 months), Calpine Corporation (24 months) and Barzel Industries Inc. (24 months).
Mineral Rights Issues in Bankruptcy Background E&P companies enter into lease agreements with landowners to obtain the rights, namely a working interest, to explore and produce oil and gas below the leased land. Landowners retain royalty interests in the mineral assets rights. After a lease agreement is signed, the E&P company may enter into financing agreements with creditors and farm out agreements with oilfield service companies and pipelines to finance and service production at the site. These agreements transfer various types of interests and payments from the producer’s working interest to the creditor or providers of drilling and transportation services. The types of transfers include: overriding royalty interests (ORRIs), net profits interests (NPIs), volumetric production payments (VPPs) and monetary production payments (MPPs). See Appendix C for further information on the transfer of mineral rights in bankruptcy. These agreements are controlled by state law and their treatment in bankruptcy varies substantially by state. Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Three Key Issues Relating to Mineral Rights The key mineral rights issues directly affect the bankruptcy plan enterprise valuation and creditor distributions. Local treatment is difficult to predict.
Issue 1: Treatment of Landowner Lease Agreements Oil and gas lease agreements with landowners are designated by states as unexpired leases or transfers of real property. Unexpired leases must be assumed or rejected by the debtor in bankruptcy. On the other hand, transfers of real property pass through the bankruptcy process unaltered. However, state laws vary on whether the lease agreement is a transfer of real property or an unexpired lease, and uncertainty remains in most states. Only two states, Texas and Louisiana, have settled this issue. Texas treats lease agreements as a transfer of real property. Therefore, no assumption or rejection is required and, importantly from a credit perspective, reserves are included in enterprise value estimate. States that may potentially align with Texas on this issue include Alabama, Arkansas, Colorado, Michigan, Mississippi, Montana, New Mexico, Ohio, Pennsylvania, Tennessee and West Virginia. Louisiana, on the other hand, treats landowner agreements as unexpired leases. Therefore, the debtor must either make a cash payment (administrative expense) to cure and assume the lease, which keeps the reserve in the enterprise value estimate, or reject the lease, which would exclude the reserves from the enterprise value estimate. States that may side with Louisiana include California, Indiana, Kentucky, New York, Oklahoma and Wyoming. However, without further case law, it is difficult to ascertain the exact treatment of those leases in jurisdictions other than Texas and Louisiana.
Issue 2: Treatment of Production-Specific Financing Agreements and Farmout Agreements Oilfield financing agreements must be classified as transfers of interests in real property or executory contracts. Decisions depend on the treatment of landowner lease agreements discussed above, and state laws also vary greatly. If the oil and gas lease is rejected, then related oilfield service, transportation and production financing agreements are automatically rejected as well. If the lease is deemed a transfer of real interest, the court would likely find related financing and farmout agreements as transfers of real interest as well. Therefore, the agreements would pass through bankruptcy unaltered.
Issue 3: Treatment of ORRIs, NPIs, VPPs and MPPs If ORRI, NPI, VPP and MPP arrangements are excluded from the E&P debtor’s estate, then the production-specific creditors and servicers holding those interests are ineligible to participate in the bankruptcy proceeding. They retain their interests in the reserve and do not have claims against the debtor’s estate. If the interests are considered part of the E&P debtor’s estate, then creditors and servicers participate in the bankruptcy proceeding and can recover any deficiency claims as unsecured creditors. A graphic flow chart of these issues is presented in Appendix C.
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Leveraged Finance Recent Defaults The large volume of defaulted debt pushed bond default rates for the energy and M&M sectors to record peaks of 18.8% and 17.4%, respectively, in 2016. Sixty-eight high-yield bond issuers in the energy, M&M and power sectors defaulted in 2016. Nearly $54 billion of debt was affected. Defaults under Fitch’s criteria include out-of-court distressed debt exchanges, missed interest payments and bankruptcy filings. The full list of 2016 defaults is included in Appendix E. Fitch believes most of the large energy cases have already been filed and the default rates for energy and M&M will significantly decline. Some of the most recent commodity-sensitive issuer cases are not yet resolved and will be studied in future editions of this report. Cases still in process include: Bonanza Creek Energy, Inc., Memorial Production Partners LP, Illinois Power Generating Co. and Stone Energy Corporation. Energy XXI’s reorganization plan became effective on Dec. 30, 2016, and this case will also be analyzed in a future edition. Fitch is forecasting a 3% U.S. energy sector bond default rate for 2017 and a 9% energy default rate for Yankee bond issuers (non-U.S. companies that issue in the U.S. market). One recent filing in the power sector was Illinois Power, an indirect, wholly owned subsidiary of Dynegy Inc. that filed for Chapter 11 on Dec. 9, 2016 with a prepackaged plan of reorganization. Illinois Power owns approximately 3,000 MW of coal-fired generation capacity located in the Midcontinent Independent System Operator (MISO). Its generation portfolio has continued to be challenged by weak electricity prices driven by sustained low natural gas prices and flat electricity demand. The increasing penetration of wind energy, driven by state mandates and federal policy initiatives as well as strong wind resource availability in several Midwestern regions of the U.S., has also affected energy prices in MISO. In addition, the lack of a robust capacity market construct in MISO has provided limited visibility into the long-term fixed-cost recovery for existing merchant power plants. The hybrid nature of resource ownership and guaranteed return for load-serving entities’ owned and contracted generating resources through the regulatory mechanisms has dampened capacity prices. Illinois Power’s coal generation portfolio was also disadvantaged given tightening environmental regulations. Low generation margins rendered it uneconomic for Illinois Power to incur compliance expenditures to meet the various federal environmental and Illinois multi-pollutant standards. A second filing by a coal-fired power generator was Homer City Generation LLP, a project finance entity that owns three units east of Pittsburgh that petitioned for bankruptcy on Jan. 11, 2016. Homer City was challenged by increased natural gas competition and lower energy costs, as well as higher environmental compliance costs on units that have been operating since the late 1960s and 1970s.
Potential Sector Defaults Fitch screened the issuers of high-yield bonds and leveraged term loans in the energy and M&M sectors for companies with significant default risk by flagging issues trading at low prices, those with low ratings or other issues. We identify bond bids at a distressed price of $0.70 or lower and loans bid a $0.80 or less as of Dec. 15, 2016. Companies can also be placed on the Loans or Bonds of Concern lists for other problems that elevate the risk of default. Fitch identified 21 energy and M&M high-yield issuers (including U.S. and Yankee bond issuers) with $27.2 billion of bonds outstanding and 22 term loan borrowers with $16.5 billion of loans with significant risk of default, with details provided in Appendix D. Petroleos de Venezuela S.A. (PDVSA) singly accounts for nearly $13 billion of the bonds of concern and is the driver of Fitch’s higher default rate forecast for Yankee issuers in the sector.
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Leveraged Finance Appendix A: Issue Recovery Detail Issue Recovery Rate by Seniority (% of Claim Par Value) Company Aleris International, Inc. Allied Nevada Gold Corp. Alpha Natural Resources, Inc. Arch Coal, Inc. ASARCO LLC Atlas Resource Partners, L.P. Aventine Renewable Energy Holdings Inc. Barzel Industries Inc. Baseline Oil and Gas Corporation Calpine Corporation Chemtura Corporation Crusader Energy Group Delta Petroleum Corporation Dune Energy, Inc. Dynegy Holdings, LLC Edison Mission Energy Energy & Exploration Partners, Inc. Energy Partners, Ltd. Entergy New Orleans, Inc. Geokinetics, Inc. Global Geophysical Services, Inc. GMX Resources, Inc. Halcón Resources Corporation Hercules Offshore, Inc. (2015) James River Coal Company Lyondell Chemical Company Magnum Hunter Resources Corporation Mirant Corporation Molycorp, Inc. Offshore Group Investment Limited Pacific Energy Resources Ltd. Patriot Coal Corp (2015) Patriot Coal Corp. (2012) Penn Virginia Corporation Quicksilver Resources Inc. RAAM Global Energy Company Sabine Oil & Gas Corporation SandRidge Energy, Inc. Seahawk Drilling, Inc. SemCrude L.P. (SemGroup) Seventy Seven Energy Inc. Stallion Oilfield Services Ltd. Swift Energy Company Teton Energy Corp. Texas Competitive Electric Holdings Company LLC (TCEH) Trico Marine Services, Inc. Tronox, Inc. Tuscany Holdings (USA) Ltd. TXCO Resources, Inc. Venoco Inc. (Denver Parent) VeraSun Energy Corporation Median Recovery Average Recovery Claim Count
First Lien
Second Lien
Senior Unsecured
Subordinated
100/97/28/21/1 100/100/100 79/100 100/50 — 100 100 100/10 65/65 100 100 100 100 13 — — 8 100 100 100/69 100 100 100 — 100 100/66 100 100 84 100/47 100/100 100/100/80 100 100 100 95 63 100 100 56/76/100 100/100 99 100 79
— — 3 2 — 100 — — — 100 — 87 — 4 — — — — — — — 1 100 — — — 84 — — — 49 16 — — 19 >0 8 68 — — — — — —
1 8 3 2 100 12 35 — — 100 100 — 29 5 55 >80 >0 100 100 — 12 1 14/21 41 4/2 — 38 100/62 2 100 — >0 6/<1 7 3 — 1 11 — 9 53/4 66/66 20 4
— 0 — — — — — — — 95 — — — — — — — — — — — — — — — — — 39 0 — 0 — — — 0 — — — — — — — — —
41 100/100/69 100 81 100 33 100/100/59/70/100 100 83 73
7 13 89 — 100 3 — 19 45 20
7/3 6 — — — 3/>0 45 10 30 48
— — — — — — — N.A. N.A. 6
N.A. – Not applicable. Note: Multiple debt issues at same seniority are separated by a "/". Fitch shows midpoint of range in this table if disclosure statement had a range of recovery rates for a claim class. See case studies for further detail. Source: Company disclosure statements, Fitch Ratings.
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Leveraged Finance Appendix B: Concession Payments Settlement/Concession Payments
Company Resolution Allied Nevada Gold Corp. Emerged/Reorganized (Private) Aleris International, Inc. Emerged/Reorganized (Private)
Payor Unsecured, Including Notes Secured
Recipient Subordinated and Old Equity Unsecured Creditors
EV or LV ($ Mil.) 250 1,060
Arch Coal, Inc.
Emerged/Reorganized First Lien and (Public) Management
Unsecured, Including Second-Lien Deficiency Claims
800
Atlas Resources Partners LLC Barzel Industries Inc.
Emerged/Reorganized (Public) Sale of All Asset (as Liquidation)
Senior Unsecured Notes Secured Note Holders
779
Baseline Oil and Gas Corporation Crusader Energy Group
Emerged/Reorganized (Private) Sale of All Asset (as Liquidation)
Secured Note Holders Second-Lien Holders
General Unsecured Certain Unsecured Claims Held by Environmental Agencies Unsecured
M&M Secured Claims and General Unsecured Sale of All Asset First-Lien Holders Second Lien (as Liquidation) and General Unsecured Emerged/Reorganized Unsecured Old Equity (Public) Claims Emerged/Reorganized First Lien General (Private) Unsecured and Noteholders
289
Dune Energy, Inc.
Dynegy Holdings, LLC Energy & Exploration Partners
General Unsecured and Old Equity Interests Preferred Equity
70
81
19
3,680 200
Energy Partners, Ltd.
Emerged/Reorganized Senior Notes (Public)
624
Geokinetics, Inc.
Emerged/Reorganized Secured Notes (Private)
GMX Resources, Inc.
Emerged/Reorganized First-Lien Claims Second Lien (Private) and Unsecured
340
Halcon Resources Corporation
Emerged/Reorganized Third-Lien Claims Unsecured and (Public) Preferred Holders
1,700
Hercules Offshore, Inc. (2015)
Emerged/Reorganized Senior Notes (Private)
General Unsecured and Old Equity Interests
Lyondell Chemical Company
Emerged/Reorganized First Lien (Public)
Second Lien Bridge Loan and 2015 Unsecured Note Claims
280
630
15,200
Rough Estimate of Payment as % of Total EV Notes <1 Recipients received warrants that could have value based on future performance. <1 Unsecured claims other than convenience claims and insured claims received $16.5 million. Convenience claims received 25% recovery or 50% if certain conditions were met. 11.0 Unsecured creditors received distributions that resulted from a settlement. The first-lien lenders agreed that unsecured claimholders will receive 6% of the common stock of the reorganized company, warrants for 12% of the common stock and $30 million in cash. The first-lien lenders reached the negotiated settlement after agreeing that the companyâ&#x20AC;&#x2122;s 49% interest in Knight Hawk was excluded from the first-lien collateral assets and in addition, senior management agreed to waive $6 million in incentive compensation to facilitate the settlement. Not Available General unsecured claims were paid in full; amount not available. 1 Unsecured claims held by the U.S. Environmental Protection Agency and the Rhode Island Dept. of Environmental Management received $500,000 from secured noteholders per a settlement. 5.0 Royalty claims and general unsecured claims together totaling $4 million were paid in full. 10.0 M&M claims consisted of claims of joint owners and operators; holders received $18 million, or 60% recovery, on $30 million of related claims. Unsecured claims of $26 million paid $11 million, or 32.5%. 11.0 Distributions to second-lien deficiency claims and general unsecured based on a plan compromise. 1.0 Equityholders received 1% of new common equity and warrants for new equity. 1.0 General unsecured claims received 4.6% recoveries as a result of the first-lien settlement and convenience claims (<$1,000) were paid 100%. First-lien creditors waived any recoveries on $718 million of deficiency claims until allowed general unsecured claims recovered 15% of their claim amount. Noteholders received warrants. 3.0 Old equity interests received 5% of the new stock. General unsecured received $5 million in cash (but noteholders received distributions in the form of new stock). 6.0 Preferred equity interest holders received $6 million and general unsecured claims of $11 million were paid in full. 0.3 First-lien noteholders waived deficiency claims and made contributions to a trust for unsecured. Unsecured also entitled to recoveries from causes of action, if any. 3.0 The plan was the product of a restructuring settlement agreement that involved a number of classes. Unsecured notes and preferred stockholders were recipients of settlement payments. 9.0 General unsecured claims, including trade vendors, suppliers and customers, were paid in full in the ordinary course of business and unaffected by the filing (estimated to be $40 million of claims per disclosure statement). In addition, equityholders received 3.1% of the new common stock. 3.0 Second-lien bridge loan received a portion of the new equity and 2015 notes entitled to distributions from trusts.
Continued on next page. Source: Company disclosure statements, Fitch Ratings.
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Leveraged Finance Settlement/Concession Payments (Continued)
Company Magnum Hunter Resources Corporation
Resolution Emerged/Reorganized (Private)
Mirant Corporation
Emerged/Reorganized (Public)
MolyCorp, Inc.
Emerged/Reorganized (Private)
Offshore Group Investment Limited
Emerged/Reorganized (Private)
Pacific Energy Sale of All Asset Resources Ltd. (as Liquidation) Patriot Coal Corp. (2012) Emerged/Reorganized (Private)
Patriot Coal Corp. (2015) Sale of All Assets (as Going Concern) Quicksilver Resources Inc.
Sale of All Assets (as Liquidation)
RAAM Global Energy Company
Sale of All Assets (as Liquidation)
Sabine Oil and Gas Corporation
Emerged/Reorganized (Private)
SandRidge Energy, Inc.
Emerged/Reorganized (Private)
SemCrude L.P. (SemGroup)
Emerged/Reorganized (Public)
Seventy Seven Energy Inc.
Emerged/Reorganized (Public)
Stallion Oilfield Services Ltd.
Emerged/Reorganized (Private)
Swift Energy Company
Emerged/Reorganized (Private) Sale of All Assets (as Going Concern)
Teton Energy Corp.
Rough Estimate of Payment EV or LV as % of Payor Recipient ($ Mil.) Total EV Notes DIP Holders Second Lien, 850 Not Recipients were second-lien, unsecured notes and Unsecured Notes Available general unsecured claimholders. DIP lenders agreed to and General receive some equity, but DIP was provided by prepetition Unsecured creditors below ABL. The plan was based on a compromise and settlement. Unsecured note claims and second-lien note claims received equity in the new company and general unsecured creditors received cash. Unsecured and Old Equity 8,922 2.0 Equity interests received a portion of the new shares as Subordinated a result of a negotiated settlement that agreed to a higher enterprise value. Secured General 417 5.0 General unsecured claims that voted to accept the plan Unsecured received warrants to purchase new equity that had an estimated value of $20.6 million, but could be higher or lower depending on the companyâ&#x20AC;&#x2122;s performance during the five-year warrant exercise period. The value came from distributions that would have otherwise gone to Oaktree. Secured Term General 1,205 Not General unsecured claims paid in full; amount of claim Loans and Unsecured Available undisclosed. Secured Notes Second Lien Unsecured 295 Not Amounts not available. Creditors Available Guaranteed General 1,275 0.3 Received 5% of new stock and warrants to purchase Senior Notes Unsecured and 4.62% of new shares. Senior Convertible Notes Second Lien Unsecured, 698 >0 Second-lien deficiency and other general unsecured Including claims received nominal distributions from the general Deficiency Claims unsecured distribution pool. Second Lien Unsecured 448 5.0 Unsecured creditors received $17.5 million cash and 50% of recoveries from the Canadian proceeds up to $17.5 million maximum additional recovery. First Lien Unsecured Surety 65 Not The first-lien lenders reached a settlement with plugging Bond Provider Available and abandonment obligation surety bond provider Ace and Unsecured and general unsecured trade claimants to gift a nominal Trade Claims distribution payment to these parties (amount not determined). Reserve-Based Second Lien and 550 13.0 The RBL creditors waived deficiency claims, and the First-Lien ABL Unsecured length of the warrants was extended to 10 years in the Revolver final plan, which provides greater recovery to unsecured creditors. Second Lien General 1,180 Not Unsecured holders received 15% of the new common Unsecured, Available stock. Including Unsecured Noteholders First Lien Senior Notes, 1,500 5.0 Unsecured notes received a portion of new stock, Credit Facility Secured general unsecured received 1.25% of new stock, Deficiency secured deficiency claims received potential recovery of Claims, General up to 4.56% from litigation trust distributions. Unsecured OpCo Notes HoldCo Notes 800 5.0 HoldCo note claims received a concession payment of and General 3.25% of the new HoldCo common shares plus warrants Unsecured exercisable for 15% of the new HoldCo common shares, and general unsecured received cash. First Lien and Trade Claims 576 Not Undisclosed amount of trade claims paid in full. Old Unsecured and Old Equity Available equity interests received 2% of new stock and warrants. Interests DIP Holders Unsecured and 630 10.0 General unsecured creditors (excluding notes) and Equity stock equity interests. Secured Credit General 20 8.0 Claim amounts of general unsecured and trade were Facilities Unsecured, Trade Fitch estimates. Claims and 10.75% SecondLien Convertible Notes
DIP â&#x20AC;&#x201C; Debtor in possession. Continued on next page. Source: Company disclosure statements, Fitch Ratings.
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Leveraged Finance Settlement/Concession Payments (Continued)
Company Texas Competitive Electric Holdings Corp.
Resolution Payor Emerged/Reorganized First Lien (Private)
Recipient Unsecured
Tronox, Inc.
Emerged/Reorganized Government (Public) and Tribal Unsecured Claims Emerged/Reorganized First Lien (Private)
Noteholders and Other Unsecured Claims Second Lien and Unsecured
Venoco, Inc. (Denver Parent)
Rough Estimate of Payment EV or LV as % of ($ Mil.) Total EV Notes 11,600 4.0 Unsecured creditors received additional proceeds from waived first-lien lender deficiency claims. First-lien lenders are to receive the $700 million settlement claim proceeds on the effective date of the EFH bankruptcy plan. 1,963 Not The settlement agreement provided noteholders and other Available unsecured claims with higher recoveries than government and tribal claims. However, difference and amounts were not available. 75 1.0 Second lien and unsecured claims.
Source: Company disclosure statements, Fitch Ratings.
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Leveraged Finance Appendix C: Mineral Rights Mineral Rights Considerations in Bankruptcy Mineral Assets Rights (Landowner)
Working Interest (E&P Company)
Remaining Working Interest (E&P Company)
Financing Agreements & Farmout Agreements for Production, Services, transportation, etc.
Issue 2: Did the agreements transfer an interest in real property or are they simply executory contracts?
Oil and Gas Lease Agreement (Purpose is dividing mineral rights to company and landowner.)
Working Interest, Overriding Royalty Interest (ORRI), Net Profits Interests, Volumetric Production Payment, and Monetary Production Payment (Various Creditors, Drilling Services, Pipelines)
Royalty Interest (Landowner)
Issue 1: Is the lease agreement a transfer of real property, an unexpired lease or an executory contract?
Issue 3: Do the interests belong to the E&P debtor's estate? (Depends on state law)
The answer to this question depends on outcome of issue 1. If lease is rejected then related service and financing agreements rejected. If lease is assumed then debtor must make cure payments. If the lease is a transfer of assets, then the agreements most likely are treated as transfers of real property interests and pass through bankruptcy unaltered.
Treated as transfer of real property interest: No assumption or rejection is required. Leases are part of EV and pass through bankruptcy unaltered. Reserves included in enterprise value estimate
Texas — Fully settled in law. States with same likely outcome: Arkansas, Colorado, Michigan, Mississippi, Montana, New Mexico, Ohio, Pennsylvania, West Virginia, Tennessee.
Treated as unexpired lease or executory contract: Debtor must assume or reject. Assumption requires debtor cash payment of cure amount (administrative expense) which diminishes cash for distribution to creditors, but keeps reserve in EV. Rejection excludes leases from EV calculation.
Louisiana — Fully settled in law. States with same likely outcome: California, Indiana, Kentucky, New York, Wyoming, Oklahoma.
Yes: the creditors and servicers who hold the interest participate in bankruptcy proceedings. They vote on reorganization plans and can recover any deficiency claims as unsecured creditors. No: the creditors and servicers who hold the interest are unable to participate in bankruptcy proceedings. They retain their interest in the reserves and do not have claims against the debtor's estate.
Rights Contracts and Agreements Issues Questions and Implications Note: Working interest – Exclusive rights to explore, drill, and produce oil and gas for a certain period of time. Royalty interest – Rights retained by landowner to share in a stated portion of revenue from the production. Overriding royalty interest – Carved out of E&P company’s working interest, often assigned to geologists, landmen and brokers, and paid in a stated portion of revenue from the production. Net profits interest – Similar to ORRI, but paid in a stated portion of profits from the production. Volumetric production payment – Similar to ORRI, but terminated when a certain volume amount is reached. Monetary production payment – Similar to ORRI, but terminated when a certain monetary amount is reached. Source: Fitch Ratings.
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Leveraged Finance Appendix D: Bonds and Loans of Concern Bonds of Concern (High Risk of Default Within One Year) Issuer
Amount Outstanding ($ Mil.)
Industry
Petroleos de Venezuela SA (PDVSA) 12,883.2 Energy Odebrecht Offshore Drilling 2,989.9 Energy California Resources Corp. 2,804.1 Energy Seadrill Ltd. 1,322.2 Energy FTS International Inc. 786.7 Energy Northern Oil and Gas Inc. 700.0 Energy Legacy Reserves LP 665.6 Energy North Atlantic Drilling Ltd. 600.0 Energy Pacific Drilling SA 500.0 Energy W&T Offshore Inc. 498.7 Energy Shelf Drilling Holdings Ltd 475.0 Energy Vanguard Natural Resources LLC 457.5 Energy Gulfmark Offshore Inc. 429.6 Energy Nuverra Environmental Solutions Inc. 367.7 Energy EV Energy Partners LP 343.3 Energy Gastar Exploration Inc. 325.0 Energy Pioneer Energy Services 300.0 Energy Approach Resources Inc. 230.3 Energy EXCO Resources Inc. 201.7 Energy Armstrong Energy Inc. 200.0 Metals & Mining Ocean Rig UDW Inc. 131.0 Energy Total 27,211.7 Note: Names above reflect our view of the most concerning issuers in the high-yield market. The list includes bonds outstanding greater than $100 million. Sorted by amount outstanding based on figures as of Dec. 31, 2016. Source: Fitch U.S. High Yield Default Index.
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Leveraged Finance Loans of Concern (High Risk of Default Within One Year) Issuer
Amount Outstanding ($ Mil.)
Industry
Fieldwood Energy LLC
3,286.1
Energy
Ocean Rig UDW Inc.
3,117.0
Energy
Seadrill Ltd
2,894.7
Energy
American Energy - Marcellus LLC
1,200.0
Energy
Pacific Drilling SA
724.4
Energy
Proserv Global Inc.
480.0
Energy
Southcross Energy Partners LP
439.8
Energy
FTS International Inc.
433.8
Energy
EXCO Resources Inc.
400.0
Energy
W&T Offshore Inc.
375.0
Energy
Azure Midstream Energy LLC
365.6
Energy
Shelf Drilling Holdings Ltd
350.0
Energy
RGL Reservoir Management Inc.
301.0
Energy
Caelus Energy Alaska O3 LLC
300.0
Energy
Dixie Electric LLC
280.0
Energy
Cactus Wellhead LLC
275.0
Energy
Prowler Acquisition Corp.
270.0
Energy
Larchmont Resources LLC
250.0
Energy
Express Energy Services
220.0
Energy
ProPetro Services Inc.
220.0
Energy
Abaco Energy Technologies LLC
175.0
Energy
Resolute Energy Corp.
128.3
Energy
Total
16,485.8
Note: Names above reflect our view of the most concerning issuers in the institutional leveraged loan market. Sorted by amount outstanding based on figures as of Dec. 31, 2016. Source: Fitch U.S. High Yield Default Index.
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Leveraged Finance Appendix E: Bond Defaults Bond Defaults Issuer Arch Coal Inc. Constellation Enterprises LLC Horsehead Holding Corp. Murray Energy Corp. Comstock Resources Inc. Vanguard Natural Resources LLC Noranda Aluminum Holding Corp. PetroQuest Energy Inc. A.M. Castle & Co. Pacific Exploration & Production Corp. Cliffs Natural Resources Inc. Warren Resources Inc. Foresight Energy LP Venoco, Inc. Rex Energy Corp. Chaparral Energy Inc. Comstock Resources Sidewinder Drilling Peabody Energy Comstock Resources Inc. Nuverra Environmental Solutions Inc. Energy XXI Ltd. Goodrich Petroleum Corp. Odebrecht Oil & Gas Rex Energy Corp. EV Energy Partners LP Comstock Resources Inc. ION Geophysical Corp. American Energy â&#x20AC;&#x201C; Woodford LLC Ultra Petroleum Corp. Mongolian Mining Corp. Midstates Petroleum Co. Comstock Resources Inc. Legacy Reserve, LP Linn Energy LLC Penn Virginia Corp. American Energy - Permian Breitburn Energy Partners LP SandRidge Energy Inc. EP Energy LLC Linc USA GP Bill Barrett Corp. Seventy Seven Energy/Operating Comstock Resources Inc. Triangle USA Petroleum Corp. FTS International Inc. Forbes Energy Services Lightstream Resources Ltd SAExploration Holdings Inc. Atlas Energy Group LLC Halcon Resources Corp. IronGate Energy Services LLC Lonestar Resources America Inc. EXCO Resources Inc. Light Tower Rentals Inc. W&T Offshore Inc. Comstock Resources Inc. Basic Energy Services Inc. PetroQuest Energy Inc.
Amount Outstanding ($ Mil.) 3,225.0 130.0 215.0 96.5 40.0 168.2 175.0 214.4 203.3 4,104.2 512.1 167.3 600.0 308.2 633.1 1,250.0 14.3 132.7 4,758.4 9.0 328.1 2,867.4 291.8 550.0 17.2 72.9 1.0 146.5 148.0 1,300.0 600.0 1,790.4 14.9 169.4 4,856.8 1,075.0 203.0 1,805.0 3,553.0 570.6 408.6 84.7 1,100.0 3.0 380.8 31.3 280.0 903.9 138.1 667.7 2,480.7 210.0 48.4 101.3 330.0 710.2 1,137.5 775.0 243.5
Default Date Jan. 11, 2016 Feb. 1, 2016 Feb. 2, 2016 Feb. 2, 2016 Feb. 3, 2016 Feb. 5, 2016 Feb. 8, 2016 Feb. 11, 2016 Feb. 18, 2016 Feb. 19, 2016 Feb. 26, 2016 March 1, 2016 March 17, 2016 March 18, 2016 March 30, 2016 March 31, 2016 April 4, 2016 April 11, 2016 April 13, 2016 April 13, 2016 April 13, 2016 April 14, 2016 April 15, 2016 April 17, 2016 April 22, 2016 April 27, 2016 April 28, 2016 April 28, 2016 April 28, 2016 April 29, 2016 April 29, 2016 April 30, 2016 May 3, 2016 May 4, 2016 May 11, 2016 May 12, 2016 May 13, 2016 May 15, 2016 May 16, 2016 May 17, 2016 May 29, 2016 May 31, 2016 June 7, 2016 June 23, 2016 June 29, 2016 July 1, 2016 July 15, 2016 July 15, 2016 July 22, 2016 July 27, 2016 July 27, 2016 July 31, 2016 Aug. 22, 2016 Aug. 23, 2016 Aug. 30, 2016 Sept. 1, 2016 Sept. 2, 2016 Sept. 14, 2016 Sept. 22, 2016
Default Source Chapter 11 Filing Missed Payment Chapter 11 Filing Distressed Exchange Distressed Exchange Distressed Exchange Chapter 11 Filing Distressed Exchange Distressed Exchange Missed Payment Distressed Exchange Missed Payment Missed Payment Chapter 11 Filing Distressed Exchange Missed Payment Distressed Exchange Distressed Exchange Chapter 11 Filing Distressed Exchange Distressed Exchange Chapter 11 Filing Chapter 11 Filing Missed Payment Distressed Exchange Distressed Exchange Distressed Exchange Distressed Exchange Distressed Exchange Chapter 11 Filing Missed Payment Chapter 11 Filing Distressed Exchange Distressed Exchange Chapter 11 Filing Chapter11 Filing Distressed Exchange Chapter 11 Filing Chapter 11 Filing Distressed Exchange Chapter 11 Filing Distressed Exchange Chapter 11 Filing Distressed Exchange Chapter 11 Filing Distressed Exchange Missed Payment Missed Payment Distressed Exchange Chapter 11 Filing Chapter 11 Filing Missed Payment Distressed Exchange Distressed Exchange Chapter 11 Filing Distressed Exchange Distressed Exchange Missed Payment Distressed Exchange
Industry Metals & Mining Metals & Mining Metals & Mining Metals & Mining Energy Energy Metals & Mining Energy Metals & Mining Energy Metals & Mining Energy Metals & Mining Energy Energy Energy Energy Energy Metals & Mining Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Metals & Mining Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy Energy
Continued on next page. Source: Fitch U.S. High Yield Default Index.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Bond Defaults (Continued) Issuer
Amount Outstanding ($ Mil.)
American Gilsonite Co. Key Energy Services Inc. Cloud Peak Energy Inc. Samarco Mineracao S.A. Permian Holdings Inc. Memorial Production Partners LP Illinois Power Generating Co. Stone Energy Corp. Optima Specialty Steel Inc. Total
270.0 675.0 381.5 2,200.0 184.3 1,111.3 825.0 775.0 161.7 53,935.9
Default Date
Default Source
Industry
Oct. 1, 2016 Oct. 1, 2016 Oct. 12, 2016 Oct. 24, 2016 Nov. 1, 2016 Dec. 1, 2016 Dec. 9, 2016 Dec. 14, 2016 Dec. 15, 2016
Missed Payment Missed Payment Distressed Exchange Missed Payment Restructuring Missed Payment Chapter 11 Filing Chapter 11 Filing Chapter 11 Filing
Metals & Mining Energy Metals & Mining Metals & Mining Energy Energy Utilities, Power & Gas Energy Metals & Mining
Source: Fitch U.S. High Yield Default Index.
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Leveraged Finance Appendix F: How Reserve-Based ABLs Work Small, high-yield E&P companies and other types of commodity-price-sensitive companies often use ABLs for working capital and other external financing needs. Within the E&P sector, these facilities are commonly referred to as reserve-based loans. Borrowing under the ABLs are limited to the lesser of a total facility commitment amount and a borrowing base determined by the amount of reserve collateral available to the lenders. Lenders determine reserve borrowing bases following receipt and review of periodic reserve reports submitted by the companies. These regular resets occur semiannually, usually in the spring and the fall of each year. Lenders may also be able to reset one or more additional times each year at the lenderâ&#x20AC;&#x2122;s discretion on a case-by-case basis, depending on the individual terms and conditions. The amount of reserve collateral available to lenders typically shrinks as commodity prices decline or production is shut in, resulting in reduced producing reserves. Agent banks review the periodic reserve reports and recommend to the lender group an updated ABL borrowing base and typically base these recommendations on the agentâ&#x20AC;&#x2122;s own forward price deck and advance rates specific to each type of reserve asset (producing, proven undeveloped, etc.), among other factors, such as quality of hedging. The recommended borrowing base becomes effective following approval from requisite lenders (often two-thirds threshold to lower the base). When oil prices are weak, market-price-driven borrowing base reductions are often compounded by other changes to the business that reduce collateral, such as reserve asset sales or rationalization of weaker quality assets. Borrowing base reductions can also result from a companyâ&#x20AC;&#x2122;s strategic election to cease producing at wells that become uneconomic because market prices remain below the breakeven production cost for an extended period. If the loans outstanding exceed the maximum permitted amount under a borrowing-based calculation following a reduction to the borrowing base, this triggers mandatory repayment requirements of the deficiency within a short time frame, often six months. Alternatively, a deficiency can be remedied by the addition of new pledged collateral. Borrowing base reductions squeeze liquidity and can lead to default among weaker borrowers without alternative sources of liquidity during adverse market conditions. Fitch has observed tightening covenant language in credit agreements such as anti-cash hoarding language and limitations on capex, as 2016 redeterminations, were influenced by eroding reserve values
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Leveraged Finance Appendix G Reserve Asset Value Names of Companies Atlas Resource Partners LP Baseline Oil and Gas Corporation Crusader Energy Group Delta Petroleum Corporation Dune Energy, Inc. Edge Petroleum Endeavour International Corporation Energy Partners, Ltd. GMX Resources, Inc. GMX Resources, Inc. Halcon Resources Corporation Magnum Hunter Resources Corporation Pacific Energy Resources Ltd. Penn Viriginia Corporation Quicksilver Resources Inc. RAAM Global Energy Company Sabine Oil & Gas Corporation SandRidge Energy, Inc. Swift Energy Company Teton Energy Corp. TXCO Resources, Inc. Venoco, Inc. (Denver Parent) Median Mean
Net Proved Reserves Date Filed (mmboe)
Proved Developed (mmboe)
Restructured Standardized % of LTM EV/Net Proved PV-10 Measure Reserves Production EBITDA Restructured Reserves ($ Mil.) ($ Mil.) Oil (%) (kboe/day) ($ Mil.) EV ($ Mil.) ($/boe)
7/27/16 8/28/09 3/30/09 12/15/11 3/8/15 10/1/09
153.0 60.2 34.3 15.0 12.9 20.7
127.0 41.0 14.9 — 7.0 16.3
921.0 69.5 276.5 129.7 257.0 277.2
503.0 64.9 276.5 129.7 257.0 277.5
29 54 22 3 56 28
44.4 1.3 4.9 4.9 1.8 7.8
262.0 15.6 68.0 19.1 13.0 116.4
563.0 81.0 289.0 105.0 19.0 191.0
3.7 1.3 8.4 7.0 1.5 9.2
10/10/14 5/1/09 4/1/13 4/1/13 7/27/16 12/15/15
23.6 36.8 35.6 35.6 147.0 239.0
10.4 669.2 — — 10.9 80.1 10.9 80.1 82.3 1,111.6 212.7 111.0
535.7 434.0 80.1 80.1 1,110.6 111.0
52 41 23 23 82 9
10.0 — 5.3 -— 41.0 22.0
— 234.0 22.0 22.0 702.0 1.0
987.5 624.0 340.0 340.0 1,700.0 850.0
41.9 17.0 9.6 9.6 11.6 3.6
3/8/09 5/12/16 3/17/15 10/26/15 7/15/15 5/16/16 12/31/15 11/8/09 5/17/09 3/18/16
4.8 44.0 185.0 9.0 242.0 325.0 193.8 4.4 13.6 13.1
4.7 331.8 33.0 323.0 184.0 988.0 9.0 183.0 133.1 1,711.0 260.0 1,315.0 65.9 1,900.0 3.0 28.2 7.2 137.5 13.1 17.4
202.4 323.0 988.0 183.0 1,711.0 1,315.0 1,652.0 28.2 137.5 17.4
85 84 18 32 8.3 24 26 36 56 94
7.2 22.3 41.2 7.7 18.2 68.3 11.7 1.0 4.2 3.9
18.0 262.0 219.0 76.0 331.0 589.0 99.0 6.5 88.8 119.0
295.0 241.0 448.0 65.0 550.0 1,180.0 630.0 20.0 305.0 75.0
61.4 5.5 2.4 7.2 2.3 3.6 3.3 4.6 22.4 5.7 6.4 10.8
Mmboe – Million barrels of oil equivalent. Kboe – Thousand barrels of oil equivalent. Boe – Barrels of oil equivalent. Source: 10-K filings, disclosure statements, Fitch estimates.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Aleris International, Inc. ($ Mil., Except Where Noted)
Key Drivers of Bankruptcy Filing
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Metals & Mining Aluminum Product Producer Not Publicly Traded 5,121 Aleris International/Privately Held
Bankruptcy Summary a
Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor Delaware Yes 2/12/09 5/13/10 6/1/10 15 Chapter 11 No Voluntary Not Available Emerged/Reorganized (Private)
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period
Amount
Prepetition EBITDA
12/31/08
(22)
Post-Emergence EBITDA Forecast
12/31/11
190
Enterprise Value (EV) Range (or Asset Value) Low
925
High
1,195
Midpoint EV (Value)
1,060
Equity Value Range Low
222
High
271
Midpoint EV/Post-Emergence EBITDA Estimate (x)
5.6
Petition Date Versus Emergence Date b
Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 2,600 (116.6)
Emergence Date 59 0.3 2,541 98
Events Leading Up to Bankruptcy (or Contributing Factors) Aleris International, Inc. expanded through mergers and acquisitions in the years prior to the bankruptcy. In December 2006, the company was purchased by Texas Pacific Group in a going private transaction. In conjunction with the buyout, the company increased its bank facility commitments and issued $1 billion of new notes, which resulted in high leverage. The global economic downturn adversely affected the aluminum industry. Aleris’ customers in the building and construction and automotive industries reduced their aluminum demand during the recession. The profitability of the company’s rolled and extruded products businesses suffered as a result of lower volumes, and margins were reduced because of decreasing per-pound selling prices. These factors led to a liquidity crunch as well as margin calls on transactional hedges and a high interest expense burden. The borrowing base on the asset-based loan facility declined by more than 50% in the six months prior to the petition date, and lenders demanded repayment of borrowings in excess of the remaining borrowing base. In February 2009, the company filed bankruptcy and emerged in June 2010 following a debt to equity conversion with secured creditors becoming the majority owners and including a new investment by certain secured creditors of $645 million in a rights offering and $45 million of new notes.
Valuation Estimate Summary Going Concern Valuation The third-party valuation advisor relied primarily on the discounted cash flow and comparable company approaches to estimate the midpoint going concern enterprise value of $1 billion, with $660 million–$830 million of the value attributed to U.S. operations and the remainder to the Aleris Deutschland Holding (ADH) European business. The estimated $1 billion enterprise value consists of the “plan value” or equity value before the proceeds from the rights offering plus the maximum $690 million cash proceeds of the rights offering of new common stock shares. Participation in the rights offering was available to holders of U.S. roll up term loan claims, European term loan claims and European roll up term loan claims that were accredited investors. Discounted Cash Flow Approach Americas Discount Rate Range European Discount Rate Range The assumptions included: Adjusted EBITDA Comparable Company Approach The names of the companies selected and other assumptions were not disclosed.
2011 190.4
10.5%–12.5% 2012 233.7
2013 282.5
11.5%–13.5% 2014 316.6
Liquidation Alternative Valuation • Based on discounts to asset book values as of Sept. 30, 2009, and resulted in gross liquidation proceeds of $464 million from U.S. operations and $1 million from European operations. • The percentage of book value applied to various assets included: o Accounts receivable of $119.7 million at 70% of book value. o Inventory of $111 million at 79%. o Property plant and equipment of $146 million at 49%. o U.S. liquidation expenses were estimated at $50 million. o The intercompany receivable of $900 million on ADH’s balance sheet was assumed to have $0 value in the liquidation. a
The company’s European, Asian, South American, Mexican and Canadian operations were excluded from the filing. bPetition date debt balance is as of Dec. 31, 2008. Source, unless otherwise noted: Company disclosure statement for the first amended joint plan of reorganization dated March 22, 2010. Note: This is an update of a case study originally published Feb. 14, 2013.
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Leveraged Finance Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Claim Type DIP $1,075 Million DIP Facility Secured U.S. Roll Up Term Loan Clams Secured ADH European Roll Up Term Loan Secured ADH European Term Loan Secured U.S. Term Loan Claims Unsecured Various Bond Issues Equity Holders of Aleris Equity Interests Estimated Claims New Borrowings at Emergencea Debt of Nonfiling Affiliates on Emergence Date Claim Seniority DIP
Secured
Secured Secured
Secured Unsecured Equity
Form of Distribution Allowed Projected Equivalent Secured Unsecured Subordinated New Options/ Claims Recovery (%) RR Category Cash Notes Notes Notes Equity Warrants 650 100 RR1 650 — — — — — 527 28 RR5 — — — — 148 — N.A. 94–100 RR1 25 — — — — — 340 21.0 RR5 — — — — 71 — 306 1.0 RR6 86 — — — — — 1,196 0 3,020 59 0
1.0 0.0 — —
RR6 RR6 Recoveries —
— —
17 — 777 —
— — 0 —
— — 0 —
— — 0 —
— — 219 —
— — 0 —
—
—
—
—
—
—
Claim Type Description $1,075 Million DIP Facility (Consisting of • $575 million ABL roll up revolver and $500 million new money term loan (claim amount is a rough Fitch $575 ABL Roll Up DIP and $500 New Money estimate based on borrowings as of November 2009). Term Loan DIP) • The prepetition ABL debt was refinanced with the DIP. • Guaranteed by each U.S. debtor and other domestic subsidiary and certain European affiliates. • ABL revolver collateral: first lien on accounts receivable, inventory and intangible assets and a second lien on other collateral for the revolver. • Term loan collateral: first lien on property and equipment and second lien on the ABL collateral. • Repaid in cash using proceeds from the rights offering of up to $690 million of new common stock, which was also used for other cash distributions and for liquidity post emergence. U.S. Roll Up Term Loan Clams • Pursuant to the DIP order, prepetition term loan lenders were permitted to roll up a portion of the amount (USD436 Million and USD Equivalent of owed by the U.S. debtors into the DIP. EUR70.9 Million at $1.29 per Euro) • Received pro rata share of U.S. roll up stock and U.S. subscription rights or cash. ADH European Roll Up Term Loan • Received ADH roll up stock and the ADH roll up subscription rights or cash equal to $25 million. ADH European Term Loan (USD286 Million • Secured by a separate collateral package than the U.S. term loan that included bank accounts, intellectual and USD Equivalent of EUR53.2 Million) property rights, certain stock in certain subsidiaries, and/or moveable property. • Received distributions in the form of ADH term loan stock or cash. U.S. Term Loan Clams (USD220.1 Million • The non-rolled up portions of the term loans were treated as unsecured claims in the plan. and USD Equivalent of EUR67 Million) Various Bond Issues • Includes $6,060.5 million of 2006 notes, $106.7 million of 2007 notes and other unsecured claims. Holders of Aleris Equity Interests • Received $0 distributions. • Deemed to have rejected the plan of reorganization.
a
New borrowing estimate includes $45 million of subordinated notes and $14 million under new $500 million ABL facility. RR – Recovery Rating. DIP – Debtor in possession. ABL – Asset-based loan. N.A. – Not available. Source, unless otherwise noted: Company disclosure statement for the first amended joint plan of reorganization dated March 22, 2010. Note: This is an update of a case study originally published Feb. 14, 2013.
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Leveraged Finance Aleris International, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Intercompany Claims Pension Claims/Motions
Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
Not disclosed. Cash of $48.5 million as of Dec. 31, 2008, as per balance sheet dated Dec. 31, 2008. $809 million senior secured ABL facility. There was no remaining facility availability on the petition date because borrowings exceeded the maximum borrowing base. $201.8 million borrowings and $42.2 million letters of credit drawn under ABL facility. The $1,075 million DIP included a roll up of the prepetition $575 million ABL facility debt and a new money $500 million term loan facility. Not disclosed. Yes, the unsecured portions of the non-rolled up term loans were treated as unsecured claims. U.S. affiliate claims were reinstated or otherwise left unimpaired. The plan confirmation was subject to the termination of three union pension plans covering employees at three facilities in West Virginia, Ohio and Kentucky. The company had not yet started negotiations with the unions as of the disclosure statement date for a consensual modification. If a consensus is not reached, the plans may still be terminated if the court agrees, but this could leave the company subject to strike. If the plans were terminated, this will dilute recovery for unsecured creditors. Yes Unsecured claims, including general unsecured and convenience claims. Yes Unsecured creditors.
DIP â&#x20AC;&#x201C; Debtor in possession. ABL â&#x20AC;&#x201C; Asset-based loan. Source: Fitch Ratings, amended disclosure statement dated March 22, 2010. Note: This is an update of a case study originally published Feb. 14, 2013.
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Leveraged Finance Allied Nevada Gold Corp. ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company
Key Drivers of Bankruptcy Filing Metals & Mining Gold Mining ANV 1,513 Hycroft Mining Corp./HYCT
Name/Ticker
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months)
Yes Debtor Delaware Yes 3/10/15 10/8/15 10/22/15 7
Filing — Type Section 363 Asset Sale by Debtor
Chapter 11 (Prepackaged) Yes — Partial Sale of Assets
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Voluntary No Emerged/Reorganized (Private)
Key Driver Key Driver
Untenable Capital Structure Deep Cyclical Trough
Financial Profile 12-Month Period
Amount
Prepetition EBITDA 6/30/15 Post-Emergence EBITDA Forecast 12/31/16 Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
(107) (3) 200 300 250 12 15 (83.3)
Petition Date Versus Emergence Date Petition Date
Emergence Date
639 (6.0) — —
222 (73.9) 418 65
Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Events Leading Up to Bankruptcy (or Contributing Factors) Negative FCF caused by declining gold and silver prices was the key reason for the filing, and this was compounded by heavy capex on an upgrade project and an overleveraged capital structure. Allied Nevada Gold Corp. was spun off from Vista Gold Corp. in 2006, primarily holding the Hycroft Mine, an open-pit heap leach mine in Nevada with proven and probable reserves consisting of 10.6 million ounces of gold and 465.3 million ounces of silver. The company required the construction of a mill to process sulfide ore and economically recover metal from a vast majority of its reserves. The company invested $767 million in Phase 1 of the mill upgrade as of the filing date, with total phase 1 estimated outlay requirements of almost $900 million. Due to escalating costs, declining gold and silver prices, large interest payments and contracted capex, the company was generating negative cash flow, which caused continued liquidity deterioration. Allied Nevada was unable to raise the remainder of the $1.4 billion needed to complete both phases of the mill upgrade project. Due to the lack of liquidity and financing options, the company approached the lenders and noteholders about a potential restructuring, ultimately reaching an agreement formalized by the original restructuring support agreement.
Valuation Estimate Summary Going Concern Enterprise Valuation The third-party valuation advisor estimated a range of enterprise values for the reorganized company of $200 million–$300 million. The estimates were derived from a discounted cash flow analysis of the reorganized debtor, selected publicly traded companies analysis based on net asset values and selected precedent transactions analysis. The EBITDA forecast in the company projections, which was considered by the third-party valuation advisor in the estimate, was as follows: ($ Mil.) EBITDA
2016
2017
2018
2019
2020
(3)
(32)
315
201
390
The forecast assumes that after emerging from bankruptcy, the company is able to raise additional capital and continues to invest in the mill project, which is completed in 2018. Cash flow turns positive in 2018 following completion of the upgrade, but declines in 2019 when higher costs were expected. The reorganization multiple is materially negative as the mill project was still underway. Liquidation Value Alternative The Chapter 7 liquidation valuation alternative estimated a midpoint gross liquidation proceeds amount of $215.8 million. Asset book value and midpoint recovery estimate percentages of book value included: • Cash of $19.9 million at 100% • Accounts receivable of $2.1 million at 85% • Inventories of $16.2 million at 45% • Mineral properties of $13.7 million at 0% • PP&E of $381.6 million at 48% Source, unless otherwise noted: Amended disclosure statement for the debtors' amended joint plan of reorganization dated Aug. 27, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Allied Nevada Gold Corp. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP and Priority Secured Secured Secured Unsecured Intercompany Subordinated Equity
Claim Seniority DIP and Priority
Claim Type $78 Million of DIP Borrowings and $9.7 Million of Administrative Claims Asset-Based Revolving Credit Facility Secured Swap Claims Other Secured Claims General Unsecured, Including 8.75% Notes due 2019 Intercompany Subordinated Equity Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Secured
Claim Type $78 Million of DIP Borrowings and $9.7 Million of Administrative Claims Asset-Based Revolving Credit Facility
Secured
Secured Swap Claims
Secured
Other Secured Claims
Unsecured
General Unsecured, Including 8.75% Notes due 2019
Intercompany Subordinated
Intercompany Subordinated
Equity
Equity
Form of Distribution Allowed Projected Equivalent Secured Unsecured Subordinated New Options/ Claims Recovery (%) RR Category Cash Notes Notes Notes Equity Warrants 88 100.0 RR1 78 — — — — — 58 76 30 349–396
100.0 100.0 100.0 8–9
RR1 RR1 RR1 RR6
— — 30 —
58 76 — —
— — — —
— — — — — — — 28–36
— — — —
N.A. 0 ≥0 625 222 0
0.0 0.0 0.0 — — —
RR6 RR6 RR6 Recoveries — —
— — — 108 — —
— — — 134 — —
— — — 0 — —
— — — — — — 0 28–36 — — — —
— — — 0 — —
Description • Paid in full in cash from proceeds from the exit facility. • Allowed claims of $58 million were the result of approximately $75million of petition date borrowings minus a $10 million payment and a pro rata share of certain asset sale payments made prior to the effective date. • Distributions consisted of (i) a pro rata share of an amount equal to the greater of (a) $25 million and (b) net cash proceeds from the sale of certain exploration properties plus assets held for sale, minus a $10 million payment, plus (ii) new first-lien term loans in an amount equal to the difference between claims and the net cash payments received. • Cross-currency swaps related to the C$400 million notes and a diesel swap were terminated on the filing date and the mark-to-market liability crystalized, resulting in a claim. • Deemed impaired and entitled to vote. • Received (i) their pro rata share (after giving effect to the $10 million secured ABL payment) of an amount equal to the greater of (a) $25 million and (b) net cash proceeds from the sale of certain exploration properties plus assets held for sale, plus (ii) new first-lien term loans in an amount equal to the difference between claims and the net cash payments received. • Deemed unimpaired and received payment in full in cash, had claims reinstated or other treatment acceptable by the parties. • Deemed impaired and entitled to vote. • Included general unsecured claims, capital lease and term loan deficiency claims on term loans used to purchase equipment, asset retirement surety bond deficiency claims, and the 8.75% C$ senior notes. Holders received the new equity, subject to dilution by convertible notes and warrants. • Reinstated • Deemed impaired and entitled to vote. • Received a pro rata share of warrants equal to 10% (when combined with other warrants) of total shares, subject to dilution. • At emergence, total warrants outstanding represented 17.5% of the new common shares. • Deemed impaired and entitled to vote. Received a pro rata share of warrants equal to 10% of total shares (when combined with other warrants), subject to dilution. At emergence, total warrants outstanding represented 17.5% of the new common shares.
RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not available. ABL – Asset-based loan. Source, unless otherwise noted: Amended disclosure statement for the debtors’ amended joint plan of reorganization dated Aug. 27, 2016.
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Leveraged Finance Allied Nevada Gold Corp. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues
Executory Contracts Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
N.A., $7 million as of Dec. 31, 2014. $75 million revolving credit facility. $75 million. New money $78 million DIP facility. The filing caused the loss of some experienced employees and some vendor issues. Specifically, competitor mining companies in the same region of Nevada held job fairs to hire some experienced Allied Nevada miners following the filing. Some key vendors refused to meet supply requirements or refused to do any business with the company. This contributed to lower efficiency and tonnage. — Capital lease and surety bond deficiency claims. The disclosure statement estimated $10.2 million capital lease deficiency claims, included in the equity value calculation. No Yes, reinstated. None No Not applicable. Yes Subordinated and equity claims received warrants, which would contingently have a small value.
DIP – Debtor in possession. Source: Fitch Ratings, disclosure statement dated Aug. 27, 2015.
Bond Price History — Allied Nevada Gold Corp. ($400.8 Can., 8.70% Senior Unsecured Notes Due 2019) (% of Par) 100 80 Filing Date: 3/10/15 60 40
Confirmation Date: 10/8/15
20 0
Source: Advantage Data, Fitch Ratings.
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Leveraged Finance Alpha Natural Resources, Inc. ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol
Energy Coal Mine Operator ANRZQ
Petition Date Assets Emergence Parent Company Name/Ticker
10,700 Contura Energy (Self-Sustaining Coal Business) and Reorganized Alpha (Retained, Less Productive Mines)/Privately Held (Both)
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date
No Debtor Virginia — Eastern No 8/3/15 7/12/16 7/26/16
Duration (Months) Filing — Type Section 363 Asset Sale by Debtor
11 Chapter 11 Yes — Sale of Substantially All Assets (as Going Concern) Voluntary or Involuntary Filing Voluntary Postconfirmation Liquidating Trust Yes Resolution Emerged/Reorganized (Private)
Key Driver Key Driver
Deep Cyclical Trough Flawed Business Model or Obsolete Product
Financial Profile 12-Month Period Prepetition EBITDA December 2014 Post-Emergence EBITDA Forecasta December 2017 Enterprise Value (EV) Range (or Asset Value Range)
Amount 146 312
Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
760 1,300 1,030 524 840 3.3
Petition Date Versus Emergence Date Total Debta Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 4,165 28.5 — —
Emergence Date 460 1.5 3,705 89
Events Leading Up to Bankruptcy (or Contributing Factors) Alpha Natural Resources grew rapidly via debt-funded acquisitions, including the $6.7 billion Massey acquisition made at the peak of the coal market in 2011. In 2012, the company began experiencing financial difficulty as a result of lower demand and weakening pricing. Production cuts were made at certain higher-cost Appalachian mines to reduce losses. New regulations on coal mining and coal users increased costs. In 2014–2014, more mines and facilities were idled and some assets were divested increase liquidity and stem negative cash flows. However, economic pressures continued, and coal continued to be competitively disadvantaged against natural gas for electric generation. In May 2015, the Wyoming Department of Environmental Quality notified Alpha that it no longer qualified for self-bonding and had to provide more than $400 million in the form of surety bonds, cash or letters of credit to secure reclamation obligations within 90 days, and in July 2015 the West Virginia Division of Mining and Reclamation also made a bonding request. Upon emergence, Alpha retained a total of 27 mining complexes, while certain core coal assets were sold to Contura Energy, Inc., a new company formed by a group of Alpha’s first-lien lenders.
Valuation Estimate Summary Proceeds from Sale of Assets and Value of Retained Assets Determined Total Distributable Value The midpoint total distributable value was estimated by Fitch to be roughly $1 billion based on the sum of asset sale proceeds and distributable cash on hand (excluding cash needed for ongoing operations). Asset sales included Alpha’s profitable coal reserve assets and related facilities, Marcellus shale natural gas assets (PLR assets) and a 50% interest in Rice Energy. These assets were sold in three separate transactions. Certain mines with negative cash flow were retained by reorganized Alpha and will not be operated. The sum of the going concern asset sale proceeds from the three sales plus other distributable cash was used to estimate value. The first-lien lenders acted as stalking horse bidder for the self-sustaining reserve assets and made a $500 million credit bid plus the assumption of certain liabilities, including $181 million of reclamation obligations at the purchased mining assets in exchange for the common equity of the new company that would own the profitable mines. There was no higher or better offer received in the court-supervised auction. The lenders assumed ownership of the new stock and allocated some of the stock to other classes of claims per the settlements. The self-sustaining coal business purchased by first-lien lenders was renamed Contura Energy and will continue to operate as a going concern. There were five bids for the PLR natural gas assets in the May 16, 2016 court auction, and Vantage Energy Appalachia II, LLC won the auction with a cash bid of $339.5 million. The PLR asset sale closed on May 26, 2016. Alpha’s 50% interest in Rice Energy was sold for 9.5 million shares of Rice Energy stock worth $100 million. The retained legacy assets consisting of small, unprofitable and mostly idle mines were reorganized in a company that will primarily focus on reclamation and water treatment obligations. Per settlement, credit bid lenders that bought the profitable mines also agreed to invest $100 million over 10 years into the legacy reorganized company towards mining reclamation costs at the idle mines that were not sold.
Profitable Coal Mines and Facilities Sale of Appalachian Gas Assets 50% interest in Rice Energy Estimated Other Distributable Cash on Hand Total
Estimated Value ($ Mil.) Notes 500 Noncash credit bid by first-lien lenders in exchange for debt forgiveness and control of profitable mines 339 Cash proceeds available for distributions 100 Rice Energy stock that was converted to cash 91 — 1,030
a
The post-emergence EBITDA and the emergence date debt consisted of the combined EBITDA and debts of Contura Energy and the retained assets, but excluded the cash flow and debt of the PLR assets and Rice Energy assets that were sold. Continued on next page. Source: Second amended disclosure statement and related exhibits dated May 27, 2016, including liquidation analysis dated May 20, 2016.
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31
Leveraged Finance Alpha Natural Resources, Inc. (Continued) Liquidation Value Alternative The fundamental liquidation analysis was based on the company’s balance sheet as of June 30, 2016 and pro forma balance sheet forecasts based on management input. The analysis assumed the company’s mines were sold as ongoing operations and continued to operate. The orderly liquidation was assumed to occur over a sixmonth period, with the company’s estates being wound down over the following 12 months. The estimated net proceeds available to creditors was between $1,214 million and $1,451 million, implying full recovery for priority lenders, 56%–78% recovery for secured first-lien lenders and no recovery to Massey notes, secured secondlien noteholder claims, and general unsecured claims (compared to some recoveries under the settlements). Valuations include: • Cash (all unencumbered and encumbered) 100% of book value • Trade accounts receivable 78%–89% • Coal Inventory 36%–39% • Spare parts inventory 20%–24% • Mobile mining equipment 58%–71% • Underground mining equipment 11%–14% • Owned and leased mineral rights 5%–7% • In addition, a hypothetical Chapter 7 forced liquidation analysis was shown with lower recovery values. a
The post-emergence EBITDA and the emergence date debt consisted of the combined EBITDA and debts of Contura Energy and the retained assets, but excluded the cash flow and debt of the PLR assets and Rice Energy assets that were sold. Source: Second amended disclosure statement and related exhibits dated May 27, 2016, including liquidation analysis dated May 20, 2016.
Bond Price History — Alpha Natural Resources, Inc. ($213.6 Mil., 7.50% Second-Lien Notes Due 2020) (% of Par) 50 40 30
Filing Date: 8/3/15
20
Confirmation Date: 7/12/16
10 0
Source: Advantage Data, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
32
Leveraged Finance Alpha Natural Resources, Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP and Priority Secured Secured Secured Secured Unsecured Unsecured Unsecured Intercompany Equity
Claim Type DIP Facilities and Other Secured First-Lien Lender Secured Second-Lien Noteholder Secured Massey Convertible Noteholder Other Secured Category 1 General Unsecured Claims Category 2 General Unsecured Claims Non-Second-Lien Category 2 General Unsecured Prepetition Intercompany Claims Old Alpha Equity Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Allowed Projected Claims Recovery (%) N.A. 100.0 1,081 59.0–98.0 739 2.0–3.5 111 1.5–3.0
Equivalent RR Category RR1 RR2 RR6 RR6
Cash N.A. 300 20 1
Form of Distribution Secured Unsecured Subordinated New Notes Notes Notes Equity — — — — — — — 464 — — — — — — — 2
Options/ Warrants — — — —
31 392–974
100.0 RR1 1.0–3.0 RR6
31 3
— 6
— —
— —
— —
— —
739
2.0–3.0 RR6
—
—
—
—
6
5–12
3,062–3,934
1.5–3.0 RR6
—
—
—
—
19
27–100
— — 355 — —
— — 6 — —
— — 0 — —
— — 0 — —
— — 491 — —
— — 32–112 — —
29,194 N.A. 31,894 0 0
0.0 0.0 — — —
RR6 RR6 Recoveries — —
Claim Seniority Claim Type DIP and Priority DIP Facilities and Other
Secured
Secured Secured Secured Unsecured
Unsecured
Unsecured
Intercompany Equity
Description • Unimpaired, paid in cash. • Includes loans outstanding under the $300 million DIP first-out term loan facility and a $187.5 million second-out DIP facility for outstanding letters of credit and certain reclamation obligations (amount not available). • Each holder is to receive cash equal to the amount of the claim, unless agreed otherwise. Secured First-Lien Lender • Distributions included cash up to $300 million, the Series A preferred interests in reorganized Alpha, the first-lien lender takeback/preferred consideration and 87.5% of the new common equity of Contura Energy (the company that purchased the profitable mining assets). Secured Second-Lien Noteholder • Distributions consisted of pro rata share of the unsecured claim asset pool and rights to participate as lenders in the new company ABL facility. Secured Massey Convertible • Holders received a pro rata share cash and the Series B preferred interests preferred stock (or similar rights or Noteholder interests) of reorganized Alpha. Other Secured • Distributions based on choice of cash, reinstatement or receipt of the collateral securing the claim. Category 1 General Unsecured • Distributions consisted of (a) cash of $2.5 million; and (b) either (i) if cash not available after first-lien lenders Claims paid, then the general unsecured claim distribution note (unsecured NewCo promissory note) or (ii) if cash remains after first-lien lenders are paid, then cash up to $5.5 million; provided that if the extra amount paid is less than $5.5 million, the pool shall also include the reorganized Alpha contingent revenue payment allocation. • $2.5 million cash payment and $5.5 million note were assumed by Fitch. • Claims for pension, union claims and black lung liabilities are included in Category 1 unsecured claims. Category 2 General Unsecured • Each holder will receive Category 2 NewCo common stock distribution (up to 5% of NewCo), NewCo warrants, Claims the reorganized Alpha contingent revenue payment (except not for second-lien holders) less any reorganized Alpha contingent revenue payment allocation, the reorganized Alpha common stock and the contingent reserve price asset sale proceeds (7.5%). • 5% of NewCo shares and the remainder in NewCo warrants were assumed by Fitch. Non-Second-Lien Category 2 • Each holder will receive a pro rata share of assets contributed to the relevant asset pool paid from Category 2 General Unsecured NewCo common stock distribution, the NewCo warrants, the reorganized Alpha contingent revenue payment less any reorganized Alpha contingent revenue payment allocation, the reorganized Alpha common stock and the contingent reserve price asset sale proceeds. • 5% of Newco and remainder in NewCo warrants were assumed by Fitch. Prepetition Intercompany Claims • Not entitled to any distribution of plan consideration under the plan. Old Alpha Equity Interests • No recovery.
RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not available. Source: Second amended disclosure statement and related exhibits dated May 27, 2016, including liquidation analysis dated May 20, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
33
Leveraged Finance Alpha Natural Resources, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues
Executory Contracts
Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
Not available. $894 million first-lien revolver and a $611 million term loan. In addition, an accounts receivable securitization facility was wound down with excess cash returned to the estate. $1.25 billion under the first-lien facility, including $445 million of revolver borrowings, $191.2 million of letters of credit and a $611 million term loan. The two DIPs were a new money facility and roll up of prepetition letters of credit under the first-lien facility. The $300 million first-out DIP term loan was used to satisfy reclamation bonding requests and was new money. The second-out $192 million roll-up DIP was used to refinance letters of credit. The plan was the result of extensive settlements with and among various creditors and environmental regulators. A settlement was reached with various state authorities for post-emergence reclamation obligations that required the company to post surety bonds or other collateral to secure obligations at the new company. As of the petition date, Alpha had $683 million of reclamation obligations and was self-bonded for 97% of Wyoming reclamation obligations and 74% of West Virginia obligations. In addition, the company had $367 million of surety bonds and $115 million of letters of credit to secure reclamation and other commitments. $61 million of Wyoming bonding obligations were allowed as a superpriority claim and $24 million of West Virginia obligations were treated as a superpriority claim with $15 million secured by postpetition letters of credit. The U.S. government asserted that Alpha could not assume and assign federal land coal leases without its consent. This was unresolved as of the disclosure statement date. A motion was filed to terminate nonpension retiree health benefits on nonunion retirees. A settlement agreement for active employees and retirees under collective bargaining agreements was reached to reduce benefits and costs with the buyer (first-lien lenders) for the reserve assets to be operated in the new company. Yes, secured lenders had a deficiency claim. Disputed claims. Intercompany claims received no distributions. The qualified pension plans were $219.7 million underfunded as of the petition date. Related claims were included with general unsecured claims. No Not applicable. Yes Recipients included holders of unsecured and second-lien claims. Unsecured claims received recoveries as a result of the global settlement agreement and first-lien lender settlement. Second-lien lenders received value as a result of the second-lien lender settlement, which included: 7.5% of the new common stock, preferred securities over and above a $300 million valuation, 5% of any cash proceeds from the sale of reserve assets in excess of $50 million up to $12.5 million or a note and other consideration.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, second amended disclosure statement dated May 27, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
34
Leveraged Finance Arch Coal, Inc. ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol
Metals & Mining Coal Mining ACI
Petition Date Assets Emergence Parent Company
8,430 Arch Coal, Inc./ARCH
Key Driver Key Driver
Financial Profile
Name/Ticker
Bankruptcy Summary Did All Entities in the Group File?a Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor
No Debtor Missouri — Eastern Certain Classes 1/11/16 9/13/16 10/5/16 8 Chapter 11 No
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Voluntary No Emerged/Reorganized (Public)
Deep Cyclical Trough Untenable Capital Structure
12-Month Period
Amount
Prepetition EBITDAb 12/31/15 Post-Emergence EBITDA Forecast 12/31/17 Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
250 141 650 950 800 324 666 5.7
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
5,153 20.6 — —
327 2.3 4,826 94
Events Leading Up to Bankruptcy (or Contributing Factors) The filing was precipitated by a number of significant adverse secular market and regulatory factors that affected Arch and the entire U.S. coal mining sector. Weaker overseas demand and pricing for metallurgical (met) coal and flat domestic demand and lower prices for steam coal used in electric generation as a result of low-cost natural gas competition were significant drags on cash flow and liquidity. Met coal prices in December 2015 were 75% lower than their previous high in 2011. In addition, increasingly stringent environmental regulations on coal-fired generators and directly on mining companies compounded Arch’s challenges. Cost-cutting initiatives and debt exchanges were not sufficient to right-size the balance sheet given the secular decline and cyclical challenges.
Valuation Estimate Summary Going Concern Enterprise Valuation A third-party valuation advisor estimated a going concern enterprise valuation in the range of $650 million–$950 million, which includes the value of the 49% interest in the Knight Hawk joint venture assets. The advisor relied to a discounted cash flow analysis, a comparable company analysis and a precedent transaction analysis to estimate the enterprise value. Specific assumptions regarding discount rates and peer names were not disclosed. The advisor considered management’s financial projections, which included the following EBITDA forecast: 2016
2017
2018
EBITDA 74 Fitch notes that market prices improved following the fundamental valuation date.
118
203
($ Mil.)
Liquidation Value Alternative The hypothetical Chapter 7 liquidation alternative analysis estimated a midpoint liquidation value of $1.196 billion. The analysis was based on percentages of asset book values on the balance sheet as of March 31, 2016 and was sourced from the disclosure statement filed June 14, 2016. The analysis includes cash from an assumed wind-down of the accounts receivable securitization (which was continued under the going concern plan) and considered the numerous coal assets available for sale at the same time as the assumed liquidation. Book values and percentages applied in the estimate included: • Cash of $531 million at 100% • Short term investments of $201 million at 100% • Net coal properties of $2.35 billion at 12% a
The filing excluded Arch Receivable Company, LLC, a special-purpose, bankruptcy-remote subsidiary that is party to a securitization facility and seven foreign subsidiaries. bSource is 10-K for year ended Dec. 31, 2015. Source, unless otherwise noted: Disclosure statements for the third amended joint plan of reorganization dated July 6, 2016 and fourth amended joint plan of reorganization dated Sept. 11, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
35
Leveraged Finance Arch Coal, Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Claim Type DIP and Priority $275 Million DIP Facility Borrowings and Priority Claims Secured Other Secured Claims Secured First-Lien Term Loan Unsecured Unsecured Unsecured Equity
Second-Lien Notes Unsecured Debt Claims, Including Several Series of Unsecured Notes General Unsecured Claims Equity Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Allowed Projected Equivalent Claims Recovery (%) RR Category N.A. 100.0 RR1
Form of Distribution Secured Unsecured Subordinated Cash Notes Notes Notes N.A. — — —
42 1,886
100.0 RR1 41–58 RR4
42 145
— 327
— —
— —
350 3,001– 4,112 394 N.A. 2,672
1.2–2.9 RR6 1.2–2.9 RR6
1 22
— —
— —
— —
7 — 104– 219 — —
— — 327
— — 0
— — 0
— —
— —
— —
0 0
1.9 RR6 0.0 RR6 Recoveries — — — —
New Options/ Equity Warrants — — — 305– 590 4–10 11–96
— —
— — 320– 665 — —
— — 0
— —
— —
Claim Seniority Claim Type DIP and Priority $275 Million DIP Facility Borrowings and Priority Claims Secured Other Secured Claims
Secured Unsecured
Unsecured
Unsecured Equity
Description • DIP claim amount, if any, is not available. Priority claims estimate at $702,000. • Paid in cash. • Distributions made in cash, reinstatement of the claim, or a distribution resulting from the sale or disposition of the collateral or return of the collateral. • Unimpaired First-Lien Term Loan • Distributions consisted of cash payment, $326.5 million of new first-lien debt and 94% of the new common stock subject to dilution for new warrants and from the management incentive plan. Second-Lien Notes • The entire second-lien note claim was an unsecured deficiency claim that was pari passu with the unsecured debt claims. However, it is shown separately in this presentation to isolate the second-lien issue for clarity of recovery rate. • The range of recoveries reflects assumptions of whether the first-lien deficiency claims are waived or not waived. This would affect the claim amount and recovery rate and was not final as of the disclosure statement date. Unsecured Debt Claims, Including • Distributions made either in cash and stock or in cash and warrants. Several Series of Unsecured Notes • Recovery range reflects outcomes where the first-lien deficiency claims are waived or not waived. Waiver would affect the claim amount and recovery rate and was not final as of the disclosure statement date. • Claims included $1 billion of 7% unsecured notes due 2019, $375 million of 9.875% notes due 2019, $500 million of 7.25% notes due 2020 and $1 billion of 7.25% notes due 2021. General Unsecured Claims • Paid in cash. Equity Interests • $0 recoveries. • Deemed to have rejected the plan.
RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not available. Source, unless otherwise noted: Disclosure statements for the third amended joint plan of reorganization dated July 6, 2016 and fourth amended joint plan of reorganization dated Sept. 11, 2016.
Bond Price History — Arch Coal, Inc. ($1,000.0 Mil., 7.00% Second Unsecured Notes Due 2019) (% of Par) 40 30 Confirmation Date 9/13/16
20 Filing Date: 1/11/16 10 0
Source: Advantage Data, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
36
Leveraged Finance Arch Coal, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments
Prepetition Bank Facility Borrowings on Filing Date
Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues Executory Contracts Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims
Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
Not available. $450.8 million as of Dec. 31, 2015. $1,886 million first-lien term loan. There previously had been a $250 million revolving credit facility tranche under the first-lien credit agreement, but this facility was terminated on Nov. 11, 2015, and there were no remaining revolving loans outstanding as of the petition date. There was $178 million in letters of credit outstanding under the $200 million securitization facility that was not part of the bankruptcy. The letters of credit were secured by eligible accounts receivable and $97 million of cash collateral. The $200 million accounts receivable securitization facility survived the bankruptcy in full force and effect and continued to operate normally after the reorganization date. The facility had terms that provided for automatic termination as a result of the bankruptcy filing, but Arch and lenders were able to reach agreement on an amended and restatement of the facility to continue securitizing receivables with letters of credit. The $275 million DIP facility was a new money facility. — Customer programs, foreign agreements, insurance plans, intercompany contracts, surety bonds and workers’ compensation plans were assumed. First-lien lenders had a deficiency claim. However, it is unclear whether this claim was waived. Disputed claims including a potential dispute as to whether affiliate debtor Prairie Holdings, the owner of a 49% interest in Knight Hawk Holdings, LLC, is encumbered under the first-lien facility. Not entitled to any cash distributions under the plan. The company had right to offset, cancel, eliminate, adjust or continue. The reorganization provides that the pension plans shall be assumed and continued. Prior to the filing, plans were frozen to future benefit accruals. Yes Other secured. Yes Unsecured creditors received distributions that resulted from a consensual settlement. The first-lien lenders agreed that unsecured claimholders will receive 6% of the common stock of the reorganized company, warrants for 12% of the common stock and $30 million in cash. The first-lien lenders reached the negotiated settlement after agreeing that the company’s 49% interest in Knight Hawk was excluded from the first-lien collateral assets. In addition, senior management agreed to waive $6 million in incentive compensation to facilitate the settlement.
DIP – Debtor in possession. Source: Fitch Ratings, disclosure statement dated July 6, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
37
Leveraged Finance ASARCO LLC ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Metals & Mining Copper Mining Not Available 1,108 Private Company
Bankruptcy Summary Did All Entities in the Group File? a Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor Texas — Southern No 8/5/05 11/13/09 12/9/09 52 Chapter 11 Yes — Partial Sale of Assets Voluntary Yes Emerged/Reorganized (Private)
Key Driver Key Driver
Litigation Deep Cyclical Trough
Financial Profile 12-Month Period b Prepetition EBITDA 2005 Post-Emergence EBITDA Forecast 2009 Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
Amount 100 697 1,800 1,800 1,800 1,520 1,520 2.6
Petition Date Versus Emergence Date Total Debta Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 445 4.5 — —
Emergence Date 280 0.4 165 37
Events Leading Up to Bankruptcy (or Contributing Factors) Mass torts and large environmental clean-up liabilities were the main reasons for the bankruptcy filing. ASARCO LLC was purchased by Grupo Mexico in 1999, where it remained as a wholly owned operating subsidiary. ASARCO became burdened with asbestos and environmental liabilities stemming from asbestos claims and environmental claims within a few years of being acquired. ASARCO was monetizing insurance policies and selling valuable assets for less than full value to service some of these debts. The company was challenged by a downturn in the copper market and was experiencing a labor strike at its facilities by 2005. There were also disputes regarding the spinoff of Peruvian mining assets. ASARCO transferred the stock of Southern Peru Copper Company (SPCC) to its parent, Americas Mining Corp. (which in turn was a subsidiary of Grupo Mexico), in 2003. The SPCC shares had a public trading value of $633 million on transfer date, and creditors sought to reverse this transfer during the case because it was a fraudulent transfer of a valuable asset. After filing a voluntary petition of bankruptcy, the court approved an independent board of directors and ASARCO was deconsolidated from Grupo Mexico and operated as a debtor in possession. However, in the plan, the parent invested new capital to retain the equity of ASARCO.
Valuation Estimate Summary No specific enterprise value was given in the disclosure statement. However, Fitch estimated a $1.8 billion enterprise value by taking into consideration the plan consideration offered by the parent (which was the plan ultimately confirmed by the court among three competing plans) and subtracting the cash on hand. The total consideration is comprised of $1.4 billion cash on hand, $1.5 billion cash equity injection from the parent, issuance of $280 million in new secured debt and assumption of certain future liabilities. Liquidation Value Alternative The liquidation value assumes a 210% factor for property, plant and equipment, which reflected the lower book value. The final range was $2.6 billion–$3.08 billion, including $1.4 billion in cash. a
The parent, the debtor and Harbinger each proposed a plan. The final adopted plan was proposed by the parent. bEmergence debt excludes asbestos liabilities allowed in the amount of $1 billion and the one-time charge of $1.1 billion for environmental liabilities and the $1.3 billion judgment against the parent for fraudulent transfer, which was released in the final plan. Source: Fitch Ratings, company disclosure statement dated May 11, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
38
Leveraged Finance ASARCO LLC (Continued) Estimated Recoveries for Select Claims Equivalent RR Category RR1
Form of Distribution Secured Unsecured Subordinated New Cash Notes Notes Notes Equity 411 — — — —
RR1
2,026
—
—
—
—
—
RR2 RR6 Recoveries — —
500 — 2,937 — —
278 — 278 — —
— — 0 — —
— — 0 — —
— — 0 — —
— — 0 — —
($ Mil., Except Where Noted) Claim Seniority DIP or Other Administrative Unsecured
Unsecured Equity
Claim Type Administrative Claims General Unsecured Claims (Including Notes Debt Claims and Environmental Claims) Asbestos Claims Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority DIP or Other Administrative
Claim Type Administrative Claims
Unsecured
Unsecured
General Unsecured Claims (Including Notes Debt Claims and Environmental Claims) Asbestos Claims
Equity
Interests
Allowed Projected Claims Recovery (%) 100.0 411.3–452.0 2,026 100.0
1,000 — 3,026 0 0
78.0 — — — —
Options/ Warrants —
Description • Paid in full in cash raised from the rights offering and new term loans. • Included $266.5 million funding of environmental trust, $27.5 million of administrative claims relating to the asbestos claims, and other claims. • Claims included $445 million in unsecured notes and $1.4 billion of environmental notes. • The unsecured notes and other general unsecured claims were paid in full in cash from the existing cash and the $1.5 billion equity investment proceeds from the parent. • Recovered $500 million in cash and approximately $280 million in a one-year secured note. • The asbestos claimants asserted claims as high as $2.1 billion and were allowed in the amount of $1 billion. • Equity interests and subordinated claims received $0 recovery.
RR – Recovery Rating. DIP – Debtor in possession. Source: Fitch Ratings, company disclosure statement dated May 11, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
39
Leveraged Finance ASARCO LLC (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
$1.4 billion. No bank facility. The company funded its operation with cash on hand. No $75 million new money DIP facility was obtained but was not utilized and expired on its own terms on Dec. 15, 2007. Collective bargaining negotiations were extensive and new agreements were reached during the case. The company rejected the lease on its Phoenix office. All debt claims were paid in full. No Not disclosed. The company tried to cure underfunding of its Canadian pension obligations. No specific amount was disclosed. Yes Unsecured creditors. No Not applicable.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, company disclosure statement dated May 11, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
40
Leveraged Finance Atlas Resource Partners LP ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol
Energy Oil and Gas Exploration and Production ARPJQ
Petition Date Assets Emergence Parent Company
1,731 Titan Energy LLC/TTEN
Key Driver Key Driver
Financial Profile
Name/Ticker
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor
No Debtor New York — Southern No 7/27/16 8/26/16 9/1/16 1 Chapter 11 (Prepackaged) No
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Voluntary No Emerged/Reorganized (Public)
Deep Cyclical Trough Untenable Capital Structure
12-Month Period
Amount
Prepetition EBITDAa 12/31/15 Post-Emergence EBITDA Forecast 12/31/17 Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
262 116 725 832 779 35 142 6.7
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
1,358 5.2 — —
690 5.9 668 49
Events Leading Up to Bankruptcy (or Contributing Factors) Atlas Resource Partners LP’s filing resulted from the steep declines in oil prices that resulted from market oversupply and soft demand. These factors caused declines in cash flow and liquidity. The high capital intensity of the business together with high leverage made the market pricing challenges too difficult to overcome outside of bankruptcy. A significant deleveraging was necessary to create a sustainable capital structure in the lower-oil-price environment. Lenders reduced the ABL borrowing base to $530 million on June 9, 2016, which created a $143.7 million borrowing base deficiency (the June 9 reduction was one in a series of cuts from an original commitment of $1.5 billion in 2013). The company did not make the repayment installment due on July 11, 2016, and lenders entered a forbearance period that extended to July 27, 2016. Atlas and its creditor classes entered a restructuring support agreement (RSA) on July 25, 2016 that laid out the terms of the restructuring as a going concern. Pursuant to the RSA, Atlas monetized its commodity hedge portfolio, which had a present value of $244 million as of July 22, 2016 and used $233.5 million of the proceeds to reduce ABL borrowings to $440 million just prior to the petition date.
Valuation Estimate Summary Going Concern Valuation Based on Settlement Terms Fitch estimates a going concern valuation range of roughly $725 million–$832 million based on the sum of plan distributions per the settlement agreement. The agreement provided the following distributions: first-lien creditors received a new $440 million ABL facility, second-lien lenders got a new $250 million second-lien loan and $668 million of unsecured noteholders received 90% of the new common equity. The disclosure statement had an estimated recovery range of 5%–19% for the noteholders, which implies an equity value of about $35 million–$132 million. There was no information on the dollar amount of priority claims, administrative claims and general unsecured claims, which were paid in full. The disclosure statement included management’s financial projections, including the following EBITDA forecast and commodity price assumptions:
EBITDA ($ Mil.) Oil Price ($/Barrel) Gas Price ($/Mcf)
2016
2017
2018
2019
2020
142.8 46.60 2.86
116.1 49.96 3.12
121.9 52.24 3.00
132.5 53.78 3.00
140.1 54.99 3.05
Liquidation Value Alternative The Chapter 7 hypothetical alternative valuation analysis resulted in an estimated valuation range of $510.1 million–$614.0 million. The analysis was based on percentages of the asset book values using the balance sheet as of May 31, 2016. Assets and percentages applied included: • Cash of $49.5 million at 100% • Accounts receivable of $40.9 million at 75%–95% • Net PP&E of $1,152.5 million at 36%–44% • Values also included proceeds of $45.7 million–$53.2 million from the partnership business. a
Adjusted EBITDA sourced from 8-K earnings release dated Feb. 15, 2016. ABL – Asset-based lending. Source, unless otherwise noted: Disclosure statement dated July 27, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
41
Leveraged Finance Atlas Resource Partners LP (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Claim Type DIP and Priority Secured Secured Unsecured
Unsecured Equity
Administrative and Priority First-Lien ABL Credit Agreement Second-Lien Term Loan $354 Million of 7.75% Senior Notes due 2021 and $312 Million of 9.25% Notes due 2021 General Unsecured ARP Equity Interests and Limited Partnership Units Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Form of Distribution Allowed Projected Equivalent Secured Unsecured Subordinated New Options/ Claims Recovery (%) RR Category Cash Notes Notes Notes Equity Warrants N.A. 440 250 668
100.0 100.0 100.0 12.0
RR1 RR1 RR1 RR5
N.A. — — —
— 440 250 —
— — — —
— — — —
— — 8 80
— — — —
N.A. N.A.
100.0 RR1 0.0 RR6
N.A. N.A.
— —
— —
— —
— —
— —
0 — —
690 — —
0 — —
0 — —
88 — —
0 — —
1,358 0 0
— Recoveries — — — —
Claim Seniority Claim Type DIP and Priority Administrative and Priority Secured Secured
Unsecured
Unsecured
Equity
Description • There was no DIP facility. • Amounts of administrative and priority claims were not available. First-Lien ABL Credit Agreement • Distributions paid to first-lien holders were equal to the petition date loans outstanding, plus interest and fees. Second-Lien Term Loan • Distributions consisted of $250 million of new second-lien loans plus post-petition interest at a rate of LIBOR plus 9%, plus 10% of the new common shares (subject to dilution for the management incentive plan). • Cash interest rate on new second-lien exit facility of 2% and PIK interest rate of 7% through May 1, 2017 and then cash and PIK interest rates will vary based on the leverage ratio calculated for the ABL facility. $354 Million of 7.75% Senior Notes due • Distributions consisted of 90% of the new common shares, subject to dilution. 2021 and $312 Million of 9.25% Notes • The disclosure statement provided a recovery estimate range of 5%–19%, with a midpoint of 12%. due 2021 General Unsecured • Unimpaired • All trade, vendor and employee claims were paid in full in cash in order to maintain positive relationships and normal operations. ARP Equity Interests and Limited • $0 recoveries. Partnership Units • Deemed to have rejected the plan.
RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not available. ABL – Asset-based lending. PIK – Payment in kind. Source, unless otherwise noted: Disclosure statement dated July 27, 2016.
Bond Price History — Atlas Resources Partners LLC ($354.7 Mil., 7.75% Second Unsecured Notes Due 2021) (% of Par) 70 60 50
Confirmation Date 8/26/16
40 30
Filing Date: 7/27/16
20 10 0
Source: Advantage Data, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
42
Leveraged Finance Atlas Resource Partners LP (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments
Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues Executory Contracts Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
Not available. The ABL revolver borrowing base was reduced to $530 million on June 9, 2016. There was $673.7 million of borrowings on the redetermination date, which resulted in a borrowing base deficiency of $143.7 million. The ABL borrowings were reduced to $440 million a couple of days prior to the petition date with the proceeds from the sale of in-the-money hedges. $440 million of ABL revolver borrowings plus a second-lien term loan. There was no DIP facility. Atlas Energy Group, LLC is the general partner of Atlas Resource Partners LP, which was a publicly traded master limited partnership. Drilling partnership secured hedging facility agreement was assumed. All trading contracts, real estate leases and employee contracts were assumed. No, secured lender claims were paid in full with exit facilities. Contingent recoveries from causes of action. Reinstated and unimpaired. None Yes First lien and second lien. Yes General unsecured claims were paid in full.
ABL â&#x20AC;&#x201C; Asset-based lending. DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, disclosure statement dated July 25, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
43
Leveraged Finance Aventine Renewable Energy Holdings Inc. ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Energy Production and Marketing of Ethanol AVRN 799 Aventine Renewable Energy/AVRW
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Yes Debtor Delaware Certain Classes 4/7/09 2/24/10 3/15/10 11 Chapter 11 No Voluntary No Emerged/Reorganized (Public)
Key Driver Key Driver
Untenable Capital Structure Deep Cyclical Trough
Financial Profile 12-Month Period Prepetition EBITDA Post-Emergence EBITDA Forecast Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) a Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (%)
12/31/08 12/31/11
Amount (38) 45 220 260 240 191 231 5.3
Petition Date Versus Emergence Date Total Debtb Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
340 (98.9) — —
116 2.6 224 66
Events Leading Up to Bankruptcy (or Contributing Factors) The factors that led to the bankruptcy included volatility in the price of corn, ethanol and natural gas, lack of liquidity, lack of access to additional credit and losses on securities investments. Aventine Renewable Energy Holdings Inc. had significant price risk with regard to the sales price of ethanol and the cost of corn, the principal commodity used in the production of ethanol. The company was also affected by volatility in the price of natural gas. Aventine owned three operating plants and two partially constructed plants at the time of bankruptcy. Aventine’s liquidity was adversely affected by negative gross margins due to negative commodity spreads and several reductions in its revolving credit facility amount. The original revolver commitment of $200 million at the time of closing in March 2007 had been reduced to $50 million at the time of bankruptcy filing. In addition, the banks required the company to get noteholder consent to convert at least 80% of the $300 million of cash pay notes to pay in kind, and the noteholders would not agree to this conversion. The company missed an interest payment on its notes in March 2009. Finally, the company had invested its cash on hand in auction rate securities starting in 2006, and these securities became illiquid during the credit crisis. The securities were sold at a loss of $31.8 million and contributed to the company’s inability to continue construction on the two new plants, Aurora West and Mount Vernon. The reorganization plan presumed these plans would eventually enter service following emergence.
Valuation Estimate Summary Going Concern Valuation The third-party financial advisor performed several different valuation analyses to estimate a midpoint enterprise value of $240 million. The discounted cash flow and precedent transaction approaches were each weighted 40% and the comparable company analysis was weighted 20% in the estimate. The valuation presumed the plants under construction would be completed and would begin production in 4Q10 and 1Q12. The assumptions underlying each valuation method were not provided. The advisor considered management financial projections, which included the following EBITDAR and ethanol projection forecast: 2010 2011 2012 2013 2014 EBITDAR ($ Mil.) 15.6 45.1 92.8 98.2 98.2 Production (Gallons, Mil.) 199.7 308 414.5 421.7 421.7 The projections were published in the disclosure statement dated Dec. 4, 2009. The company assumed an ethanol price of $1.78 per gallon in 2010 increasing to $1.89 in 2014, in line with assumed increases in corn and natural gas prices. Post-Bankruptcy Sale in 2014 Fitch notes that Pacific Ethanol signed an agreement to purchase Aventine for $190 million in stock on Dec. 31, 2014. While this was not related to the bankruptcy valuation, it provides a data point for the value four years post-emergence. Liquidation Value Alternative The liquidation alternative valuation analysis assumed an orderly sale of all assets within a three-month period. The liquidation value of the uncompleted facilities was assumed to be $10 million, which is considerably less than the book value of $493.7 million. The total estimated liquidation value was about $136 million–$175 million based on a percentage of asset book value. The book value of assets and percentage recovery assumptions included the following: • Cash of $53.3 million at 100%, • Parent accounts receivable of $15.3 million at 70%–80%, • Parent inventory of $18 million at 65%–80%, • Property, plant and equipment of $188 million at 30%–65%, • Aurora West machinery and equipment of $237.8 million at 1%–2% and Aurora Mount Vernon machinery and equipment of $247.7 million at 1%–2%. a
$81.4 million cash on hand per fundamental valuation estimate. bIncludes estimate of letters of credit. Source, unless otherwise noted: First amended company disclosure statement dated Jan. 31, 2010. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Aventine Renewable Energy Holdings Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP or Other Administrative Secured Secured
Unsecured Unsecured Intercompany Equity
Claim Seniority DIP or Other Administrative Secured Secured
Claim Type
Allowed Projected Claims Recovery (%)
DIP Facility Secured Credit Facility Other Secured Claims Including Kiewit Aurora, Kiewit Mount Vernon and Others $300 Million of 10% Unsecured a Notes Due 2017 General Unsecured Claims Intercompany Holders of Equity Interests Estimated Claims New Borrowings at Emergenceb Debt of Nonfiling Affiliates on Emergence Date Claim Type DIP
Equivalent RR Category
Form of Distribution Secured Unsecured Subordinated New Cash Notes Notes Notes Equity
Options/ Warrants
15 28 28
100.0 100.0 100.0
RR1 RR1 RR1
15 28 23
— — 5
— — —
— — —
— — —
— — —
316
35.0
RR4
—
—
—
—
111
—
40 16 N.A. 443 105
35.0 100.0 0.0 — —
RR4 RR1 RR6 Recoveries —
— 16 — 82 —
— — — 5 —
— — — 0 —
— — — 0 —
14 — — 125 —
— — — 0 —
0
—
—
—
—
—
—
—
—
Description • Paid in full in cash.
• • Other Secured Claims Including: • Kiewit Aurora, Kiewit Mount • Vernon and Others Secured Credit Facility
Unsecured
$300 Million of 10% Unsecured Notes Due 2017a
• •
Unsecured
General Unsecured Claims
• • •
Intercompany Equity
Intercompany Holders of Equity Interests
• • •
Paid in full in cash, except letters of credit remained in place until original maturity or expiration. Received full payment on principal, interest and fees. Paid in full in cash, or reinstated in the case of Kiewit Aurora. Kiewit was the engineering, procurement and construction contractor on the two partially completed plants. The Kiewit claims relating to the EPC contracts were $7.9 million for the Aurora facility and $15.3 million for the Mount Vernon facility. Distributions were made in the form of new common stock shared pro rata with general unsecured claims. Holders of 70% of the 10% notes agreed to purchase $105 million of new 13% cash/15% PIK secured notes on the exit date to fund the plan distributions and provide working capital. (This was new money, not part of plan distributions.) Subscribers to the notes offering received new common shares. Claim consisted of $300 million of principal and $15.5 million of accrued and unpaid prepetition interest. Distributions in the form of new common stock shared with unsecured notes claims on pro rata basis. There was approximately $40 million of trade debt unpaid as of the petition date, which is used as a proxy for the general unsecured claim amount. Paid, reinstated or discharged at election of debtor. Holders of parent equity interests received warrants for new common stock (strike price still being negotiated, but expected to be out of the money). Holders of subsidiary equity interests received no distributions.
a
Unsecured recovery data source is liquidity discussion in 10-K for year ended Dec. 31, 2010. b$105 million of new secured notes were issued at a 13% cash/15% PIK interest rate and purchased by prepetition creditors that held 70% of the unsecured notes debt. In addition, a $20 million asset-based revolver loan was put in place at emergence and assumed to be 0% drawn, which is consistent with valuation assumption in disclosure statement. RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not available. Source, unless otherwise noted: First amended company disclosure statement dated Jan. 31, 2010. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
45
Leveraged Finance Aventine Renewable Energy Holdings Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date
Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts
Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
$2.7 million as per 10-Q for period ended March 31, 2009. $50 million secured revolving facility. Approximately $43.4 million of utilization under the $50 million revolving facility. The facility commitment amount was reduced several times prior to the filing date. The s $50 million at the time of bankruptcy compares to the original facility amount of $200 million when in closed in March 2007. $30 million DIP was a new money facility that had a priming lien over the prepetition creditors. It was provided by certain bond holders. Several contracts relating to marketing of ethanol and corn contracts were also rejected. The headquarters building lease in Pekin, IL. The Mount Vernon lease and a terminal lease were still under consideration at the time of the disclosure statement publication. None. Secured lenders were paid in full. There were unresolved disputed claims on the reorganization date. A reserve was established from the new stock pool for any disputed claims that became allowed claims. Paid in full. All retirement plans and other employee benefit plans were treated as assumed executory contracts and survived the bankruptcy intact. Yes DIP, credit facility and other secured claims. No Not applicable.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, first amended company disclosure statement dated Jan. 31, 2010. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
46
Leveraged Finance Barzel Industries, Inc. ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Metals & Mining Steel & Iron Ore SHJ 366 Assets Acquired by Chriscott USA
Key Driver Key Driver
Untenable Capital Structure Deep Cyclical Trough
Financial Profile 12-Month Period b
Bankruptcy Summary a
Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor District of Delaware Yes 9/14/09 9/8/11 9/7/12 24 Chapter 11 Yes — Sale of Substantially All Assets (as Liquidation) Voluntary No Acquired, Merged or Sold
Prepetition EBITDA Post-Emergence EBITDA Forecast Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
12/31/08 —
Amount 22 Not Applicable 70 70 70 0 0 Not Applicable/ Liquidated
Petition Date Versus Emergence Dateb Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
385 17.5 — —
0 Not Applicable 385 100
Events Leading Up to Bankruptcy (or Contributing Factors) Barzel Industries, Inc. was formed in 2006 and purchased Novamerican Steel, Inc., in 2007 for $585.2 million, financed by debt of $382 million consisting of senior secured notes and asset-based lending (ABL) facility borrowings. Cash flow and earnings declined rapidly during the global economic recession in 2008 and 2009 as a severe downturn in the automotive, transportation, manufacturing and construction industries in the U.S. and Canada greatly reduced customer demand and lowered market prices for Barzel’s products. Despite cost reduction efforts, Barzel was unable to make an interest payment due on its senior secured notes, and the company engaged advisors to assist in identifying possible investors or purchasers. Ultimately, Barzel received 12 offers involving the sale of substantially all of the company’s assets, with the assets of the company being purchased for approximately $70 million. In June 2009, the ABL commitment was reduced to $20 million, of which $17.6 million was outstanding as of the petition date. The prepetition lenders agreed to extend a $30 million DIP facility to pay off outstanding amounts under the ABL facility.
Valuation Estimate Summary Sale of Assets Established the Asset Value A bankruptcy auction was conducted to complete the sale of all assets. The stalking horse bidder for most of the assets was Chriscott USA, which bid $65 million. The sale closed in November 2009. Subsequently, other remaining assets were sold, including the Norwood property for $2.875 million, the Albany property for $1 million and the Hartford property for $500,000. No enterprise value estimate was completed due to the plan of liquidation strategy entailing the sale of all assets via an auction. Liquidation Value Alternative There was no Chapter 7 liquidation alternative valuation. The disclosure statement noted that recoveries would be less than under the Chapter 11 liquidation due to trustee and other costs that would be incurred under a Chapter 7 liquidation. a
Canadian affiliates filed a separate proceeding in Canada. bEBITDA source is 10-K dated 2008. DIP – Debtor in possession. Source, unless otherwise noted: Fitch Ratings; company disclosure statement dated July 20, 2011; 8-K dated Sept. 15, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
47
Leveraged Finance Barzel Industries, Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Claim Type Secured Admin Claims Secured Prepetition ABL Facility Secured DIP Facility Secured Secured Noteholders Claims Unsecured Equity
Allowed Projected Claims Recovery (%) 4 100.0 19 100.0 30 100.0 346 10.0
General Unsecured Claims Equity Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority Secured
Claim Type Admin Claims
Secured Secured
Prepetition ABL Facility DIP Facility
Secured
Secured Noteholders Claims
Unsecured
General Unsecured Claims
Equity
Equity Interests
4.5 0 404 0 0
0.0 0.0 — — —
Form of Distribution Equivalent Secured Unsecured Subordinated New Options/ RR Category Cash Notes Notes Notes Equity Warrants RR1 4 — — — — — RR1 0 — — — — — RR1 30 — — — — — RR6 35 — — — — — 0.0RR6 0.5 — — — — — RR6 — — — — — — Recoveries 70 0 0 0 0 0 — — — — — — — — — — — — — —
Description • The disclosure statement allowed for $2.25 million for the funding of expenses in connection with the wind-up of the case, to be paid out after the DIP facility. Additionally, the secured lenders provided in excess of $8 million to wind up the Canadian proceedings and professional fees incurred but not paid prior to the closing of the sale. • DIP financing paid the ABL claims in full in cash early in the case. • Repaid upon completion of the sale of the company’s assets. • Fitch assumes the DIP was fully drawn. $18.5 million was initially drawn to repay the ABL lenders. • The final distribution amount is unknown. Fitch assumes all proceeds from the liquidation were applied to the claims after the DIP facility and administrative claims were satisfied. • Note issue consisted of $315 million of 11.5% senior secured notes due 2015. • Deemed to have rejected the plan. • The exact claim amount is unknown, but based on the distribution waterfall and liquidation proceeds, Fitch assumes there was no cash left to pay these claims. • Settlement agreements were reached with the U.S. Environmental Protection Agency and the Rhode Island Department of Environmental Management to reduce their asserted claims and provide for a $500,000 payment from the secured lenders. • No distribution.
RR – Recovery Rating. ABL – Asset-based lending. DIP – Debtor in possession. Source, unless otherwise noted: Fitch Ratings; company disclosure statement dated July 20, 2011; 8-K dated Sept. 15, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
48
Leveraged Finance Barzel Industries, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
Not available. $20 million ABL facility. The original commitment amount was $175 million. However, in June 2009 the facility commitment was reduced to $20 million. $18.5 million of ABL borrowings. $30 million DIP was partially new money and partially used to repay the ABL revolver in full in cash during the case. All contracts were rejected because of liquidation. Did not participate in the general unsecured claim distribution recovery. No Yes, they were disregarded and received $0 distributions. No pension liabilities. No Not applicable. Yes Unsecured claims received $500,000 from secured lenders in a settlement.
ABL â&#x20AC;&#x201C; Asset-based lending. DIP â&#x20AC;&#x201C; Debtor in possession. Source, unless otherwise noted: Fitch Ratings; company disclosure statement dated July 20, 2011; 8-K dated Sept. 15, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
49
Leveraged Finance Baseline Oil and Gas Corp. ($ Mil., Except Where Noted)
Key Drivers of Bankruptcy Filing
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Energy Exploration and Production BOGA 138 Baseline Oil and Gas Corp./Privately Held
Untenable Capital Structure Flawed Business Model or Obsolete Product
Financial Profile 12-Month Period
Amount
Prepetition EBITDA 2008 Post-Emergence EBITDA Forecast Not Available Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
16 Private
a
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Key Driver Key Driver
Yes Debtor Texas — Southern (Houston Division) No 8/28/09 9/25/09 10/7/09 1 Chapter 11 (Prepackaged) No Voluntary No Emerged/Reorganized (Private)
80 82 81 10 10 Not Available
Petition Date Versus Emergence Date Petition Date
Emergence Date
123 7.9 — —
40 Not Available 83 67
Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Events Leading Up to Bankruptcy (or Contributing Factors) Baseline Oil and Gas Corp. (Baseline) experienced a number of adverse liquidity events and was unable to refinance its maturing notes debt. The 15% note matured in June 2009 and the 12.5% notes that were not converted into 15% notes became due in October 2008. During July 2008, an investor, Third Point, purchased and converted into equity $53.5 million of 14% senior subordinated convertible notes due 2013. This purchase and conversion resulted in a change of control under the 12.5% notes at a price above par value that was accepted by all holders. The company was unable to obtain the loan and equity commitments to complete the changein-control purchase transaction for these notes as a result of adverse credit and equity markets during the financial crisis. Additional drivers included weak commodity pricing and below-expectation performance of the Blessing Field properties that were acquired for $96.6 million in October 2007. The drilling and completion costs for the Blessing Field wells were higher than anticipated and the production rates and reserves were below forecast. Finally, the company skipped an interest payment and violated the minimum present value (PV) requirement under its indenture in May 2009, which triggered events of default under the prepetition notes. Prior to the filing, the company reached a plan support agreement with over 85% of the prepetition noteholders that formed the basis for the prepackaged plan of reorganization.
Valuation Estimate Summary Restructuring Advisor Valuation of Assets The asset valuation report dated June 16, 2009, assigned an approximate value of $82 million. The valuation was based on the advisor’s analysis of oil and gas companies with similar characteristics, market multiples of Baseline’s peer group and the company’s discounted cash flows. Exit Capitalization Value of $80 Million The emergence date capital structure consisted of $5 million of new Series A 20% secured notes, $25 million of 20% Series B secured notes, $10 million of 10% subordinated notes, $30 million of new preferred stock and $10 million of new common stock. As this is a similar value to the restructuring advisor’s value estimate, it provides another value proxy. There was no fundamental valuation exhibit provided with the disclosure statement available on the docket. Liquidation Value Alternative The restructuring advisor estimated the proceeds from the sale of assets in the event of a liquidation would be in the range of $39.3 million–$51.8 million. a
Source 2008 10-K. DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement for the prepackaged plan of reorganization dated July 21, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Baseline Oil and Gas Corp. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP or Other Administrative Secured Secured Unsecured Unsecured Intercompany
Claim Type Administrative and Priority Tax 15% Notes Due June 15, 2009 (12.5% Cash/2% PIK Interest) 12.5% Notes Royalty Claims General Unsecured Interests Estimated Claims a New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority DIP or Other Administrative
Claim Type Administrative and Priority Tax
Secured
15% Notes Due June 15, 2009 (12.5% Cash/2% PIK Interest)
Secured
12.5% Notes
Unsecured
Royalty Claims
Unsecured
General Unsecured
Intercompany
Interests
Allowed Projected Equivalent Claims Recovery (%) RR Category
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants
3 107
100.0 RR1 65.0 RR3
3 —
— 30
— —
— —
— 40
— —
15 3 1 N.A. 129 30
65.0 100.0 100.0 0.0 — —
— 3 1 — 7 —
— — — — 30 —
— — — — 0 —
— — — — 0 —
10 — — — 50 —
— — — — 0 —
—
—
—
—
—
—
0
RR3 RR1 RR1 RR6 Recoveries —
— —
Description • Unimpaired • Paid in full in cash. • There was no DIP facility. The company used cash on hand and cash from operations to fund projected cash needs during the bankruptcy. • Principal outstanding amount of $108.7 million and accrued interest of $6.7 million. • Certain holders of the majority of the 15% notes and the 12.5% notes signed a plan support agreement at the time of the filing and agreed to provide exit financing. • The notes were held by Jefferies (82%) and Third Point (18%). • Distributions were in the form of new debt, preferred stock and new common equity. • Principal outstanding amount of $15 million and accrued interest of $667,000. • Certain holders of the majority of the 15% notes and the 12.5% notes signed a plan support agreement at the time of the filing and agreed to provide exit financing. • Distributions were in the form of new debt, preferred stock and new common equity. • 12.5% notes originally had $115 million of principal, but holders of $100 million exchanged their notes for $106 million of the 15% notes in an October 2008 exchange. • Paid in full in cash. • Unimpaired • Paid in full in cash. • Unimpaired • Received $0 distributions. • Old shares were cancelled.
a
Exit financing consisted of two series of 20% notes. RR – Recovery rating. DIP – Debtor in possession. N.A. – Not applicable. Source, unless otherwise noted: Company disclosure statement for the prepackaged plan of reorganization dated July 21, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
51
Leveraged Finance Baseline Oil and Gas Corp. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
Not available. None. The ABL was terminated seven months prior to the filing date. The company terminated its $30 million ABL revolver commitment on Jan. 1, 2009. There were no borrowings on the termination date. There was no DIP facility. The bankruptcy was only one month in duration and the company used existing cash on hand for needs. The company did not anticipate any material claims for damages relating to the rejection of executory contracts. Certain mineral rights contracts were rejected. No No Not available. The company continued to pay salary and benefits. No Not applicable. Yes Royalty claims and general unsecured claims were paid in full.
ABL â&#x20AC;&#x201C; Asset-based loan. DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, company disclosure statement dated July 21, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
52
Leveraged Finance Calpine Corporation ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Utilities Wholesale Power Generation CNPL 27,216 Calpine Corporation/CPN
Untenable Capital Structure Deep Cyclical Trough
Financial Profile 12-Month Period a
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Key Driver Key Driver
No Debtor New York — Southern Certain Classes 12/20/05 12/19/07 1/31/08 24 Chapter 11 Yes — Partial Sale of Assets Voluntary No Emerged/Reorganized (Public)
Prepetition EBITDA Post-Emergence EBITDA Forecast a Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
Amount
2004 2008
1,875 1,702 18,300 20,400 19,350 9,000 9,614 11.4
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
17,400 9.3 — —
10,700 6.3 6,700 39
Events Leading Up to Bankruptcy (or Contributing Factors) Calpine Corporation funded a rapid expansion of its wholesale power business with debt. Debt service on its $17 billion of debt was significant, and then business conditions deteriorated and the capital structure became untenable. The adverse operating environment included overcapacity in the wholesale power market resulting from the addition of new gas-fired capacity, rapidly increasing natural gas prices and lack of pass-through fuel clause mechanisms in certain power contracts. The power contracts without fuel pass-through mechanisms became unprofitable when gas prices spiked. Problems culminated in a liquidity crisis when an adverse court decision denied Calpine permission to use $308.5 million cash proceeds from an asset sale to purchase more fuel in December 2005, because creditors said this would violate the terms of indentures with respect to asset dispositions. Bankruptcy soon followed the disagreement with lenders. Wholesale power markets improved significantly during the bankruptcy, which led to strong recoveries compared with bankruptcy date expectations.
Valuation Estimate Summary Going Concern Valuation Approachesb The third-party valuation advisor used several going-concern valuation approaches, including a discounted cash flow analysis and a comparable company analysis as summarized below: Discounted Cash Flow (DCF) Analysis EBITDAR Multiple An EBITDAR multiple of 9.5x was applied to 2012 EBITDAR estimate in the DCF analysis (terminal value multiple applied to unlevered 2012 cash flows). Comparable Company Analysis Projection Year ($ Mil.)
WACC Discount WACC Discount Rate Low End (%) Rate High End (%) 8.25
EBITDAR Multiple Low End
8.85
Terminal Value Exit Terminal Value Exit Multiple Low End (x) Multiple High End (x) 1.75
2.25
EBITDAR Multiple High End
2007 Projected EBITDAR 11.5 12.5 2008 Projected EBITDAR 10.5 11.5 The comparable company analysis multiples to the forecasted 2007 and 2008 EBITDAR of comparable companies. The names of the comparable companies were not disclosed. Liquidation Value Alternative The liquidation alternative analysis dated Aug. 27, 2007, resulted in a range of estimated proceeds of $12,291 million–$14,430 million, which would have resulted in less than 100% recovery for unsecured creditors. The largest component of the value was power plants, which were estimated to provide proceeds of $10,066 million– $12,205 million. The analysis assumed Calpine would continue to operate the plants during the 12-month liquidation period to maximize recovery. a The 2008 10-K filing indicates the court approved an estimated value of $18,950 million in the plan. bSource is updated company valuation analysis press release dated Nov. 19, 2007. WACC – Weighted average cost of capital. Source, unless otherwise noted: Company disclosure statement for the fourth amended plan of reorganization, dated Sept. 27, 2007. Note: This is an update of a case study originally published June 7, 2012.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
53
Leveraged Finance Calpine Corporation (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Allowed Projected Equivalent Claims Recovery (%) RR Category
Claim Seniority
Claim Type
DIP Secured Secured Secured Unsecured Unsecured Unsecured Unsecured Subordinated Intercompany Equity
$5,000 DIP Revolver and Term Loan First-Lien Debt Second-Lien Debt Other Secured Debt Senior Notes General Notes Canadian Notes Canadian Guarantees Subordinated Notes Intercompany Claims Equity Claims Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority DIP
Claim Type $5,000 DIP Revolver and Term Loan
Secured
First-Lien Debt
Secured
Second-Lien Debt
Secured Unsecured
Other Secured Debt Senior Notes
Unsecured Unsecured Unsecured Subordinated Intercompany Equity
General Notes Canadian Notes Canadian Guarantees Subordinated Notes Intercompany Claims Equity Claims
3,970 125 4,420 601 951 2,680 3,650 134 777 — Not Disclosed 17,308 6,400 4,300
100.0 100.0 100.0 100.0 100.0 95.0–100.0 100.0 91.0–100.0 89.0–100.0 — —
RR1 RR1 RR1 RR1 RR1 RR1 RR1 RR1 RR2 — —
— Recoveries — — — —
Form of Distribution Secured Unsecured Subordinated New Cash Notes Notes Notes Equity
Options/ Warrants
3,970 125 4,420 601 — — — — — — —
— — — — — — — — — — —
— — — — — — — — — — —
— — — — — — — — — — —
— — — — 951 2,549 3,650 134 692 — —
— — — — — — — — — — —
9,116 —
0 —
0 —
0 —
7,976a —
0 —
—
—
—
—
—
—
Description • The DIP claims were unimpaired. • The DIP was a new money facility secured by a first lien on California Geysers plants and other unencumbered assets (other debt of Geyser’s was repaid) and a second lien on encumbered assets. DIP borrowings were used to repay former debt of the Geyser’s geothermal plants and prepetition first-lien debt. • Facility consisted of a $4,000 million term loan and $1,000 million revolving tranche. • The first-lien debt was unimpaired. • Debt included $785 million of 9.625% first-lien notes which were repaid with DIP borrowings. • The first-lien debt was secured by all directly owned assets of Calpine. • The second-lien debt was unimpaired. • Claims including interest were projected in the range of $3,770 million–$4,420. There was $3,672 million of second-lien bank and notes debt outstanding on the petition date. • Other secured debt was reinstated, paid in full, or satisfied through return of collateral. • The senior notes were impaired with respect to postpetition interest. • The estimate of claim amounts was in the range of $809 million–$951 million. These notes benefit from subordination agreements from other senior notes. • The general notes were impaired. Claims estimate range of $2,420 million–$2,680 million. • The Canadian notes were impaired. The noteholders received new common stock until paid in full. • The Canadian guarantee claims were impaired. Claims estimate range of $0–$134 million. • The subordinated notes were impaired. Claims estimate range of $0–$762 million. • Intercompany notes were reinstated. Other claims were reinstated or canceled by Calpine. • Not disclosed.
a
Common equity values are the product of share of new stock received multiplied by low end of estimated equity value range. RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement for the fourth amended plan of reorganization dated Sept. 27, 2007. Note: This is an update of a case study originally published June 7, 2012.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
54
Leveraged Finance Calpine Corporation (Continued) Additional Information a
Cash on Filing Date
Prepetition Bank Facility Commitments
Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
Not disclosed. Cash and equivalents were $785.6 million on Dec. 31, 2005. In addition, Calpine had restricted cash of $1,071 million on Dec. 31, 2005. Calpine had approximately $783 million of second-lien term loan B debt on the petition date. In addition, the CalGen subsidiary had $600 million of term loan notes and the CCFC subsidiary had $377 million of term loan borrowings. There were various project and revolving facility commitments, including project finance borrowings totaling $2,449.7 million. The DIP was a new money facility, but certain first-lien debt was repaid with DIP loan borrowings during the bankruptcy. Shortly prior to the petition date, Calpine arranged a $2,000 million DIP revolving and term loan facility. This facility was later replaced by a $4,000 million DIP. Estimated range of $710 million–$1,400 million. Recovery range of 95%–100%, ranked pari passu to other general unsecured claims. Lease rejections included certain power contracts and facility leases. There were no deficiency claims as secured claims were paid in full. Disputed claims. Intercompany claims were reinstated or received $0 distribution. Calpine had no defined benefit plan. There was a defined contribution plan. Yes Multiple Yes Subordinated notes.
a
Source is 2008 10-K filing. DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement for the fourth amended plan of reorganization dated Sept. 27, 2007. Note: This is an update of a case study originally published June 7, 2012.
Bond Price History — Calpine Corp. ($1,064 Mil., 8.50% Senior Notes Due 2011) (% of Par) 140 120 100
Filing Date: 12/20/05
80 60 40 20
Confirmation Date: 12/19/07
0
Source: Bloomberg, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
55
Leveraged Finance Chemtura Corporation ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Chemicals Specialty Chemicals CEM 3,064 Chemtura Corporation/CHMT
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor New York — Southern No 3/18/09 11/3/10 11/9/10 19 Chapter 11 Yes — Partial Sale of Assets Voluntary Yes Emerged/Reorganized (Public)
Key Driver Key Driver
Untenable Capital Structure Deep Cyclical Trough
Financial Profile 12-Month Period Prepetition EBITDA Post-Emergence EBITDA Forecast Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value)
Amount
9/30/10 12/31/11
321 395 1,900 2,200 2,050
Equity Value Range Low High
1,204 1,504 5.2
Midpoint EV/Post-Emergence EBITDA Estimate (x)
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 1,300 4.0 — —
Emergence Date 753 1.9 547 39.2
Events Leading Up to Bankruptcy (or Contributing Factors) Chemtura Corporation entered 2009 with significantly constrained liquidity and was challenged by unprecedented declines in product orders due to the global recession. In addition, for much of 2008, the chemicals industry experienced rapid inflation in the costs of its raw material, energy and freight. While the inflation in input costs started to abate before the petition date, Chemtura was unable to benefit from the cost decline due to sharp reductions in product demand and a related decline in its purchases of raw materials. This led to a significant decrease in liquidity and cash flow. Pending maturities of, and potential defaults under some prepetition debt obligations, legacy environmental liabilities and litigation regarding diacetyl compounded the recession-driven difficulties and were also key drivers of the bankruptcy.
Valuation Estimate Summary Going Concern Valuation Analysis The going-concern enterprise valuation of $2.05 billion was established through the estimate of a third-party valuation advisor and used for establishing the amounts of distributions made in a negotiated settlement that also resolved unfunded pension obligations and treatment of make-whole obligations. There were several valuation methodologies used in the estimate. Comparable Company Analysis Calculations were based on 2010–2011 EBITDA, EBITDAP, and EBITDA-capex. Peers were Albemarle Corp., Arch Chemical, Arkema SA, Ashland Inc., Clariant AG, Cytec Industries Inc., Royal DSM N.V., Ferro Corporation, FMC Corporation, Huntsman Corporation, Lanxess AG, Lubrizol Corporation, Rhodia SA, Rockwood Holdings and Solutia Inc. Other Valuation Approaches Discounted cash flow analysis and precedent transaction analysis were also completed, but no assumptions were provided. Liquidation Value Alternative • The liquidation alternative was estimated to have resulted in gross proceeds of $1,268 million and would have resulted in a 30.2% recovery for the unsecured creditors. Midpoint percentages of asset book values applied in the analysis included: o Accounts receivable — 74.8% o Inventory — 69.1% o PP&E — 38.4% • Liquidation expenses — $57 million • Administrative and priority claims in a liquidation scenario — $58 million Source, unless otherwise noted: Company disclosure statement dated Aug. 4, 2010. Note: This is an update of a case study originally published Feb. 14, 2013.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Chemtura Corporation (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP or Other Administrative DIP or Other Administrative Secured Secured Unsecured
Claim Type $300 Million DIP Term Loan $150 Million DIP Revolver
Intercompany
Lien Claims $350 Secured Credit Facility 6.875% Notes Due 2016, 7% Notes Due 2009, 6.875% Notes Due 2026 Unsecured Credit Facility Claims General Unsecured Claims Diacetyl Claims, Environmental Claims and Disputed Claims Intercompany Claims
Equity
Equity Interests
Unsecured Unsecured Unsecured
Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Allowed Projected Equivalent Claims Recovery (%) RR Category 300 100.0 RR1
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants 300 — — — — —
0
100.0 RR1
—
0
—
—
—
—
1 53 1,034
100.0 RR1 100.0 RR1 100.0 RR1
1 53 238
— — —
— — —
— — —
— — 796
— — —
120 164–195 Not Available Not Disclosed Not Disclosed — 750 0
100.0 RR1 100.0 RR1 Not Available 100.0 RR1
28 38 130–204
— — —
— — —
— — —
92 126 —
— — —
—
—
—
—
—
—
—
—
—
— 19–125
—
811 — —
150 — —
0 — —
0 — —
0 — —
— — — Recoveries — — — —
954 — —
Claim Seniority Claim Type DIP or Other DIP Term Loan Administrative DIP or Other DIP Revolver Administrative
Secured Secured
Unsecured
Unsecured
Unsecured Unsecured
Intercompany Equity
Description • Priming lien. • Paid in full in cash. • Priming lien. • Available for loans and letters of credit. • The revolver usage was expected to consist of letters of credit, which were reinstated on emergence (amount not available). Borrowings were expected to be negligible at emergence. Lien Claims • Holders were paid in cash or the lien was reinstated on the effective date. $350 Million Secured Credit • Secured by a first lien. Facility • Distributions paid in cash. • Distributions included 100% of principal and interest at the waiver rate (but not the default rate). 6.875% Notes Due 2016, 7% • Guaranteed by Chemtura Corp., Chemtura Canada, and each of the other debtors. Notes Due 2009, 6.875% Notes • Deemed impaired and entitled to vote. Due 2026 • Bondholders (all series), unsecured credit facility holders and general unsecured claim holders received distributions in the form of cash and a pro rata share of 95% of the new common equity (the unsecured distribution pool). • This cash/stock distribution mix shown above based on maximum cash distribution that would have been paid in the low claim range scenario. The cash distribution range was $169 million to $238 million, with final cash amount not available. • Bondholders received 100% of principal and postpetition interest. Unsecured Credit Facility Claims • Unsecured credit facility holders received distributions in the form of cash and a pro rata share of the new common equity (the unsecured distribution pool). • The above distribution mix is based on the maximum cash distribution. • Holders were permitted to elect the maximum cash or maximum shares mix in their distribution. General Unsecured Claims • General unsecured claims received a pro rata share of cash and the 95% of the new common shares from the unsecured distribution pool. Diacetyl Claims, Environmental • Each holder received a distribution from the diacetyl reserve after receipt of insurance proceeds (the deficiency Claims and Disputed Claims portion) or the environmental reserve, for diacetyl and environmental claims, respectively. • The debtors had $59.8 million of unliquidated diacetyl claims as of the disclosure statement date. • The debtors estimate that the diacetyl reserve was going to be funded in the range of $31 million–$85 million, the environmental reserve was going to be funded in within the range of $77 million–$87 million and the disputed claim reserve would be funded in an amount within the range of $21.5 million–$31.6 million. Intercompany Claims • At the election of the company intercompany claims were reinstated, cancelled or paid in cash up to $25 million maximum cash payments for certain intercompany claims for goods or services. Equity interests • If holders voted to accept the plan, distributions would consist of 5% of the new common stock and the right to participate in a $100 million rights offering. • If holders voted to reject the plan, they would receive recovery in the range of 1.6%–10.4% of the value of reorganized Chemtura. • Distribution amount based on low end of equity range of $1,204 million.
DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement dated Aug. 4, 2010. Note: This is an update of a case study originally published Feb. 14, 2013.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Chemtura Corporation (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims
Intercompany Claims Pension Claims/Motions
Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
$290 million. $350 million revolving credit facility. $272 million, which includes ~$90 million in letters of credit that were repaid through borrowings on the DIP facility. The $400 million DIP included a $64 million new money revolver and $250 million term loan, as well as a roll up $87 million revolver. Not available. No secured lenders were unimpaired. There were reserves established for diacetyl litigation, environmental liabilities and disputed claims. There may have been post-confirmation trusts established for diacetyl and environmental issues, at the company’s election. Cash to be retained at the effective date was estimated to be $125 million. At the company’s option these claims were reinstated, remained in place subject to certain revised documentation, and were modified or cancelled or received other treatment. the plan provides that the pension would not be affected by the bankruptcy and thee company would make a one-time cash funding contribution of $50 million on the effective date in exchange for the Pension Benefit Guaranty Corporation’s (PBGC) agreement not to pursue a PBGC-initiated termination of the debtors’ underfunded defined benefit plans. Yes Multiple No Not applicable.
DIP – Debtor in possession. Source: Fitch Ratings, company disclosure statement dated Aug. 4, 2010. Note: This is an update of a case study originally published Feb. 14, 2013.
Bond Price History — Chemtura Corp. ($500 Mil., 6.875% Senior Notes Due 2016) (% of Par) 120
Filing Date: 3/18/09
100 80 60
Confirmation Date: 11/3/10
40 20 0
Source: Bloomberg, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
58
Leveraged Finance Crusader Energy Group ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Energy Exploration and Production KRU 750 SandRidge Energy (Buyer)
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period
Amount
Prepetition EBITDA 2008 Post-Emergence EBITDA Forecast Not Available b Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
68 Not Applicable
a
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Yes Debtor Texas — Northern Yes 3/30/09 12/16/09 12/31/09 9 Chapter 11 Yes — Sale of Substantially All Assets (as Liquidation) Voluntary Yes Acquired, Merged or Sold
289 289 289 0 0 Not Applicable
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
310 4.6 — —
0 Not Applicable 310 100
Events Leading Up to Bankruptcy (or Contributing Factors) Crusader Energy Group’s first-lien revolving facility lender reduced the asset-based loan (ABL) borrowing base limit to $25 million a few weeks prior to the bankruptcy filing. At the time, there was $30 million of revolver borrowings. The company agreed to repay the overage in six installments, but missed the first payment. The reduction of the borrowing base limit significantly impaired liquidity. Other material factors contributing to the bankruptcy filing included declines in the prices of crude oil and natural gas starting in the summer of 2008 and poor conditions in the credit markets. The commodity price declines adversely affected revenues and cash flows. Due to the unfavorable economic and credit markets at the time, the company was unable to raise capital from alternative sources following the reduction of the ABL borrowing base limit. The company focused on domestic shale and tight sands exploration and production.
Valuation Estimate Summary Sale of Assets Determined the Value The enterprise value was estimated by using the proceeds of the largest asset sale, which was completed in an auction as a proxy for the company value. Most of Crusader’s assets were sold to J/M Crusader Acquisition Sub LLC, a subsidiary of Jones Energy Ltd for $289 million via a Nov. 13, 2009 auction. The consideration for this transaction was paid $240.5 million in cash and $48.5 million in contingent payment rights. The sale closed in January 2010. In addition, Crusader completed the sale of certain old reserves in the Whittenburg Basin in the Texas Panhandle in a separate transaction on Nov. 13, 2009, and modest amounts of assets (leases and cash) remained with the liquidating trustee to be distributed to creditors The value of these assets was not available and is excluded in the enterprise value. The $289 million winning bid in the auction was $44 million higher than the stalking horse bid of $230 million–$241 million (including warrants) that had been made prior to the auction by SandRidge Energy, Inc. The winning bid also had a greater cash component. The disclosure statement recovery information was based on the value and composition of the stalking horse bid, and Fitch Ratings adjusted these recoveries and cash component based on the value of the winning bid to estimate issue-level recoveries. The final distributions to creditors based on the auction outcome were not available. Liquidation Value Alternative The liquidation alternative valuation that was in the range of $113.2 million–$148.4 million was based on discounts to the $279 million balance sheet book value of assets as of Sept. 30, 2008. Under this scenario, second-lien lender recoveries would be less than 30%. Book values and percentages applied included: • Cash of $20 million at 100%of book value • Current assets of $66.2 million at 53% to 73% • Property, plant and equipment of $202 million at 40%–51% a
EBITDA is Fitch Ratings estimate based on unaudited financial statements included in the disclosure statement. No 10-K was filed for the year ended Dec. 31, 2008. EV based on consideration paid by J/M Crusader Acquisition Sub LLC, a subsidiary of Jones Energy, Ltd. Source, unless otherwise noted: Amended company disclosure statement dated Nov. 3, 2009; J/M Crusader asset sale information. Note: This is an update of a case study published April 27, 2015.
b
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
59
Leveraged Finance Crusader Energy Group (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP or Other Administrative Secured Secured Secured Secured Unsecured Subordinated
Claim Seniority DIP or Other Administrative Secured Secured
Secured
Secured Unsecured Subordinated
Claim Type Administrative and Priority First-Lien ABL Revolving Facility Second-Lien Term Loan M&M Claims Other Secured Claims General Unsecured Claims Subordinated and Equity Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Equivalent RR Category
Form of Distribution Secured Unsecured Subordinated New Options/ Notes Notes Notes Equity Warrants
Allowed Claims
Projected Recovery (%)
Not Available 28
100.0 100.0
RR1 RR1
— 28
— —
— —
— —
— —
— —
250 30 11 26 0
87.0 60.0 100.0 32.5 0.0
RR2 RR3 RR1 RR4 RR6
170 18 8.75 11 —
— — — — —
— — — — —
— — — — —
— — — — —
49 — — — —
345
—
Recoveries
236
0
0
0
0
49
0
—
—
—
—
—
—
—
—
0
—
—
—
—
—
—
—
—
Cash
Claim Type Description Administrative and Priority • There was no DIP facility. • Administrative claims were paid in full in cash, amount not available. First-Lien ABL Revolving • Unimpaired Facility • Paid in full in cash by the buyer. Second-Lien Term Loan • Distributions in the form of cash and contingent payment rights made with proceeds of the asset sale. • Fitch notes that the disclosure statement was published prior to the auction and incorporated second-lien claim recovery estimates of at least 68% based on the value of the stalking horse bid. Fitch estimated 87% second-lien claim recovery rates based on the higher auction winning bid amount, but notes that final distributions may have differed from this estimate. M&M Claims • Received distributions from a second-lien lender settlement payment. • M&M claims consisted of claims made by joint owners and operators that shared working interests in production wells with Crusader. • Settlement provided for payments of up to $33.25 million to M&M claim holders. Claim and distribution amounts in this case study based on disclosure statement summary of proposed distributions under the plan. Other Secured Claims • Paid in full in cash. • Unimpaired General Unsecured Claims • Received distributions from a second-lien lender settlement payment of $8.75 million. Subordinated and Equity • Received $0 distributions. Interests • Included a $30 million subordinated term facility.
ABL – Asset-based loan. RR – Recovery rating. DIP – Debtor in possession. Source, unless otherwise noted: Amended company disclosure statement dated Nov. 3, 2009; J/M Crusader asset sale information. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
60
Leveraged Finance Crusader Energy Group (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments
Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims
Contingent Claims
Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Paymentsa Recipient
$6.8 million as of April 1, 2009, as per monthly operating report for April 2009. $70 million first-lien ABL revolver with borrowing base limit of $25 million as of Feb. 23, 2009. The facility amount was originally $200 million and had a $100 million limit on the closing date of June 26, 2008. However, the agent bank reduced the ABL facility commitment and borrowing base prior to filing. In addition, there was a $250 million second-lien term loan that had $249.75 million outstanding on the petition date. $30 million of first-lien ABL borrowings and $249.75 million of second-lien term loan borrowings (borrowing base deficiency of $5 million). There was no DIP. The company used cash collateral for funding needs during the Chapter 11 case. Crusader rejected certain leases and contracts with joint operators. Yes. Second-lien lenders had deficiency claims. However, there was no recovery information available. Fitch estimates $0 or nominal deficiency claim recoveries because the unsecured recoveries were made from a settlement payment from second-lien lenders. There was a post-petition dispute with Forest Oil. Forest Oil was seeking to recoup approximately $5 million due to a dispute over Crusader’s working ownership interest. In addition, several joint operators were seeking to have the automatic stay on litigation lifted so they could pursue litigation against Crusader for various alleged breaches of contracts, leases and duties. Hearings on these matters were still pending as of the publication of the disclosure statement. Eliminated Not available. Yes Secured claims. Yes M&M secured claims and general unsecured claims received a settlement from the second-lien claimholders.
a
M&M claims received $33.75 million and general unsecured claims received $8.75 million in the settlement. The payments were based on the stalking horse bid amount. There is no information regarding whether the settlement agreement was reopened following receipt of a better bid in the auction. ABL – Asset-based loan. DIP – Debtor in possession. Source, unless otherwise noted: Fitch Ratings; amended company disclosure statement dated Nov. 3, 2009; J/M Crusader asset sale information. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
61
Leveraged Finance Delta Petroleum Corporation ($ Mil., Except Where Noted)
Financial Profile
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Energy Independent Oil and Gas Producer DPTR 1,024 Par Petroleum Corporation/PARR
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Yes Debtor Delaware No 12/15/11 8/16/12 8/31/12 8 Chapter 11 Yes — Partial Sale of Assets Voluntary Yes Emerged/Reorganized (Public)
12-Month Period a Prepetition EBITDA 12/31/10 b Post-Emergence EBITDA Forecast 12/31/13 Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Cash Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
Amount 19 11 100 110 105 222 13 22 9.6
Petition Date Versus Emergence Date Total Debtc,d Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 310 16
Emergence Date 30 2.7 280 90.3
Events Leading Up to Bankruptcy (or Contributing Factors) Delta Petroleum Corporation was a privately held natural gas and oil producer that owns reserves in the Rocky Mountain region. The decline in Delta’s profitability that resulted from the material declines in U.S. natural gas prices since 2008 was a driver of the bankruptcy. Because over 91% of the company’s’ reserves at April 30, 2012, were natural gas reserves, Delta was more adversely affected than most energy companies by the downward movements in natural gas prices in the years prior to filing. A second reason for the filing was that the drilling and funding strategy was unsuccessful. Drilling activity was ramped up as realized prices were falling and debt was used to fund the poorly timed expansion of drilling activities. Dry hole costs were a drag on operating results. Delta incurred dry hole and impairment costs of $420.9 million for the nine months ended Sept. 30, 2011, compared with $29.8 million for the comparable period a year earlier. The management team was replaced in 2009. Tight credit markets compounded Delta’s cash flow problems and liquidity was adversely affected in 2008 and 2009. Delta sold some assets to improve liquidity, including Wyoming properties for $43 million in June 2011, but this sale resulted in reduced availability under the borrowing base revolving credit facility. Terms of the reserve-based credit facility became more onerous, and it was refinanced several times. There was no remaining borrowing base revolver availability at the time of the bankruptcy filing.
Valuation Estimate Summary Value Established Through Asset Contribution Transaction with Joint Venture Company The enterprise value estimate was established by the value of the joint venture (JV) transaction considerations. Delta contributed certain oil and gas reserve assets in Garfield and Mesa Counties, Colorado, to a joint venture with Laramie Energy II LLC called Piceance Energy (the JV). Delta retained $75 million of cash contributed by plan sponsor Laramie and received 33.3% interest in the JV for contributing the assets. The $75 million of cash was used to repay the $52 million DIP facility borrowings and applied towards other administrative and priority expenses. The 33.3% interest in the JV accounted for a material share of Delta’s total reorganized enterprise value. The asset contribution and JV were the result of an auction in which Laramie Energy made the highest bid. A small share of Delta’s assets remained at reorganized Delta, which was renamed Par Petroleum. The operations of Par Petroleum are managed by Laramie Energy. Based on information from Delta, Laramie and the thirdparty valuation company’s own analysis, the total business enterprise value of Delta’s 33.3% interest in the JV and other assets valued at $8.5 million was estimated at $100 million–$110 million, with a midpoint of $105 million. The advisor used the comparable company analysis and discounted cash flow methodologies to estimate the $105 million enterprise value. The assumptions of the comparable company analysis are summarized below: • Proven producing reserves were discounted from their reported values by 8%–10%; all other reserves were discounted by 10%–15% from reported values. • Comparable companies selected owned reserves located in the Rocky Mountain region (identities not disclosed). • A 36% discount was applied for minority ownership share and illiquidity of the 33.3% interest in the JV. Discounted Cash Flow Analysis The assumptions included weighted average cost of capital of 13.5%. Liquidation Alternative • Based on balance sheet asset book values as of April 12, 2012, and resulted in estimated gross proceeds of $109.1 million–$128.6 million. • The percentages of book value applied to assets included: o Cash of $3.8 million at 100% of book value o Receivables of $3 million at 90%–95% of book value o Oil and gas properties that were estimated to be liquidated for proceeds of $109.7 million (35% of book value) to $126.9 million (40% of book value) o The costs of liquidation ranged from $11.7 million to $13.7 million. • The liquidation alternative would have provided unsecured claimholders with recoveries in the range of 6%–12%. a
Source of prepetition EBITDA is earnings release dated 2010. The valuation advisor noted that 84% of Delta’s properties were not producing oil and gas, thus not generating cash flow. bIncome from the 33.3% JV interest is included in post-emergence EBITDA estimates. Source of this estimate is Exhibit 5 to the company disclosure statement. cSource of petition date debt is the bankruptcy petition. dExit debt balance assumes full drawdown of the delay draw term loan exit facility and excludes Piceance revolver debt. Source, unless otherwise noted: Company disclosure statement for the second amended joint plan of reorganization dated July 5, 2012. Note: This is an update of a case study originally published Feb. 14, 2013.
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Leveraged Finance Delta Petroleum Corporation (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Claim Type DIP or Other $58.9 Million DIP Facility Administrative DIP or Other Other Administrative and Administrative Priority Claims Secured Secured Credit Facility Unsecured Senior Unsecured Notes Unsecured General Unsecured Claims Intercompany Intercompany Claims Equity Equity Claims Estimated Claims a New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date Claim Seniority DIP or Other Administrative
Secured
Secured
Unsecured
Claim Type $58.9 Million DIP Facility
Allowed Claims 52 20–39 0 267 3 0 0 352 30 0
Projected Equivalent Recovery (%) RR Category 100.0 RR1
Cash
100.0 RR1 100.0 28.0–30.0 28.0–30.0 0.0 0.0 — — —
RR1 RR5 RR5 RR6 RR6 Recoveries — —
Secured Notes 52 —
Form of Distribution Unsecured Subordinated Notes Notes — —
New Options/ Equity Warrants — —
30
—
—
—
—
—
— — — — — 82 — —
— — — — — 0 — —
— — — — — 0 — —
— — — — — 0 — —
— 75 1 — — 76 — —
— — — — 0 — —
Description • • • •
The DIP facility was composed of secured term loans. Borrowings of $38.5 million under the prepetition revolving facility were rolled into the DIP. The interest rate under the DIP credit facility was 13% plus 6% per annum in payment-in-kind interest. The initial maturity date of the DIP credit facility was June 30, 2012.
Other Administrative and Priority • Includes administrative claims (other than the DIP) of $19 million–$35 million and $4 million of priority claims, Claims including tax claims. • Paid in full in cash. Final claim amount assumed to be $30 million for purposes of the distribution amount. Secured Credit Facility • The $38.5 million borrowed under the Macquarie Bank Ltd. secured credit facility on the petition date was paid in full in cash with proceeds of DIP facility borrowings. • There were no borrowings remaining as of the disclosure statement date. Senior Unsecured Notes • Consisted of $150 million of 7% senior notes due 2015 and $115 million 3.75% senior convertible notes due 2037. • The notes were converted to new common equity (the new equity was shared pro rata with general unsecured claims). • The two largest equity holders are The Zell Credit Opportunities Master Fund, L.P. and clients of Whitebox Advisors.
Unsecured
General Unsecured Claims
• Received their pro rata share of the new equity.
Intercompany
Intercompany Claims
• Received no distributions and were deemed to reject the plan.
Equity
Equity Claims
• Cancelled and holders were deemed to reject the plan.
a
Reorganized Delta obtained a $30 million delayed draw term loan and the Piceance JV initiated a $400 million revolving facility on emergence. RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement for the second amended joint plan of reorganization dated July 5, 2012. Note: This is an update of a case study originally published Feb. 14, 2013.
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Leveraged Finance Delta Petroleum Corporation (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts
Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
Not available. There was no availability under the $38.5 million reserve-based secured credit facility on the petition date due to borrowing base limits in a declining commodity price environment. $38.5 million borrowed under fully drawn reserve based credit facility. The DIP was partially new money (about $20 million) and partially a roll up of the prepetition reserve-based borrowing facility. Two specific contracts were rejected: a burdensome gas gathering contract with Encana and the Denver headquarters building lease. Decisions on other nonreal property leases had not yet been made as of the disclosure statement date and will be made in conjunction with sponsor Laramie. No, the secured claims were paid in full in cash. Two litigation trusts were created and funded at emergence to pursue claims. Claims against Delta were cancelled in the plan of reorganization. Intercompany claims received no distributions under the plan of reorganization. Delta had a 401(k) plan, which was continued. Yes Senior secured. No Not applicable.
DIP â&#x20AC;&#x201C; Debtor in possession. Source, unless otherwise noted: Company disclosure statement for the second amended joint plan of reorganization dated July 5, 2012. Note: This is an update of a case study originally published Feb. 14, 2013.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Dune Energy, Inc. ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol
Energy Oil and Gas Exploration DUNR
Petition Date Assets Emergence Parent Company
229 Not Applicable/Liquidated
Name/Ticker
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor
Yes Debtor Texas — Western Yes 3/8/15 9/18/15 9/30/15 6 Chapter 11 Yes — Sale of Substantially All Assets
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
(as Liquidation) Voluntary Yes Section 363 Sale and Liquidating Plan
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period
Amount
Prepetition EBITDAa 12/31/14 Post-Emergence EBITDA Forecast — Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
13 Not Applicable 19 20 19 0 0 Not Applicable
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
144 11.0 — —
0 Not Applicable 144 100
Events Leading Up to Bankruptcy (or Contributing Factors) The filing was precipitated by the material decrease in the market price of oil causing 2014 revenue and cash flow to materially decline. At the end of the second quarter of 2014, a default existed under the first-lien credit agreement due to covenant violations Then the company was notified that the facility borrowing base ($47.5 million) would be reduced by $2.5 million effective July 1, 2014 and further reduced by $2.5 million each month until October 2014 (to $40 million). The borrowing base cuts restricted liquidity. The company attempted to address its working capital constraints via potential joint venture and other strategic transactions, but was unsuccessful. Dune also considered a sale or merger between May and July 2014 resulting in a nonbinding indication of interest from Eos for the purchase of the company’s shares at a price that resulted in an enterprise valuation of $135.9 million. However, Eos was unable to obtain acquisition financing, and on March 4, 2015, the merger agreement was terminated. Shortly thereafter, the company determined that it was unable to operate outside of Chapter 11.
Valuation Estimate Summary Estimated Proceeds from Liquidation/Sale of Assets After filing, Dune contacted seven bidders that had expressed interest in buying Dune’s assets during the pre-bankruptcy marketing period to see if any wanted to act as a stalking horse bidder in a court-supervised auction of all assets, but none were interested. An auction was held on June 30, 2015, and there were five bidders present. The assets were sold to Trimont and White Marlin for a total of roughly $20 million. White Marlin was the winning bidder for most assets for $19 million, and Trimont won the bid for Garden Island Bay field and Bateman Lake field for $1 million. Liquidation Value Alternative The alternative Chapter 7 basis hypothetical valuation analysis estimate resulted in the same remaining total sale proceeds of $18.1 million–$19.7 million available for distribution to creditors as under the Chapter 11 plan. However, there would be trustee and trustee professional fees that were not necessary under the Chapter 11 plan, which would have lowered recoveries for unsecured creditors. a
EBITDAX (EBITDA plus exploration expenses). Source, unless otherwise noted: Petition dated March 8, 2015, disclosure statement dated Aug. 20, 2015.
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Leveraged Finance Dune Energy, Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP and Priority Secured Unsecured Unsecured
Claim Seniority DIP and Priority Secured
Claim Type DIP Financing and Other Administrative and Priority First-Lien Credit Facility and Deficiency Claims Second-Lien Floating Rate Note Non-Deficiency General Unsecured Claims Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Type DIP Financing and Other Administrative and Priority First-Lien Credit Facility and Deficiency Claims
Unsecured
Second-Lien Floating Rate Note
Unsecured
Non-Deficiency General Unsecured Claims
Allowed Projected Equivalent Claims Recovery (%) RR Category 8 100.0 RR1
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants 8 — — — — —
78
12.8 RR5
10
—
—
—
—
—
72 10
1.0–6.0 RR6 2.0–7.0 RR6
2 >0
— —
— —
— —
— —
— —
— Recoveries — —
20 —
0 —
0 —
0 —
0 —
0 —
— —
—
—
—
—
—
—
168 0 0
Description • Paid in full with cash. • DIP financing was paid off in July 2015. • Paid in cash. • Allowed claims, including a $40 million secured portion, a $7 million adequate protection portion and $30 million of deficiency claims for a total of approximately $78 million. • Holders received net sale proceeds that were remaining after DIP payoff, sales proceeds from remaining nominal assets and any cash on hand. • Distributions paid in cash. • The entire claim was treated as an unsecured deficiency claim. • Distributions were the result of a plan compromise. • Paid in cash. • Distributions were the result of a plan compromise.
RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: Petition dated March 8, 2015, disclosure statement dated Aug. 20, 2015.
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Leveraged Finance Dune Energy, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues Executory Contracts Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
$188,546 in bank accounts and $2.25 million in escrow accounts earmarked for bonding obligations. $40 million. Approximately $37 million in borrowings and $2 million of letters of credit. $10 million DIP was a new money facility. All DIP borrowings were paid in full on July 31, 2015 using a portion of the sales proceeds. The terms of the DIP facility required the company to complete a sale of all assets subject to timing milestones. Yes. Dune was a party to various unexpired leases and executory contracts related to business operations. All executory contracts not assumed, including those associated with the asset sales, were rejected. Yes. The first- and secured-lien lenders were allowed deficiency claims of approximately $30 million and $72 million, respectively. These claims were treated as general unsecured claims. Yes. Yes. There were large intercompany claims, including $227 million of payables to Dune Operating from Dune Energy, but these claims were disallowed under the plan. Not applicable. No Not applicable. Yes Second lien and general unsecured.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, disclosure statement dated Aug. 20, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
67
Leveraged Finance Dynegy Holdings, LLC ($ Mil., Except Where Noted)
Key Drivers of Bankruptcy Filing
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Utilities Power Generation DYN 13,765 Dynegy Inc./DYN
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor New York — Southern Certain Classes 11/7/11 9/5/12 10/1/12 10 Chapter 11 Yes — Partial Sale of Assets Voluntary No Emerged/Reorganized (Public)
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period Prepetition EBITDA 9/30/11 Post-Emergence EBITDA Forecast 12/31/12 Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
Amount 749 245 3,680 3,680 3,680 2,020 2,020 15.0
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 6,181 8.3 — —
Emergence Date 1,700 6.9 4,481 72
Events Leading Up to Bankruptcy (or Contributing Factors) A combination of dwindling liquidity due to declining revenues (resulting from lower prices over the past two years) and unprofitable leases at the Roseton facility and Danskammer facility adversely impacted the company’s financial performance. Overall, sustained low power prices over the previous two years had a significant adverse impact on the debtors’ business and negatively impacted their projected future liquidity. The company split up the gas-fired and coal-fired power plants in a twostep corporate restructuring in 2011, which was reversed during the case. In the September 2011 CoalCo exchange, Dynegy, Inc. valued the coal-fired plant assets at $1.25 billion. Dynegy Holdings received consideration from Dynegy, Inc. in the form of a $1.25 billion unsecured, unfunded “undertaking,” obligating Dynegy, Inc. to make certain payments in satisfaction of debt owed by Dynegy Holdings in return for the coal assets. Three different groups of Dynegy Holdings creditors took actions to reverse the asset transfer to Dynegy, Inc., and the reversal was a key part of the restructuring settlement. The trustee’s findings of fraud and mismanagement were significant to this case.
Valuation Estimate Summary Enterprise Value Based on Emergence Debt Plus Equity Value Less Cash As there was no final enterprise value in the settlement agreement that formed the basis for the plan of reorganization, Fitch estimated the $3,670 million enterprise value as the sum of the $2,000 million equity market capitalization on Oct. 3, 2012, (value of common stock on first post-emergence trading date) and the $1,700 million debt balance at emergence less cash of $20.2 million as of Sept. 30, 2012. The Dynegy reorganization was complicated by prepetition intercompany asset transfers in 2011 that were reversed after the bankruptcy trustee concluded the transfers were fraudulent. Liquidation Value Alternative ($ Mil., As of Jan. 19, 2012) Estimated Proceeds from Sale of Primary Assets Wind-Down Costs, Trustee Fees, Professional Fees Net Remaining Estimated Proceeds Available for Distribution in Management’s Liquidation Analysis
Low
High
1,764.1 40.3 1,723.8
2,372.4 54.9 2,317.5
Note: The liquidation estimate includes estimated cash of $44.3 million and low-end asset value estimates as follows: proceeds from sale of undertaking agreement of $312.5 million, equity interest in nondebtor subsidiaries of $1,402 million and tax receivables of $5.3 million. Wind-down costs were estimated at $5.0 million– $7.5 million, trustee fees were estimated at $17.6 million–$23.7 million, and professional fees were estimated at $17.6 million–$23.7 million. This plan would have provided a liquidation value that would allow for 100% recovery of secured claims, 43%–58% recovery of general unsecured claims, and 46%–62% recovery of the total senior notes claims, which included the senior notes claims plus Series B subordinated notes claims that would have been allocated recovery of $93.2 million– $125.8 million. Source, unless otherwise noted: Company disclosure statement dated July 12, 2012. Note: This is an update of a case study originally published Feb. 14, 2013.
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Leveraged Finance Dynegy Holdings, LLC (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Claim Type DIP or Other Dynegy Administrative Claims Administrative Secured Secured Claims Unsecured General Unsecured Claims Intercompany Includes Intercompany Notes Equity Equity Holders Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date Claim Seniority Claim Type DIP or Other Dynegy Administrative Claims Administrative Secured Secured Claims
Allowed Claims Not Disclosed 27 3,931 0 0 3,958 0 1,700
Projected Equivalent Recovery (%) RR Category 100.0 RR1 100.0 55.0 0.0 0.0 — — —
RR1 RR3 RR6 RR6 Recoveries — —
Cash —
Secured Notes —
27 200 — — 227 — —
— — — — 0 — —
Form of Distribution Unsecured Subordinated Notes Notes — — — — — — 0 — —
— — — — 0 — —
New Options/ Equity Warrants — — — 1,980 — 20 2,000 — —
— — — 540 540 — —
Description • All administrative and priority claims were paid in full, in cash, on the effective date. • Secured letter of credit facility claims were fully recovered. • Note that the $1,700 million of secured loans at the Dynegy Power LLC and Dynegy Midwest Generation were at ring-fenced affiliates and were not impaired or defaulted by the bankruptcy of Dynegy Holdings, Inc.
Unsecured
General Unsecured Claims
• Claims Included unsecured notes of $3,487 million, TIA claim of $110 million, lease guaranty claims of $540 million, and a $55 million allowance from $222.5 million of subordinated claims. • Holders received 99% of the new common equity plus $200 million cash under a settlement agreement that also transferred the equity interests of coal company equity (CoalCo) from Dynegy to Dynegy Holdings (DH) to reverse the Sept. 1, 2011, intercompany coal-asset transfers from DH to Dynegy and terminated a $1.25 billion intercompany undertaking agreement that provided consideration for the September 2011 asset transfer.
Intercompany
Includes Intercompany Notes
• Intercompany asset transfers were deemed fraudulent transfers by the bankruptcy trustee. • $0 recoveries.
Equity
Equity Holders
• All old equity interests in Dynegy Holdings, Inc. were cancelled on the effective date. • Former equity owners received 1% of the new common equity and received warrants.
RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement dated July 12, 2012. Note: This is an update of a case study originally published Feb. 14, 2013.
Bond Price History — Dynegy Holdings, LLC ($1,100 Mil., 7.750% Senior Notes Due 2019) (% of Par) 100 90
Filing Date: 11/7/11
Confirmation Date: 9/5/12
80 70 60 50
Source: Bloomberg, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Dynegy Holdings, LLC (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts
Deficiency Claims Contingent Claims
Intercompany Claims
Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
$768 million. $660 million. $475 million. There was a $5 million new money intercompany DIP. Assumed, assumed and assigned, or rejected. The burdensome leases for the Roseton and Danskammer generating facilities in New York state were rejected in bankruptcy. The settlement agreement caps the recovery of the lease trustee and lease certificate holders at $571.5 million and provides for the sale of the Roseton and Danskammer facilities. Not available. Implementation of the settlement through a conforming plan settled legal disputes among the settling parties and released actions against the directors and officers of Dynegy related to the coal asset transfer in September 2011. Assumed to be settled separately in the bankruptcy. The settlement agreement terminated the $1.25 billion undertaking that Dynegy Inc. provided to Dynegy Holdings as consideration for the CoalCo assets transfer on Sept. 2, 2011. Pension and retirement plans were assumed by the surviving entity. Yes Unsecured claims. Yes Common equity.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, company disclosure statement dated July 12, 2012. Note: This is an update of a case study originally published Feb. 14, 2013.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Edison Mission Energy ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol
Key Driver Key Driver
Utilities Wholesale Power Generation Not Publicly Traded — Subsidiary of Edison International Petition Date Assets 8,323 Emergence Parent Company Name/ Acquired by a Subsidiary of NRG Ticker Energy, Inc./NRG
Bankruptcy Summary a
Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor Illinois — Northern No 12/17/12 3/11/14 4/1/14 15 Chapter 11 Yes — Sale of Substantially All Assets (as Going Concern) Voluntary Yes Acquired, Merged or Sold
Resolve Legacy Liabilities Flawed Business Model or Obsolete Product
Financial Profile b
Prepetition EBITDA Post-Emergence EBITDA Forecast
12-Month Period
Amount
2011 Not Applicable
495 Sold All Assets as Going Concern
Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
3,421 3,421 3,421 Not Applicable Not Applicable Not Available
Petition Date Versus Emergence Date Total Debtc Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
5,400 10.9 — —
Not Applicable Not Available 5,400 100
Events Leading Up to Bankruptcy (or Contributing Factors) Two major factors contributed to the Edison Mission Energy (EME) filing. First, state and federal regulatory regimes imposed rigorous emissions requirements on coalproduced power, requiring EME to make significant capital expenditures on their existing Midwest Generation coal plants. Second, a confluence of economic and technological drivers encouraged increased natural gas production (e.g. higher shale gas production), which resulted in a surplus of cheap natural gas and caused wholesale electricity prices and EME cash flows to plummet. Excess power plant capacity led to weak capacity prices. These adverse developments came at the same time as debt interest payments and debt issue maturities were approaching, including a $500 million note maturity in June 2013. The investment-grade parent company, Edison International (EIX), decided to stop supporting the EME wholesale power subsidiary. EME’s affiliate, Homer City, filed bankruptcy because it did not have sufficient capital to make required environmental capital investments.
Valuation Estimate Summary Enterprise Value Established by Asset Sale Price • The plan provides for a sale of substantially all assets (other than Homer City and certain EME tax attributes) to NRG Energy Holdings, Inc. (NRG) for approximately $3,422 million that was paid in cash of $3,021 million and $401 million of NRG shares. • NRG also assumed certain liabilities, including $1,200 million of lease debt and commitments to fund up to $350 million of environmental capex. • The total purchase price of $3,422 million is as reported in NRG’s 10-Q for the period ended March 31, 2014. • The assets sold to NRG included an approximately 8,000 megawatt portfolio of wind, coal and gas-fired generation facilities. • Under the terms of a settlement agreement, a trust was formed for the benefit of EME’s existing creditors. All assets and liabilities of EME that are not otherwise discharged in the bankruptcy or transferred to NRG were transferred to the reorganization trust, with the exception of the following: EME tax attributes estimated at $1.19 billion that will be retained by the EIX consolidated tax group, liabilities totaling $241 million associated with the qualified pension plan, the executive retirement plan, the executive deferred compensation plan and uncertain federal and state tax positions that are being assumed by EIX and EME’s indirect interest in Capistrano Wind Partners. Fundamental Valuation The disclosure statement did not include a projected future enterprise value or management forecast of financial results. Liquidation Value Alternative The estimated value under an alternative liquidation outcome was in the range of $1,568 billion and $2,058 billion. This would have resulted in estimated unsecured recoveries in the range of 27.5%–46.8%. The liquidation assumed that assets would be sold in an accelerated time frame of three to six months with all assets sold as a package in a forced sale. The analysis further assumed that customers would be willing to retain contracts and extend trade credit during the liquidation period, which the company believes would be unlikely. a
Edison Mission Energy was a wholly owned indirect subsidiary of Edison International (EIX). EIX also owns a regulated utility, Southern California Edison (SoCalEd). EIX and SoCalEd were non-debtors. bComposed of $3,700 million of senior unsecured notes, $345 million of sale leaseback obligations, $1,367 million of intercompany debt from EIX to Midwest Generation EME LLC and excludes non-recourse project debt of $1,400 million of non-debtors. cSource of total debt is EME’s 10-K. Source, unless otherwise noted: Second amended company disclosure statement dated Dec. 17, 2013; 8-K for third amended joint plan of reorganization dated March 17, 2014. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Edison Mission Energy (Continued) Estimated Recoveries for Select Claims Equivalent RR Category
Form of Distribution Secured Unsecured Subordinated New Cash Notes Notes Notes Equity
($ Mil., Except Where Noted) Claim Seniority DIP or Other Administrative Secured Unsecured
Intercompany Unsecured Subordinated Equity Unsecured
Claim Type Administrative and Priority Secured Claims against EME Senior Notes and Other General Unsecured Claims Against EME Intercompany Claims Against EME Unsecured Claims Against Debtor Subsidiaries Subordinated Claims Against EME EME Interests Powerton and Joliet Leases Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority DIP or Other Administrative Secured Unsecured
Claim Type Administrative and Priority
Intercompany
Intercompany Claims Against EME
Unsecured
Unsecured Claims Against Debtor Subsidiaries
Subordinated
Subordinated Claims Against EME EME Interests Powerton and Joliet Leases
Equity Unsecured
Secured Claims Against EME Senior Notes and Other General Unsecured Claims against EME
Allowed Projected Claims Recovery (%)
Options/ Warrants
Not Available 1 3,864
100.0 100.0 >80
RR1 RR1 RR2
— 1 3,059
— — —
— — —
— — —
— — 401
— — —
2,238
0.0
RR6
—
—
—
—
—
—
555 to 678
100.0
RR1
555–678
—
—
—
—
—
Not Available
0.0
RR6
—
—
—
—
—
—
Not Available 0 6,103 0
0.0 100.0 — —
— — 3,615 —
— — 0 —
— — 0 —
— — 0 —
— — 401 —
— — 0 —
Not Available
—
—
—
—
—
—
—
RR6 RR1 Recoveries — —
Description • Unimpaired, deemed to have accepted the plan of reorganization. • There was no DIP facility. • Unimpaired, presumed to have accepted the plan. • Distributions made in cash and NRG Energy common stock. • Includes $3,854 million in EME senior note claims. • The final claim amount and distribution amount are not available. • Source of recovery rate of >80% is EME 8-K dated March 17, 2014. • Senior notes included $1,200 million of 7.0% notes due May 15, 2017, $800 million of 7.2% notes due May 2019 and other various other senior unsecured issues. • Includes $1,369 million in intercompany notes from EME to Midwest Generation and $870 million in other intercompany claims. • The plan provides that holders of intercompany claims against EME and against subsidiary debt would receive no distributions. • Midwest Generation loaned the proceeds of the Powerton and Joliet sale-leasebacks to EME in exchange for $1,367 million of 8.3% intercompany notes. • Paid in full in cash. • The low end of the claims range includes $32 million in claims that are not assumed liabilities and $510 million in claims that are assumed liabilities. • The high end of the claims range assumes that certain EIX claims for pension plans at Midwest Generation and certain post-employment benefits claims were allowed. • Final allowed claim amount is not available. • $0 recoveries, presumed to have rejected the plan of reorganization. • $0 recoveries, presumed to have rejected the plan of reorganization. • Assumed by EME following modification of terms than transferred to NRG Energy, Inc. at the time of the asset sale.
RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: Second amended company disclosure statement dated Dec. 17, 2013; 8-K for third amended joint plan of reorganization dated March 17, 2014. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
72
Leveraged Finance Edison Mission Energy (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments
Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts
Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
Not available. $888 million as of Dec. 31, 2012. There were letter of credit facilities only with $163 million of letters of credit issued as of Dec. 31, 2012. EME terminated its $564 million revolving credit facility in Feb. 2012. Midwest Generation’s $500 million credit facility expired in June 2012. $163 million of letters of credit (no revolver). There was no DIP. Certain raw material and coal supply contracts were rejected for Midwest Generation. Midwest Generation assumed the leases for the Powerton and Joliet plants following modification of the terms and payment of the cure amount by EME following the reorganization. In addition, NRG agreed to fund up to $350 million capex at these two plants and assumed the liabilities as modified at the time of the acquisition. The collective bargaining agreement with the International Brotherhood of Electrical Workers was assumed. No Disputed claims including: EIX litigation, compensation, benefit and tax claims. — Liabilities totaling $241 million associated with the qualified pension plan, the executive retirement plan, the executive deferred compensation plan and uncertain federal and state tax positions were assumed by EIX. No Not applicable. Not available. Not applicable.
DIP – Debtor in possession. Source, unless otherwise noted: Fitch Ratings; second amended company disclosure statement dated Dec. 17, 2013; 8-K for third amended joint plan of reorganization dated March 17, 2014. Note: This is an update of a case study published April 27, 2015.
Bond Price History — Edison Mission Energy ($1,200 Mil., 7% Senior Unsecured Notes Due 2017) (% of Par) 100
Filing Date: 12/17/12
80 60 40
Confirmation Date: 3/11/14
20 0
Source: Bloomberg, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
73
Leveraged Finance Energy & Exploration Partners, Inc. ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector
Key Drivers of Bankruptcy Filing
Prepetition Ticker Symbol Petition Date Assets
Energy Independent Oil and Gas Exploration Production Not Publicly Traded 1,308
Emergence Parent Company Name/Ticker
Energy & Exploration Partners, Inc./ Privately Held
Key Driver Key Driver
Financial Profile
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Datea Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type
Yes Debtor Texas — Northern No 12/7/15 4/26/16 5/13/16 5 Chapter 11
Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Involuntary Converted to Voluntary Yes Emerged/Reorganized (Private)
Deep Cyclical Trough Untenable Capital Structure
12-Month Period
Amount
Prepetition EBITDA — b Post-Emergence EBITDA Forecast 12/31/17 Enterprise Value (EV) Range (or Asset Value Range)
Not Available 33
Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
175 225 200 70 120 6.1
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
1,157 Not Available — —
105 3.2 1,052 91
Events Leading Up to Bankruptcy (or Contributing Factors) Energy & Exploration Partners, Inc.’s (EEP) production, revenues and liquidity declined in 2015 as a result of plummeting oil prices and weak natural gas prices and consumer demand. These factors reduced asset values. At the same time, operations were adversely affected by weather conditions in North and East Texas, where producing assets were concentrated. There were four major flooding events in the area that caused roads to be temporarily impassable and led to shutdowns and also to subsequent operational issues after resumption of production, such as lift failures. At the time of filing, 44% of productive capacity was shut in. The company engaged advisors in July 2015 regarding potential strategic alternatives to enhance liquidity and address the overleveraged capital structure. In the weeks leading up to the bankruptcy filing, the company sold all of in-the-money commodity swaps to generate $71.7 million in incremental liquidity, extended payment terms with key vendors and reduced drilling, headcount and overhead. However, new funding was needed, and the capital markets were essentially closed to the entire sector. A debt-to-equity exchange was determined to be the only real possibility to address the challenges, but the company was unable to negotiate an out-of-court exchange agreement with creditors.
Valuation Estimate Summary Going Concern Enterprise Value A third-party valuation advisor estimated the total enterprise value of the reorganized company to be approximately $175 million–$225 million with a midpoint of $200 million. Based on assumed debt of $105 million, the implied equity value range is $70 million to $120 million (including the rights offering for 80% of the new common interests). The advisor’s analysis was based on a net asset value approach to valuing the net present value of the company’s reserves, a precedent transaction analysis and a comparable company analysis. The specific assumptions on discount rates, terminal value multiples and peer names were not provided. The PV-10 of the proved developed reserves was estimated at $91 million. The commodity price assumptions included: NYMEX oil price of $40.17 per barrel in 2016 that gradually increased to $48.84 per barrel by 2021 and NYMEX natural gas price of $2.04 per MMBtu in 2016 with a rise to $2.94 per MMBtu by 2021. The valuation includes the rights offering new money. The analysis considered management’s financial projections, which included the following forecast for EBITDAX: ($ Mil.)
2017
2018
2019
2020
2021
EBITDAX
32.7
43.1
50.6
56.3
61.9
Liquidation Value Alternative The hypothetical liquidation analysis alternative assumes the Chapter 11 was converted to a Chapter 7 case on May 31, 2016. The analysis was based on an estimated roll-forward of the Dec. 31, 2015 balance sheet to May 31, 2016 and was done on a legal entity by legal entity basis. The estimated book value of assets at EEP was $402.3 million, and these assets were valued in the range of $99.9 million–$107.8 million. PP&E was the largest line item, with a book value of $373 million and an estimated liquidation value of $79 million–$86 million, which represents 21%–23% of book value. Cash on hand of $15.6 million was valued at 100% of book value. There was no recovery value at the GP level in the Chapter 7 alternative valuation. a
This is the voluntary petition date, the involuntary petition, which was filed against the company by certain vendors, was Nov. 25, 2015. bForecast is for EBITDAX. Source, unless otherwise noted: First amended disclosure statement dated March 21, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
74
Leveraged Finance Energy & Exploration Partners, Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP and Priority Secured Unsecured Unsecured Equity Equity
Claim Type DIP Facility and Other Administrative First Lien 8% Convertible Notes due 2019 General Unsecured Claims (Excluding Deficiency Claims) Preferred Stock Common Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority DIP and Priority
Claim Type DIP Facility and Other Administrative
Secured
First Lien
Unsecured
8% Convertible Notes due 2019
Unsecured
General Unsecured Claims (Excluding Deficiency Claims)
Equity
Preferred Stock
Equity
Common Interests
Form of Distribution Allowed Projected Equivalent Secured Unsecured Subordinated New Options/ Claims Recovery (%) RR Category Cash Notes Notes Notes Equity Warrants 40 100.0 RR1 40 — — — — — 764 7.6 RR6 — 40 — — 18 — 375 >0.0 RR6 — — — — — — 49 4.6 RR6 2 — — — — — N.A. N.A. 1,228 90 0
0.0 0.0 — — —
RR6 RR6 Recoveries — —
— — 42 — —
— — 40 — —
— — 0 — —
— — 0 — —
— — 18 — —
— — 0 — —
Description • An up to $90 million rights offering to participate in a delayed-draw first-lien term loan was made to prepetition secured claimholders with proceeds used to repay the DIP facility and provide working capital for the reorganized company. • Claim amount is Fitch estimate. • The term loan was secured by first liens on all assets and 80% of the new common interests subject to dilution from the management incentive plan and noteholder warrants. • Distributions consisted of up to $40 million of the new second-lien term loan, 20% of the new common interests (subject to dilution) and the option to participate in the rights offering. • No value from participation in the rights offering is included in the equity distribution. However, the firstlien creditors that participated in the rights offering became the control investors in the new common stock. • Distributions consisted of warrants exercisable into 0.7% of the new common interests at a strike price of $195 million equity value, less the total debt outstanding on the effective date. • Distributions consisted of $2.25 million (the general unsecured claims cash) and the proceeds, if any, of the assigned estate claims. • General unsecured claims included an $18 million promissory note payable to Chesapeake Exploration LLC and trade debt of approximately $27 million. • Convenience claims (less than $1,000) were estimated to be in the $20,000–$150,000 range and were paid in full. • Not entitled to vote, deemed to have rejected the plan. • $0 recoveries. • Issued to Highbridge Principal Strategies, LLC and Apollo Investment Corporation. • Not entitled to vote, deemed to have rejected the plan. • $0 recoveries.
RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not available. Source, unless otherwise noted: First amended disclosure statement dated March 21, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Energy & Exploration Partners, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues Executory Contracts Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
Not available. $12 million as of Jan. 1, 2016. $775 million term loan (no revolver). $765.3 million of term loan borrowings. $135 million DIP was a new money facility. â&#x20AC;&#x201D; The company was evaluating contracts to determine whether they should be assumed or rejected as of the disclosure statement publication date. Waived by the first-lien lenders. Disputed claims. Reinstated or compromised on the plan effective date at the option of the debtors with the consent of the requisite majority secured lenders. Employee benefit plans were assumed and continued. No Not applicable. Yes General unsecured claims received 4.6% recoveries as a result of the first-lien settlement and convenience claims (<$1,000) were paid out at 100%. First-lien creditors agreed to waive any recoveries on $718 million of deficiency claims until allowed general unsecured claims recovered 15% of their claim amount.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, disclosure statement dated March 21, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
76
Leveraged Finance Energy Partners, Ltd. ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Energy Oil and Gas Exploration and Production EPL 815 Energy Partners, Ltd./EPL
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Yes Debtor Texas — Southern No 5/1/09 9/17/09 9/21/09 5 Chapter 11 (Prearranged/Negotiated) No Voluntary Yes Emerged/Reorganized (Public)
Key Driver Key Driver
Deep Cyclical Trough Extreme Event
Financial Profile 12-Month Period
Amount
Prepetition EBITDA December 2008 a Post-Emergence EBITDA Forecast December 2010 Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
234 99 576 671 624 465 560 6.3
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
538 2.3 — —
111 1.1 427 79
Events Leading Up to Bankruptcy (or Contributing Factors) Numerous events led to Energy Partners, Ltd.’s (EPL) need for a restructuring, including a hurricane-related pipeline outage, commodity price declines and poor credit markets. Hurricanes damaged third-party pipeline in late 2008, which forced the shut-down of a significant amount of production from September 2008 to January 2009. At the same time, oil and natural gas prices declined to the lowest levels since 2001 and remained low in 2009. The hurricane outages reduced production by approximately 21% on an annual basis. Additionally, the collapse of the worldwide credit markets in 2008 made credit significantly harder to obtain, resulting in a reduction in financial flexibility. Liquidity was depleted from these and additional adverse events. First, ongoing discussions with the U.S. Minerals Management Service (MMS) culminated in the rejection of a waiver request for decommissioning requirements of certain federal offshore properties. The MMS rejection resulted in a requirement for EPL to post bonds or other securities totaling $47.3 million, to which it eventually couldn’t comply. Second, EPL received a redetermination of the borrowing base under its asset-based loan (ABL) revolver due to the falling oil and gas prices that lowered the value of reserves. The borrowing base was lowered to $45 million, while there were $83 million of ABL borrowings, resulting in a deficiency of $38 million that EPL was required to pay by April 2009. The banks refused to extend a waiver or provide more time to repay. Finally, in April 2009, the company had an interest payment of $17 million on its senior notes due and was unable to make the payment.
Valuation Estimate Summary Fundamental Going Concern Enterprise Valuation Published in May 2009 Disclosure Statement The disclosure statement published in May 2009 included a third-party valuation advisor estimated midpoint enterprise valuation (EV) of $624 million with a range of $576 million–$671 million. The advisor relied on the discounted cash flow, comparable company and precedent merger transaction approaches. The third-party advisor calculated: • EV to EBITDX multiples for comparable companies, with the analysis producing a range of 0.9x–3.3x, with a median of 2.1x. • EV to proved reserves multiples for comparable companies, based on barrel of oil equivalent (boe), with analysis producing a range of $6.35–$17.54, with a median of $10.13/boe. • EV to daily production multiples for comparable companies, based on average daily boe, with analysis producing a range of $18,446–$103,724, with a median of $32,647 per flowing barrel of oil per day (boepd). Precedent Transaction Analysis in May 2009 Disclosure Statement $624 Million Prior Valuation The third-party advisor examined all publicly announced exploration and production transactions since Dec. 31, 2003, on the Gulf of Mexico Shelf, with oil making up at least 50% of proved reserves. The advisor used the following: • For asset transaction: Transaction value to proved reserves, based on boe, with analysis producing a range of $3.52–$26.19, with a median of $15.44/boe. • For asset transaction: Transaction value to daily production, based on boe, with analysis producing a range of $8,416–$148,909, with a median of $45,720/boepd. • For merger transaction: Transaction value to proved reserves, with analysis producing a range of $4.58–$41.62, with a median of $15.68/boe. • For merger transaction: Transaction value to daily production, based on boe, with analysis producing a range of $18,855–$142,518, with a median of $66,423/boepd. • For merger transaction: Transaction value to LTM EBITDX, with analysis producing a range of 2.8x–17.0x with a median of 6.4x. a
Source is investor presentation dated October 2009, which also revised the enterprise valuation to $671 million from $576 million according to BankruptcyData.com plan summary. Source, unless otherwise noted: Company disclosure statement dated May 15, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
77
Leveraged Finance Energy Partners, Ltd. (Continued) Valuation Estimate Summary (Continued) Alternative Valuation Based on Share Price on Initial Post Bankruptcy Trading Date of Sept. 23, 2009. The company’s stock was reinstated on the NYSE two days following emergence from Chapter 11. As per Bloomberg, the first day stock price was $8.97 based on 40 million shares outstanding, resulting in a market capitalization of $358 million and approximate enterprise value of $470 million. The company press release announcing the emergence noted that 95% of shares were allocated to noteholders, and 5% to old shareholders, which differed from the May disclosure statement proposed allocation of 100% of shares distributed to noteholders. The October 2009 investor presentation included the EBITDA forecast below. 2010 2011 2012 2013 EBITDA
98.9
159
243
296
Liquidation Value Alternative The liquidation value alternative was estimated to be in the range of $233 million–$271 million. The analysis was based on a percentage of the book value of assets projected as of March 31, 2009. Projected book values and percentages applied included the following: • Unrestricted cash of $21 million at 100% • Restricted cash of $25 million at 46%–64% • Accounts receivable of $23 million at 90%–100% • Insurance receivable of $4 million at 80%–100% • Prepaid Expenses of $5 million at 50%–60% • PP&E of $670 million at 28%–31% • Other assets of $2 million at 98%–100% a
Source is investor presentation dated October 2009, which also revised down the enterprise valuation to $671 million from $576 million. Source, unless otherwise noted: Company disclosure statement dated May 15, 2009. Note: This is an update of a case study published April 27, 2015.
Bond Price History — Energy Partners, Ltd. ($300 Mil., 9.75% Senior Unsecured Notes Due 2014) (% of Par) 100 80
Filing Date: 5/1/09
60 40 20
Confirmation Date: 9/17/09
0
Source: Bloomberg, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
78
Leveraged Finance Energy Partners, Ltd. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
$13 million as per news article in The Times-Picayune dated May 1, 2009. $150 million ABL with maximum borrowing base availability of $45 million as of March 2009. $83 million (borrowing base overage). The company was in negotiations for a $20 million DIP facility as of May 2009 disclosure statement. The October 2009 financial forecast had no DIP borrowings. EPL was party to federal oil and gas development leases, which were reinstated at emergence. No, secured lenders were paid in full. Disputed claims. Subsidiary debtor interest was reinstated and vested in the reorganized EPL. None. Pension plans were continued during and after the bankruptcy. Yes Secured claims. Yes General unsecured claims and equity interests. In addition, EPL reached a settlement with MMS that required payments into a trust for decommissioning claims asserted by MMS in the amount of approximately $1.2 million each quarter during Chapter 11, and payment of $21 million minus the sum of these payments on the effective date.
ABL â&#x20AC;&#x201C; Asset-based loan. DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings; company disclosure statement dated May 15, 2009; investor presentation dated October 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
79
Leveraged Finance Entergy New Orleans, Inc. ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Company
Utilities Electric and Gas Utility Subsidiary of Entergy (ETR) 663 Entergy New Orleans/
Name/Ticker
Subsidiary of Entergy (ETR)
Key Driver Key Driver
Extreme Event Untenable Capital Structure
Financial Profile 12-Month Period
Amount
12/31/05 12/31/08
88 83
Prepetition EBITDA Post-Emergence EBITDA Forecast
Bankruptcy Summary
Enterprise Value (EV) Range (or Asset Value)
Did All Entities in the Group File?
No
Low
925
Plan Proposed by
Debtor
High
925
Court District
Louisiana — Eastern
Midpoint EV
Substantive Consolidation
No
Equity Value Range (Including Cash on Hand)
Petition Date
9/23/05
Low
Confirmation or Conversion Date
5/7/07
High
177
Effective Date
5/8/07
Midpoint EV/Post-Emergence EBITDA Estimate
11.1
Duration (Months)
20
Filing — Type
Chapter 11
Section 363 Asset Sale by Debtor
No
Petition Date
Emergence Date
Voluntary or Involuntary Filing
Voluntary
Total Debtb
245
304
Postconfirmation Liquidating Trust
No
Consolidated Leverage (x)
2.8
3.7
Resolution
Emerged/Reorganized (Private)
Debt Shed in Bankruptcy
—
(59)
Debt Shed in Bankruptcy (%)
—
(0.2)
925 a
177
Petition Date Versus Emergence Date
Events Leading Up to Bankruptcy (or Contributing Factors) Entergy New Orleans’ (ENOI) facilities and customer base were devastated by Hurricane Katrina, which was one of the costliest and deadliest hurricanes in the history of the U.S. The hurricane and prolonged flooding in the city of New Orleans that followed resulted in power outages throughout New Orleans. At ENOI’s outage peak, all 190,000 electric customers and 120,000–125,000 gas customers were without service. All of ENOI’s electric generating facilities, including switch yard, were inundated by flood waters and rendered inoperable. The utility’s service territory was unique in that it was concentrated in a small area in and around the city of New Orleans, in contrast to other service territories that span hundreds of miles. All of ENOI’s transmission lines sustained substantial damage. Twelve of 22 substations sustained moderate to heavy flood damage. Revenues dropped to nearly $0 immediately after the storm, and the return of customer revenues could not be predicted because customers were unable to take power because they were flooded out of their homes and the system needed to be rebuilt. The company became insolvent. The full and timely recovery of the costs through traditional tariff adjustments was not an option because of the reduced customer base. Funding from the parent company, Entergy Corporation, insurance payments and the government were the sources of funding for system restoration and repair.
Enterprise Valuation Estimate Summary Asset Book Value Used as Proxy for Enterprise Value There was no third-party valuation of the company, as is typical in a plan of reorganization, as future cash flow was impossible to predict given uncertain revenues and repair costs. As a proxy for enterprise value, Fitch used the $925 million of book value of total assets as reported in the 10-Q for the period ended March 31, 2007 (the last filing prior to emergence). Regulated utilities earn a return on their asset base (equity in rate base), so this is a reasonable proxy for value. To fund storm restoration and repair, ENOI received a $200 million DIP loan from Entergy Corporation and in April of 2007 signed an agreement with the state Office of Community Development to receive up to $200 million in Community Development Block Grant money to help fund storm-related costs. They also reached a settlement with Hartford Steam Boiler Inspection and Insurance (an affiliate of AIG) to receive $53 million for hurricane expenses and other insurance proceeds. Going Concern Alternative Value Based on Multiple of Management Forecast of EBITDA The disclosure statement included a forecast of results by management. This forecast included an EBITDA projection of $83 million in 2008 (the first full year following emergence). For illustrative purpose, applying an 8.0x multiple of the EBITDA would result in an enterprise value estimate of $664 million. Liquidation Value Alternative There was no liquidation alternative completed for the disclosure statement. The company indicated that since all debt claims were unimpaired and the interests were retained by the prepetition equity holder (Entergy Corporation), that no liquidation alternative was necessary. In addition, the public service critical nature of the business made it certain the company would continue to operate following emergence. a
Book equity as of Dec. 31, 2006. bPetition date and emergence date debt balances are approximate based on 10-Q for Sept. 30, 2005 and 10-K debt balance as of Dec. 31, 2007. DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement for the fourth amended plan of reorganization dated Feb. 5, 2007. Note: This is an update of a case study published Feb. 14, 2013.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
80
Leveraged Finance Entergy New Orleans, Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Allowed Projected Claims Recovery (%) 115 100.0
Claim Seniority Claim Type DIP or Other Administrative Claim, Administrative Administrative Trade Claims, Professional Fee Claims, $200 Million DIP Financing Claim, Priority Tax Claims Secured First-Mortgage Bond Claims Unsecured General Unsecured Claims Intercompany Intercompany Claims Equity 4.36% Preferred Series, 4.75% Preferred Series, 5.56% Preferred Series Equity Equity Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date Claim Seniority Claim Type DIP or Other Administrative Claim, Administrative Professional Fee Claims, $200 Million DIP Facility
Equivalent RR Category RR1
Secured Cash Notes 115 —
Form of Distribution Unsecured Subordinated Notes Notes — —
New Options/ Equity Warrants — —
239 34 69 1
100.0 100.0 100.0 100.0
RR1 RR1 RR1 RR1
9 34 — —
230 — — —
— — 70 —
— — — —
— — — 1
— — — —
Not Available 458 0 0
100.0
RR1
—
—
—
—
—
—
158 — —
230 — —
70 — —
0 — —
1 — —
0 — —
— — —
Recoveries — —
Description • The DIP claim was estimated to be $63.5 million. • The DIP lender (parent Entergy Corporation) received a priming lien over the objection of the first mortgage bond trustee. • The DIP facility was not a committed facility. • All allowed administrative claims were unimpaired and paid full in cash.
Secured
First-Mortgage Bond Claims
• The $239 million claim includes $230 million of principal plus the interest portion. • The $230 million principal amount of FMBs was reinstated at emergence and the interest was paid in cash. • Holders of bonds were unimpaired.
Unsecured
General Unsecured Claims
• Each holder of a general unsecured claim received one of the following alternative treatments: o If holder voted to accept the plan, distributions was paid in cash equal to the aggregate amount of the allowed amount of the claim plus interest on the principal amount of the claim at a 6% interest rate. o If holder voted against the plan, the holder received a new unsecured note for the full claim amount.
Intercompany
Intercompany Claims
• Received an intercompany note in the principal amount of the allowed amount plus an amount equal to interest on the claim.
Equity
4.36% Preferred Series, 4.75% Preferred Series, 5.56% Preferred Series
• If holder voted in favor of the debtor’s plan, the preferred interests remained outstanding post-emergence and were paid interest. • Holders were unimpaired and the series was reinstated.
Equity
Equity Interests
• Impaired, the holder of the equity interests retained their interests after the effective date of bankruptcy but became subject to certain upstream dividend restrictions.
RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement for the fourth amended plan of reorganization dated Feb. 5, 2007. Note: This is an update of a case study published Feb. 14, 2013.
Entergy New Orleans, Inc. — Bond Price History ($70 million 5.250% 1st Mortgage Notes due 2013) 120
(% of Par)
110
Filing Date: 9/23/05
Confirmation Date: 5/7/07
100 90 80 70
Source: Bloomberg, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
81
Leveraged Finance Entergy New Orleans, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims
Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
Not disclosed. There was $46.7 million as of Sept. 30, 2005a. $15 million. $15 million. The $200 million DIP was a new money facility. Specific power and gas supply and transport contracts were assumed. None. Secured debt claims were unimpaired. There was a disputed claim with Capital One regarding a set-off relating to a receivables financing program. There were also disputed claims relating to asbestos lawsuits, employee discrimination, property loss and other litigation. The claims were impaired and each holder of a claim received an intercompany note in the principal amount of the allowed amount plus interest. All plans were maintained and remained in full force during the bankruptcy and after emergence. Yes Various, including unsecured claims. No All claims except the equity claims were paid in full.
a
Source of cash filing date was 10-Q for period ended Sept. 30, 2005. DIP â&#x20AC;&#x201C; Debtor in possession. Source, unless otherwise noted: Fitch Ratings, company disclosure statement dated Feb. 5, 2007. Note: This is an update of a case study published Feb. 14, 2013.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
82
Leveraged Finance Geokinetics, Inc. ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Energy Oil and Gas Equipment GEOKQ 415 Geokinetics/Privately Held by Prepetition Noteholders
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor Delaware No 3/10/13 4/25/13 5/10/13 2 Chapter 11 (Prepackaged) No Voluntary No Emerged/Reorganized (Private)
Key Driver Key Driver
Extreme Event Untenable Capital Structure
Financial Profile 12-Month Period Prepetition EBITDA Post-Emergence EBITDA Forecast Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
2012 2013
Amount 106 106 230 330 280 148 253 2.6
Petition Date Versus Emergence Date Total Debta Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
590 5.6 — —
56 0.5 534 91
Events Leading Up to Bankruptcy (or Contributing Factors) Factors that led to the bankruptcy included operating losses primarily due to delays in project commencements, low asset utilization, idle crew costs, and litigation relating to the Mexico liftboat incident in which three employees were killed in a mapping expedition. The incident damaged the company’s reputation and saddled it with substantial litigation liabilities. In an effort to address liquidity issues, the company’s management instituted a number of steps, including the decision to close certain regional offices, sell certain noncore assets, and exit certain operations around the world where the long-term prospects for profitability were not in line with business goals. However, these steps did not solve the problem. On Dec. 17, 2012, the company elected not to make the $14.6 million interest payment on the notes.
Valuation Estimate Summary Comparable Company Analysis A comparable company analysis was completed by a third party valuation advisor. The analysis was used to estimate the $280 million midpoint enterprise value of the company. The comparable companies are Dawson Geophysical Co., TGC Industries, Global Geophysical Services, CGG, Petroleum Geo-Services ASA and TGSNOPEC Geophysical Company. The EBITDA multiple range for the comparable companies was 2.5x–3.5x for the historical 2012 EBITDA results. Other Information No discounted cash flow analysis or other approach was used due to the absence of a long-term business plan. Liquidation Value Alternative The estimated proceeds under the Chapter 7 liquidation analysis scenario were in the $136 million to $163 million range. The analysis was based on balance sheet book values. The factors applied to book values were: • Accounts receivable — 70%–80% • Property, plant and equipment approximately — 40% • Data library — 55% a
The total debt amount at the petition date does not include the intercompany obligations that remain unchanged after emergence. The total debt at emergence is the outstanding amount borrowed under the $75 million ABL revolver exit financing. Source: Fitch Ratings, company disclosure statement dated March 10, 2013. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
83
Leveraged Finance Geokinetics, Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP or Other Administrative Secured Secured Unsecured Intercompany Equity
Claim Seniority DIP or Other Administrative Secured Secured Unsecured Intercompany Equity
Claim Type DIP Financing Credit Facility Notes General Unsecured Claim Intercompany Obligations Senior Preferred Equity Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Allowed Projected Claims Recovery (%) 25 50 300 11 267 141 794 0
100.0 100.0 67.0 100.0 100.0 4.0 — —
0
—
Equivalent RR Category
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants
RR1 RR1 RR3 RR1 RR1 RR6 Recoveries —
— 50 — 11 — 6 67 —
— — — — — — 0 —
— — — — — — 0 —
— — — — — — 0 —
25 — 199 — — — 224 —
— — — — — — 0 —
—
—
—
—
—
—
—
Claim Type DIP Financing
Description • Converted to equity valued at par value of debt at emergence. • DIP financing was provided by senior secured noteholders. Credit Facility • Paid in full in cash. • Distributions paid with proceeds of ABL exit financing from Wells Fargo. Notes • Converted to equity valued at $200 million, given the enterprise value of $280 million. Since the noteholders also provided the DIP financing for $25 million, the effective recovery rate is 69%. General Unsecured Claim • Paid in full in cash financed from the exit financing and cash on hand. If any deficiency claim exists, it would be paid off in the ordinary course of business after emergence. Intercompany Obligations • The obligations among the subsidiaries and the parent company stay unchanged. It is included in the total debt amount at the time of filing. Senior Preferred Equity Interests • Received $6 million in cash provided by the exit financing.
RR – Recovery Rating. DIP – Debtor in possession. Source: Fitch Ratings, company disclosure statement dated March 10, 2013. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
84
Leveraged Finance Geokinetics, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
$16 million ($4 million as restricted cash) $50 million $50 million New money facility provided by senior secured noteholders. No contracts were rejected. Yes, but secured noteholders waived the claims. Not available. All intercompany claims were waived and the unaltered obligations survived bankruptcy. Not available. No Not applicable. Yes Preferred equity rights holders received $6 million.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, company disclosure statement dated March 10, 2013. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
85
Leveraged Finance Global Geophysical Services, Inc. ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Energy Seismic Data Provider GGS 468 Private
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor Southern District of Texas No 3/25/14 2/6/15 2/9/15 11 Chapter 11 No Voluntary No Emerged/Reorganized (Private)
Key Driver Key Driver
Flawed Business Model or Obsolete Product Untenable Capital Structure
Financial Profile 12-Month Period Prepetition EBITDA Post-Emergence EBITDA Forecast Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
2014 2015
Amount 57 85 190 190 190 85 85 2.2
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
407 7.1 — —
107 1.3 300 74
Events Leading Up to Bankruptcy (or Contributing Factors) The key driver was working capital deficits that led to liquidity constraints. Prior to 2013, Global Geophysical Services, Inc. (GGS) focused on multiclient services, and the results were satisfactory. However, following a change in executive leadership in 2012, the company made a strategic decision to increase its emphasis on proprietary services. The change in emphasis impacted the company’s liquidity during 2013 because contracts for its international proprietary services required GSS to incur working capital for start-up expenditures well before the company receives revenues and cash flows under such contracts. In addition to the liquidity issue, the company faced potential covenant defaults under its TPG term loan and was unable to timely file its 10-K for the year ended 2013.
Valuation Estimate Summary Goinc Concern Value Estimate The enterprise value was disclosed as $190 million in the disclosure statement. The value was a negotiated amount that was used in the backstop conversion commitment settlement. There was no methodology or assumptions provided. The disclosure statement indicated that the $190 million was to be subject to a market test to check whether there was a higher and better value available in a competitive sale than the rights offering/debt to equity conversion plan settlement. The plan resulted from a negotiated agreement following lender and company discussions to reduce debt. The settlement provided for, among other things: • A $23.05 million–$30.26 million rights offering for 28.50%–37.41% of the pro forma equity in GGS Holdings that were used to pay down a portion of the DIP • Conversion of 100% of the senior notes into 11.95% to 32.71% of the pro forma equity in GGS Holdings • A covenant and condition that the company refinance and replace approximately $100 million of the DIP loans with a new secured term credit facility on exit Liquidation Value Alternative Based on the projected asset book value of $386 million, the estimated liquidation value of the company is in the range of $108 million– $170 million. Under the liquidation analysis, the debtor in possession financing would recover 63%–100% and the senior unsecured notes would not recover at all. The following rates are used to adjust the book value of the assets: • Cash: 100% of $25 million • Accounts Receivable: 10% of $120 million • Multiclient Library: 50% of $155 million • PP&E: 25% of $61 million • Other LT Assets: 5% of $23 million DIP – Debtor in possession. Source: Fitch Ratings, second amended company disclosure statement dated Oct. 28, 2014, as reformed Oct. 31, 2014. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
86
Leveraged Finance Global Geophysical Services, Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP or Other Administrative Secured Unsecured Unsecured
Claim Type DIP Financing First-Lien Term Loan $250 Million 10.5% Unsecured Notes Due 2017 Trade Claims Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority DIP or Other Administrative
Claim Type DIP Financing
Secured Unsecured
First-Lien Term Loan $250 Million 10.5% Unsecured Notes Due 2017 Trade Claims
Unsecured
Allowed Projected Equivalent Claims Recovery (%) RR Category 151 83 261 14 509 0 0
100.0 RR1 100.0 RR1 12.0 21.0 — —
RR5 RR5 Recoveries —
— —
Cash
Secured Unsecured Notes Notes
Form of Distribution Subordinated New Options/ Notes Equity Warrants
— 83
100 —
— —
— —
51 —
— —
— 3 86 —
— — 100 —
— — 0 —
— — 0 —
25 — 76 —
6 — 6 —
—
—
—
—
—
—
Description • DIP financing was provided by 50% of the senior unsecured noteholders. • A portion of the proceeds were used to pay off the first-lien term loan, and the rest were used to pay trade claims and finance the ordinary course of business. • Upon effective date, the DIP financing was replaced by $100 million exit financing in the form of senior secured notes and also about 65% of new common stock, which are valued at $51 million given the enterprise valuation of $190 million. • Paid in full with the proceeds of the DIP financing. • The unsecured noteholders were given approximately 30% of the new stock plus warrants to purchase up to 37% of the new stock. The warrants are valued around $6 million. • Received $3 million in cash distributions.
RR – Recovery Rating. DIP – Debtor in possession. Source: Fitch Ratings, second amended company disclosure statement dated Oct. 28, 2014. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
87
Leveraged Finance Global Geophysical Services, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments
Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
$25 million. No revolving bank facility, but TPG provided a $82.8 million first-lien term loan. The companyâ&#x20AC;&#x2122;s previous revolver commitment was reduced prior to the filing date, then the revolver was refinanced by the TPG term loan in September 2013. The TPG financed first-lien loan had $81.765 million outstanding. The DIP was used to repay the first-lien term loan and also included new money provided by a block of unsecured senior noteholders. The Company rejected commercial office and warehouse space in Midland Texas, and commercial office space in Houston, Texas, to reduce monthly administrative rental. Senior unsecured noteholders waived the claims upon emergence. No contingent claims. No intercompany claims were filed. The company agreed to pay all company wages and benefits during and after the Chapter 11 proceeding. Senior secured term loan was paid in full with the DIP loan shortly after the bankruptcy filing, so no postpetition interest existed. No Yes In the form of warrants offered to senior unsecured noteholders.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, second amended company disclosure statement dated Oct. 28, 2014. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
88
Leveraged Finance GMX Resources, Inc. ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Energy Exploration and Production GMXR 542 Thunderbird Resources L.P./Private
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Yes Debtor Oklahoma — Western Yes 4/1/13 1/22/14 2/4/14 10 Chapter 11 Yes — Sale of Substantially All Assets (as Going Concern) Voluntary Yes Emerged/Reorganized (Private)
Key Driver Key Driver
Untenable Capital Structure Deep Cyclical Trough
Financial Profile 12-Month Period a Prepetition EBITDA 12/31/12 Post-Emergence EBITDA Forecast 12/31/15 Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
Amount 22 8 340 340 340 338 338 42.5
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 440 20.0 — —
Emergence Date 51 6.4 389 88
Events Leading Up to Bankruptcy (or Contributing Factors) The underlying causes of the bankruptcy filing were a lack of liquidity and availability of capital to develop and exploit oil and natural gas properties, including drilling, completing and producing the proved undeveloped reserves of oil and gas assets. GMX Resources, Inc. was struggling from a substantial decline and sustained low natural gas prices over the three years prior to the filing date. The company tried to raise additional capital during the cyclical downturn but was unsuccessful. The company skipped an interest payment on its second-lien notes in March 2013, which triggered defaults under other note indentures. The first-lien note steering committee agreed to provide a debtor in possession facility to fund the orderly liquidation of all assets in the bankruptcy. These lenders made a credit bid for a portion for the allowed claim and became the owners of the assets because the credit bid was the best offer for the assets.
Valuation Estimate Summary Credit Bid by First-Lien Noteholders Established Company Enterprise Value The senior secured noteholders made a stalking horse bid to purchase all assets for $338 million of senior secured notes plus the assumption of certain liabilities. While 55 potential purchasers reviewed GMX data and five bids were received in the August 2013 auction (including the stalking horse bid), the credit bid was the highest and best offer. In addition to the $338 million credit bid, $1.5 million of cash for unsecured creditor distributions is included in the Fitch estimate of company value. Income Statement Projections While no fundamental valuation was provided in the disclosure statement, it did include projected financial results. The projections did not include significant new capital investments and used forward strip prices as of October 2013. The lack of new investment was anticipated to lead to lower cash flows over time as production declined without new drilling activity. The forecasted results were for declining EBITDA, including: 2014 2015 2016 ($ Mil.) EBITDA 16 8 3 Liquidation Value Alternative The liquidation alternative valuation range of $109.9 million–$183.4 million was based on percentages of asset book value. The asset value and percentages used included: • Cash and equivalents of $8.3 million at 100% of book value • Accounts receivable of $4.7 million at 90%–100% • Oil and gas properties and joint venture interest of $266.5 million at 30%–60% The recovery rate for the senior first-lien notes would have been in the range of 21%–38% after liquidation costs, including trustee costs, plugging and abandonment costs, etc. a Prepetition 2012 EBITDA are unaudited, source 8-K dated May 13, 2013. Source, unless otherwise noted: First amended company disclosure statement dated Dec. 5, 2013. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
89
Leveraged Finance GMX Resources, Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP or Other Administrative Secured Secured Unsecured
Equity
Claim Seniority DIP or Other Administrative
Secured
Secured
Unsecured
Equity
Allowed Projected Equivalent Claims Recovery (%) RR Category
Claim Type Administrative and $50 Million DIP Facility 51 Senior secured First-Lien Notes 338 due 2017 Secured Second Priority Notes 52 Due 2018 4.5% Convertible Notes Due 50 2015 and 11.375% Senior Notes Due 2019 Equity Interests in GXMR Not Available Estimated Claims 491 a New Borrowings at Emergence 51 Debt of Nonfiling Affiliates on Emergence Date 0
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants
100.0 RR1 100.0 RR1
— —
51 —
— —
— —
— 338
— —
1.0 RR6
0.5
—
—
—
—
—
1.0 RR6
0.5
—
—
—
—
—
0.0 RR6 — Recoveries — —
— 1.0 —
— 51 —
— 0 —
— 0 —
— 338 —
— 0 —
—
—
—
—
—
—
— —
Claim Type Administrative and $50 Million DIP Facility
Description • Allowed administrative and DIP claims were paid in full in cash or refinanced with the exit facility. • The cash to repay the DIP lenders was from the proceeds of the exit facility. • There was $10 million outstanding under the $50 million DIP facility as of Oct. 15, 2013. The final claim amount was not disclosed, and Fitch Ratings used the projected Dec. 31, 2014, debt balance of $51 million in the balance sheet projections as a proxy for the claim (and exit facility amount). Senior Secured First-Lien • $338 million was the entire principal and interest outstanding. The claim amount excludes a $66-million deficiency Notes Due 2017 claim treated as a general unsecured claim that was waived when unsecured classes voted to accept the reorganization plan. • This $66 million was a premium triggered by the bankruptcy filing that triggered an early amortization (and not interest or principal). • The recovery would be 83% if the deficiency claim on the $66 million premium that was triggered by the acceleration of the notes due to the bankruptcy filing was included in the claim amount. However, excluding this $66 million premium, the recovery rate on principal and interest was 100%. • The distributions were made in the form of 100% of the new common stock and 61.4% of the new GXM interests in reorganized GMX, which was renamed Thunderbird Resources Equity. Secured Second Priority • The entire claim was treated as a general unsecured claim. Notes Due 2018 • General unsecured claim recoveries were expected to be at least 1%. • Paid in cash with distributions from creditor trust and also entitled to proceeds from causes of action. 4.5% Convertible Notes Due • The entire claim was treated as a general unsecured claim. 2015 and 11.375% Senior • General unsecured claim recoveries were expected to be at least 1%. Notes Due 2019 • Paid in cash with distributions from the creditor trust and also entitled to the proceeds from causes of actions. Equity Interests in GMX • No distributions. • Deemed to have rejected the plan of reorganization.
RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: First amended company disclosure statement dated Dec. 5, 2013. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
90
Leveraged Finance GMX Resources, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
$0.9 million as per monthly operating report for May 2013. None. The company repaid the $39 million outstanding under the facility and terminated the facility in December 2011 at the time the volumetric production payment facility closed. $0 $50 million DIP was a new money facility. Variable production payment arrangements with EDF Trading North America, LLC were assumed. Yes, however the first-lien noteholders waived the deficiency claim relating to the prepayment premium that was triggered by notes becoming due immediately when bankruptcy was filed. — Reinstated or eliminated at the company’s option with the consent of the steering committee. Retirement plans remained in place during the plan and following reorganization. Yes First-lien secured notes. Yes General unsecured claims (including second-lien claims) as a result of waiver of first-lien claimholder deficiency claims.
DIP – Debtor in possession. Source: Fitch Ratings, company disclosure statement dated Dec. 5, 2013. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
91
Leveraged Finance Halcon Resources Corporation ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol
Energy Exploration and Production HK
Petition Date Assets Emergence Parent Company Name/Ticker
3,499 Halcon Resources/HK
Key Driver Key Driver
Financial Profile a
Prepetition EBITDA Post-Emergence EBITDA Forecast
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Deep Cyclical Trough Untenable Capital Structure
12-Month Period 12/31/15 12/31/17
Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
Yes Debtor Delaware No 7/27/16 9/8/16 9/9/16 1 Chapter 11 (Prepackaged) No Voluntary Not Available Emerged/Reorganized (Public)
Amount 702 293 1,600 1,800 1,700 540 740 5.8
Petition Date Versus Emergence Date Total Debtb Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 2,871 4.1 — —
Emergence Date 1,117 3.8 1,754 61
Events Leading Up to Bankruptcy (or Contributing Factors) Oil and gas prices hit multiyear lows in early 2015 as a result of oversupply driven by advances in drilling techniques and weaker emerging-market demand. Halcon had hedged only a limited amount of anticipated oil and gas production beyond 2016 and cut capex, which were expected to lead to much-reduced revenue and cash flow from operations following hedge expiration, when sales were made at 2015 market levels in 2017 and beyond. The revolving credit facility borrowing base was reduced in March 2016, which stressed liquidity. Despite capex cuts and a series of out-of-court debt exchanges in 2015 (including unsecured debt for second-lien notes, unsecured debt for third-lien notes and debt for equity), the capital structure was going to be unsustainable in the lowercash-flow/lower-asset-value environment. An in-court reduction in long-term debt and cash interest became necessary, and a restructuring support agreement was negotiated prior to the filing date.
Valuation Estimate Summary Going Concern Enterprise Valuation The third-party valuation advisor prepared a going concern valuation estimate in the range of $1.6 billion–$1.8 billion using a net asset value analysis and a public company comparable analysis. The net asset value analysis adjusted the reported reserves by applying discounts as recommended by the Society of Petroleum Evaluation Engineers in its June 2015 report and applied a 10% discount rate. The valuation range was significantly below the $2.8 billion accounting book value of the assets as of March 31, 2016 because the assets were carried at GAAP book values that reflected a higher historical commodity price environment. Specifics of peer company names and multiples used in the comparable company analysis were not provided. The company provided a financial forecast, with projected EBITDA reflecting the aforementioned hedge roll-offs as summarized below: ($ Mil.) Adjusted EBITDA
2016 523.4
2017 292.6
2018 277.9
2019 304.4
2020 337.3
Liquidation Value Alternative The hypothetical Chapter 7 liquidation alternative valuation estimated net liquidation proceeds in the range of $1.05 billion–$1.36 billion. The analysis assumed a Chapter 7 piecemeal asset liquidation would start on Sept. 30, 2016 and used a pro forma roll-forward of the balance sheet values as of March 31, 2016. Oil and gas PP&E properties were the largest component of the estimated value. The book value percentages applied were as follows: • Cash of $125 million at 100% • Accounts receivable of $101 million at 75%–100% • Oil and gas properties of $2.24 billion at 42%–55% a
Source 10-K for year ended Dec. 31, 2015. bFiling date and emergence debt per company presentation dated Sept. 9, 2016. Source, unless otherwise noted: Disclosure statement for the joint prepackaged plan or reorganization dated June 20, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
92
Leveraged Finance Halcon Resources Corporation (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Claim Type Secured First-Lien Revolving Credit Facility Secured 8.625% Second-Lien Notes due 2020 and 12.0% Second-Lien Notes due 2022 Secured 13% Third-Lien Notes due 2022 Unsecured 9.25% Senior Unsecured Notes due 2022, 8.875% Senior Unsecured Notes due 2021 and 9.75% Senior Unsecured Notes due 2020 Unsecured 8% Senior Unsecured Convertible Notes due 2017 Unsecured General Unsecured Claims Equity Preferred Stock Interests Equity Common Interests Estimated Claims New Borrowings at Emergencea Debt of Nonfiling Affiliates on Emergence Date Claim Seniority Claim Type Secured First-Lien Revolving Credit Facility
Secured Secured
8.625% Second-Lien Notes due 2020 and 12.0% Second-Lien Notes due 2022 13% Third-Lien Notes due 2022
Unsecured
9.25% Senior Unsecured Notes due 2022, 8.875% Senior Unsecured Notes due 2021 and 9.75% Senior Unsecured Notes due 2020
Unsecured
8% Senior Unsecured Convertible Notes due 2017
Unsecured Equity
General Unsecured Claims Preferred Stock Interests
Equity
Common Interests
Allowed Projected Equivalent Claims Recovery (%) RR Category 304 100.0 RR1
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants 304 — — — — —
824 1,046 663
100.0 RR1 50.0 RR4 21.0 RR5
— 34 38
824 — —
— — —
— — —
— 490 —
— — —
298
14.0 RR5
—
—
—
—
—
—
— 11 — 387 —
— — — 824 —
— — — 0 —
— — — 0 —
— — — 490 —
— — — 0 —
—
—
—
—
—
—
— 222 N.A. 3,357 600 0
100.0 5.0 0.0 — — —
RR1 RR6 RR6 Recoveries — —
Description • Drawn amounts and letters of credit were either rolled up into the DIP facility or paid in full in cash on the effective date. • As of the disclosure statement date, there was $120 million of remaining revolver borrowings. • Company presentation dated Sept. 9, 2016 has borrowings of $304 million under the revolver at exit. Actual balance not available. • Reinstated on the plan effective date. • Unimpaired and unaltered by the bankruptcy. • Distributions made in a combination of 76.5% of the new common stock and $33.8 million cash. • Third-lien notes were the fulcrum security. • Distributions made in combination of 15.5% of the new common stock shares, warrants to purchase 4% of the new common shares exercisable for four years from the effective date at a per share price of $1.33 billion divided by the total number of outstanding shares and $37.595 million cash if the class of holders accept the plan. • If the class of holders rejected the plan, then they did not receive any warrants. • Distributions made in combination of 4% of the new common stock shares, warrants to purchase 1% of the new common shares exercisable four years from the plan effective date at a per share price equal to $1.33 billion divided by the total number of new common shares outstanding and $15 million cash if the class of holders accepted the plan. • If the class of holders rejected the plan, they did not receive any warrants, and the new common shares that would have been allocated to holders were reallocated to holders of third-lien claims. • Continued payment during the ordinary course of business prior to or after the plan effective date. • Distributions paid in cash. • If any of classes of claims including the unsecured notes, the convertible note claims or the preferred stock interests was a rejecting class, then the preferred stockholders did not receive any cash distributions and the cash they would have received remained property of the company after emergence. • No distributions. • Deemed to have rejected the plan of reorganization. • The holders received 4% of the new common shares, subject to dilution by the management incentive plan, and exercise of the new warrants, subject to the following terms: o If the unsecured note claims class rejects the plan, then the shares that would have been distributed to existing equity interests are reallocated and distributed to holders of third-lien claims. o If the unsecured note claims class accepts the plan and the convertible noteholder claims is a rejecting class, then existing equity interests get $0, and the shares that would have been distributed holders are reallocated and distributed to holders of third-lien note claims and unsecured note claims based on their respective holdings of shares. o If both the unsecured note claims and the convertible note claims classes accept the plan and the preferred stock interests class is a rejecting class, then existing equity interests get $0 and the shares that would have been distributed to existing equity interests are reallocated and distributed to the holders of third-lien note claims, unsecured note claims and convertible note claims based on their respective holdings of distributable shares.
a
$600 million exit revolver. RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not available. Source, unless otherwise noted: Disclosure statement for the joint prepackaged plan or reorganization dated June 20, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
93
Leveraged Finance Halcon Resources Corporation (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments
Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues Executory Contracts Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
$7.1 million per 10-Q as of June 30, 2016 excluding restricted cash. $24 million total including restricted cash. Revolving facility with a borrowing base limit of $700 million based on reserve values as of the petition date. However, availability was further reduced by waiver agreement to $450 million. The facility availability was the lesser of $1.5 billion or the maximum permitted per the borrowing base. Pursuant to a waiver agreement with lenders, Halcon agreed not to borrow more than $450 million for a specified period of time. $444 million. Borrowings as of the plan of reorganization effective date were estimated to be $450 million. $600 million DIP was a partial new money facility and partial roll up of prepetition revolver borrowings. Per the 10-Q for the period ended June 30, 2016, the company drew $338 million under its $450 million facility on July 25, 2016, which increased outstanding debt to $444 million as of the petition date. — Yes, various classes had deficiency claims. Disputed claims are contingent claims, and causes of action are contingent recoveries. Unimpaired, deemed to accept the plan. All employee benefit programs were continued unaltered except an equity-based incentive plan. Yes First lien. Yes The plan was the product of a restructuring settlement agreement that involved a number of classes. Unsecured notes and preferred stockholders were recipients of settlement payments.
DIP – Debtor in possession. Source: Fitch Ratings, disclosure statement dated July 27, 2016.
Bond Price History — Halcon Resources Corporation ($315.5 Mil., 9.75% Second Unsecured Notes Due 2020) (% of Par) 60
Confirmation Date 9/8/16
50 40 30 20 10
Filing Date: 7/27/16
0
Source: Advantage Data, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
94
Leveraged Finance Hercules Offshore, Inc. (2015) ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company
Energy Drilling Services for E&P Companies HERO 2,002 Hercules Offshore/HERO
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period
Amount
Prepetition EBITDA 12/31/14 Post-Emergence EBITDA Forecast 12/31/16 Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
62 37
b
Name/Ticker
Bankruptcy Summary a
Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor
No Debtor Delaware No 8/13/15 9/24/15 11/6/15 1 Chapter 11 (Prepackaged) No
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Voluntary No Emerged/Reorganized (Private)
535 725 630 502 592 17.0
Petition Date Versus Emergence Date Petition Date
Emergence Date
1,211 19.5 — —
450 12.2 761 63
Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Events Leading Up to Bankruptcy (or Contributing Factors) A significant decline in oil prices led to reduced oil production, which in turn led to reduced market day rates and demand for Hercules’ services. In addition, customer consolidation reduced demand, and some customers demanded changes to contracts to reduce rates. These challenges led to reduced cash flows. At the same time, capital spending associated with a new rig was a use of cash, putting further pressure on liquidity and making it more difficult to sustain the leveraged capital structure. Negotiations with creditors were held, and the filing was made two months after reaching a restructuring support agreement with a majority of creditors in June 2015 that called for senior noteholders to convert debt into 96.9% of the new common stock, with prepetition equity owners receiving 3.1% of the new shares. (The company filed a second bankruptcy in June 2016, and this bankruptcy had a going concern reorganization plan effective date of Dec. 2, 2016.)
Valuation Estimate Summary Fundamental Going Concern Enterprise Valuation The company’s third-party valuation advisor estimated a going concern enterprise valuation in the range of $535 million–$725 million. Based on post-reorganization debt of $450 million and excess cash of $317 million, the implied equity value range is $402 million–$592 million. The specific valuation methodologies were not disclosed. The advisor relied on management’s financial projections prepared for the plan, which assume that the Hercules Highlander is completed after $200 million of related capital spending in 2016 and the $450 million exit facility is closed and funded. Projections included the following EBITDA forecast: ($ Mil.) EBITDA
2015
2016
2017
2018
(48.9)
36.6
178.5
207.8
The company emerged from bankruptcy with still-high debt/cash flow in a challenging operating environment. A second bankruptcy petition was made on June 5, 2016 and was resolved in December 2016 with first-lien lenders assuming control of the new stock. Liquidation Value Alternative The hypothetical Chapter 7 liquidation alternative valuation was based on percentages of asset book values projected as of Oct. 1, 2015. The analysis resulted in an estimated value in the range of $166.6 million–$440.9 million. The relatively wide range results from the liquidation range of $52.4 million–$268 million (16%–80%) for the $335.3 million investment in non-debtor affiliates, reflecting variability in PP&E values from nondebtors. In addition to the significant nondebtor contribution to the estimated debtor liquidation value, other line items and percentages of book values contributing to the value included: • Cash of $53.1 million at 100% • Trade accounts receivable of $42.7 million at 50%–75% • Debtor PP&E of $398.3 million at 9%–21% a
Hercules is the ultimate parent of 42 direct and indirect subsidiaries. Fifteen of those were debtors and were in the domestic offshore segment and 27 were nondebtors that own the international offshore and international liftboats segments. bSource was 10-K for year ended Dec. 31, 2014. E&P – Exploration and production. Source, unless otherwise noted: Disclosure statement for the joint prepackaged plan of reorganization dated July 13, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
95
Leveraged Finance Hercules Offshore, Inc. (2015) (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority
Claim Type
DIP and Priority Secured Unsecured Unsecured Equity
Priority Claims Other Secured Claims Senior Notes General Unsecured Claims Equity Interests Estimated Claims New Borrowings at Emergencea Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority DIP and Priority
Claim Type Priority Claims
Secured
Other Secured Claims
Unsecured
Senior Notes
Unsecured
General Unsecured Claims
Equity
Equity Interests
Allowed Projected Equivalent Claims Recovery (%) RR Category N.A. N.A. 1,211 40 N.A. 1,251 450 0
100.0 100.0 41.0 100.0 — — — —
RR1 RR1 RR4 RR1 RR6 Recoveries — —
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants N.A. N.A. — 40 — 40 — —
— — — — — 0 — —
— — — — — 0 — —
— — — — — 0 — —
— — 496 — 16 512 — —
— — — — — 0 — —
Description • Paid in full in cash. • Unimpaired • Paid in full in cash, or with collateral securing the claim, or other treatment as mutually agreed by the debtor and holder that would render the claim unimpaired. • Holders received 96.9% of the new common equity as well as rights to participate in the new exit facility. • Notes included $200 million of 10.25% notes due April 2022, $400 million of 8.75% due July 2021, $300 million of 7.5% notes due October 2021, $300 million of 6.75% notes due April 2022, $3.5 million of legacy notes issued by predecessor company R&B Falcon Corp. and $250 million of 3.375% convertible notes due June 2038. • Trade, vendor and customer claims were paid in full as a result of the restructuring settlement agreement. • These parties were paid in the ordinary course of business or otherwise rendered unimpaired by the bankruptcy. • Holders that agree to cancellation or surrender of their old equity interests will receive 3.1% of the new common stock as well as warrants exercisable until expiration at a price based on a $1.55 billion enterprise value. • Nonconsenting holders will receive $0.
a
$450 million exit facility was assumed fully drawn at emergence in the company forecast, with proceeds used to pay the final $200 million installment for the construction and purchase of the Hercules Highlander jackup rig to be delivered by April 2016, pay restructuring costs and provide for working capital needs. RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not available. Source, unless otherwise noted: Disclosure statement for the joint prepackaged plan of reorganization dated July 13, 2015.
Bond Price History — Hercules Offshore, Inc. (2015) ($300.5 Mil., 6.75% Second Unsecured Notes Due 2022) (% of Par) 100 90 80 70 60 50 40 30 20 10 0
Confirmation Date 9/24/15
Filing Date: 8/13/15
Source: Advantage Data, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
96
Leveraged Finance Hercules Offshore, Inc. (2015) (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues Executory Contracts Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
Not available. There were no remaining revolving credit agreement commitments or loans on the petition date. The company previously had a $50 million revolver, but the facility was terminated on June 22, 2015. $0 There was no DIP. The company filed a second bankruptcy in June 2016, and this case was resolved in December 2016. Assumed. The restructuring was a balance sheet restructuring and did not change other aspects of the cost structure or operations. None. Contingent claims relating to litigation for disputes relating to excessive executive compensation, a well control incident and other matters. Unimpaired None. All employee benefit plans were continued. No Not applicable. Yes General unsecured claims, including trade vendors, suppliers and customers, were paid in full in the ordinary course of business and unaffected by the filing (estimated to be $40 million of claims per disclosure statement). In addition, equityholders received 3.1% of the new common stock.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, disclosure statement dated July 13, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
97
Leveraged Finance James River Coal Company ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company
Key Drivers of Bankruptcy Filing Metals & Mining Coal Mining and Marketing JRCC 1,066 Not Applicable — Liquidated
Name/Ticker
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor
Yes Debtor Virginia — Eastern No 4/7/14 3/21/16 3/22/16 24 Chapter 11 Yes — Sale of Substantially All
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Assets (as Liquidation) Voluntary Yes Liquidation (Under Chapter 11)
Key Driver Key Driver
Untenable Capital Structure Deep Cyclical Trough
Financial Profile 12-Month Period
Amount
Prepetition EBITDA 9/30/13 Post-Emergence EBITDA Forecast N.A. Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
(17) — 59 60 59 0 0 N.A.
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
473 (27.3) — —
569 N.A. (96) (20)
Events Leading Up to Bankruptcy (or Contributing Factors) James River took on substantial debt to make the $516 million International Resource Partners LP acquisition in 2011, and the acquisition was completed at the height of the seaborne coal market. Following this, declining demand for central Appalachian steam coal coupled with oversupply in metallurgical and seaborne coal markets resulted in weak earnings and cash flows. At the same time, there were rising regulatory costs associated with coal mining and processing. The company completed two discounted exchange offers of unsecured notes debt and tried to improve negative cash flow through capex cuts, headcount reduction, reducing production days and cutting wages and benefits, but these efforts did not sufficiently deleverage the balance sheet. In light of capital constraints and to preserve liquidity, an interest payment was not made on convertible senior notes on March 15, 2014.
Valuation Estimate Summary Asset Sale Proceeds in Liquidation Establish Value Assets were sold for approximately $60 million in aggregate. The bankruptcy court approved a strategic bidding procedures order for the selection of a successful bidder and sale of substantially all assets. The company received 13 preliminary indications of interest for the purchase of certain assets, but only one of these was for a substantial portion of the assests. That bidder, JR Acquisition, LLC, a subsidiary of Blackhawk Mining LLC, was selected as the stalking horse bidder with a bid of $50 million plus the assumption of certain liabilities for the Hampden complex of mines. Blackhawk subsquently won the auction for a winning bid of $52 million, consisting of cash of $20 million, a $5 million second-lien note maturing in 2017 and a $27 million third-lien note delivered to certain James River creditors. The sale order required the company to use existing cash to pay off the DIP loan. After this sale, the small remaining assets were sold piecemeal. Liquidation Value Alternative Under a Chapter 7 liquidation there would be incremental costs compared to the Chapter 11 liquidation process, including trustee fees and professionals hired by the trustee. There was no quantification of the reduced proceeds resulting from a Chapter 7 liquidation. N.A. – Not applicable. Source, unless otherwise noted: First amended disclosure statement dated Jan. 27, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
98
Leveraged Finance James River Coal Company (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Claim Type DIP and Priority Secured Unsecured Unsecured Unsecured Unsecured Unsecured Equity
DIP and Administrative Secured Claims 7.875% Senior Notes Parent and Guarantee 10% Convertible Senior Notes Parent and Guarantee General Unsecured Claim of Debtor Group 1 General Unsecured Claim of Debtor Group 2 PBGC Clams Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority Claim Type DIP and Priority DIP and Administrative
Secured Unsecured Unsecured Unsecured Unsecured Unsecured Equity
Secured claims 7.875% Senior Notes Parent and Guarantee 10% Convertible Senior Notes Parent and Guarantee General Unsecured Claim of Debtor Group 1 General Unsecured Claim of Debtor Group 2 PBGC Claims Interests
Allowed Projected Equivalent Claims Recovery (%) RR Category
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants
4 1 281
100.0 RR1 100.0 RR1 3.8 RR6
4 1 11
— — —
— — —
— — —
— — —
— — —
140
1.8 RR6
3
—
—
—
—
—
15–18
1.0 RR6
1
—
—
—
—
—
89–106
0.5 RR6
1
—
—
—
—
—
2 — 22 — —
— — 0 — —
— — 0 — —
— — 0 — —
— — 0 — —
— — 0 — —
24–56 N.A. 426 0 0
3.8 0.0 — — —
RR6 RR6 Recoveries — —
Description • Paid in full in cash. • The $110 million DIP facility was drawn to pay all $4.4 million of fees and expenses under the prepetition ABL facility and cash collateralize $29.9 million of existing letters of credit issued under the facility. • DIP borrowings were repaid prior to the plan effective date with a portion of the asset sale proceeds and use of cash on hand. • Administrative and priority claims are rough Fitch estimate. • Paid in full in cash or other such treatment that will render the claim unimpaired. • Received ratable share of total distributable cash. • Received ratable share of total distributable cash. • Received ratable share of total distributable cash. • Received ratable share of total distributable cash. • Received ratable share of total distributable cash. • No distributions. • Deemed to have rejected the plan.
RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not applicable. Source, unless otherwise noted: First amended disclosure statement dated Jan. 27, 2016.
Bond Price History — James River Coal Company ($270.0 Mil., 6.75% Second Unsecured Notes Due 2019) (% of Par) 60 Confirmation Date 3/21/16
50 40
Filing Date: 4/7/14
30 20 10 0
Source: Advantage Data, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
99
Leveraged Finance James River Coal Company (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues Executory Contracts Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
$53 million. ABL revolver with availability for loans or letters of credit (LOCs) limited to the lesser of $100 million or the maximum available per the borrowing base. There was a $71.4 million borrowing base as of the petition date. $64.7 million LOCs outstanding and $0 loans under the ABL. The $110 million DIP was partially a new money facility and partially used to pay interest and cash collateralize $29.9 million of LOCs under the prepetition ABL. — — No, the ABL and other secured claims were unimpaired. The initial distribution of $16 million was made March 30, 2016; $2.2 million has been reserved. A reserve was established for disputed claims. Cancelled. No distributions. PBGC claims were estimated at $25 million–$56 million and were impaired, with a 3.8% estimated recovery from ratable share of distributable cash. No Not applicable. No Not applicable.
DIP – Debtor in possession. ABL – Asset-based loan. Source: Fitch Ratings, disclosure statement dated Jan. 27, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
100
Leveraged Finance Lyondell Chemical Company ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Chemicals Petrochemicals Not Publicly Traded 28,700 Lyondell Chemical Company/LYB
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor New York — Southern No 1/6/09 4/23/10 4/30/01 16 Chapter 11 No Voluntary Yes Emerged/Reorganized (Public)
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period
Amount
2008 2011
3,297 1,970
Prepetition EBITDA Post-Emergence EBITDA Forecast Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
14,200 16,200 15,200 9,030 11,030 7.7
Petition Date Versus Emergence Date Petition Date
Emergence Datea
23,969 7.3 — —
6,810 3.5 17,159 72
Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Events Leading Up to Bankruptcy (or Contributing Factors) Lyondell Chemical Company became highly leveraged at the time it was acquired by LyondellBasell Industries AF S.C.A. (LBIAF) for $20,900 million in 2007. Lyondell assumed $8,000 million of debt to partially fund the merger. This incremental debt became difficult to service when oil prices, an important raw material, spiked in 2008. Liquidity became strained in 2008 as the cost of oil and other raw materials used in petrochemical production increased. Then, in the fourth quarter of 2008, oil prices fell sharply, which reduced the available borrowing base under the revolving credit facility. The liquidity strain from the smaller borrowing base was exacerbated by decreasing profit margins, damage from two hurricanes that resulted in lost production time in 2008, and weak demand for the company’s products as a result of the economic downturn. These adverse developments collectively led to the Chapter 11 filing.
Valuation Estimate Summary Discounted Cash Flow Going Concern Valuation The U.S. business had a midpoint estimated enterprise value of $9,200 million, and the non-U.S. business had a midpoint enterprise value of $6,000 million, assuming a reorganization date of Dec. 9, 2009, according to the discounted cash flow valuation estimate of the third-party valuation advisor. Low High EBITDAR Multiple (2011 Estimate of $1,970) (x) Terminal Value EBITDA Multiples (x) Discount Rate (%)
6 5 10.75
8 7 12
Other Valuation Approaches A number of other valuation approaches were used to estimate the value used to determine distributions under the plan, including comparable analysis and values of other change-in-control transactions in the sector, but the assumptions and results were not disclosed. Liquidation Value Alternative The liquidation appraisal had estimated liquidation proceeds of $3,696 million with a six-month liquidation period, which would have provided 41% recovery to DIP roll-up claims versus 100% recovery under the plan reorganization and senior secured lenders would have received 8%. The liquidation analysis was dated as of April 1, 2010. a
Note: Emergence debt includes $315 million euro securitization debt. DIP – Debtor in possession. Source, unless otherwise noted: Third amended company disclosure statement dated March 12, 2010; first supplement to the plan supplement dated April 7, 2010. Note: This is an update of a case study originally published June 7, 2012.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
101
Leveraged Finance Lyondell Chemical Company (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority
Claim Type
DIP DIP
DIP Roll-Up Term Loan DIP New Money Term Loan and DIP Asset-Based loan Senior Secured Debt Second-Lien Bridge Loan 2015 Notes General Unsecured Claims of Obligor Debtors General Unsecured Claims — Other Equity Claims Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Secured Secured Unsecured Unsecured Unsecured Equity
Allowed Projected Equivalent Claims Recovery (%) RR Category 3,250 2,820
100.0 RR1 100.0 RR1
9,450 8,297 1,351 1,110
66.0–77.0 6.0 0.0–15.7 16.8
1,530
0.0–100.0 Not Available
0 27,808 3,560 0
RR3 RR6 RR6 RR5
— — — Recoveries — — — —
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants — 2,820
3,250 —
— —
— —
— —
— —
— — — 300
— — — —
— — — —
— 6,237 — 523 — — — 150
a
— — — —
—
—
—
—
—
—
— 3,120 —
— 3,250 —
— 0 —
— 0 —
— 6,910 —
— 0 —
—
—
—
—
—
—
Claim Seniority
Claim Type
Description
DIP DIP Secured
DIP Roll Up Term Loan DIP New Money Term Loan and DIP Asset Based Loan Senior Secured Debt
Secured
Second-Lien Bridge Loan
Unsecured
2015 Notes
Unsecured
General Unsecured Claims of Obligor Debtors
Unsecured
General Unsecured Claims — Other
Equity
Equity Claims
• The facility received distributions in the form of third-lien notes or cram-down notes debt under the plan. • The new money DIP had a super-priority priming lien. The initial asset-based DIP loan commitment was $1,540 million. Lenders were paid in full in cash. • Distributions were made in the form of new class A common shares and holders were also entitled to a share of excess recoveries from creditor and litigation trusts. • Facility was guaranteed by LBIAF and certain subsidiaries and secured by a first lien on substantially all assets. • Distributions were in the form of new common equity shares and holders were also entitled to a portion of any excess recoveries from trusts. • The bridge loan had a second lien on assets and guarantees from certain subsidiaries. • The 2015 note claims were entitled to a share of proceeds from trusts. • Note that the claim amount is U.S. dollar equivalent of euro. • Claim amounts were estimated in the range of $700 million–$1,110 million (excluding deficiency claims of senior secured and bridge loan lenders). • Class was also entitled to proceeds from litigation trust. • The estimated range of claims was $1,100 million–$1,530 million. There was a wide range of recoveries based on specific circumstances of these claims. • No recoveries.
a
The estimate of equity value is based on the high-end claims estimate and low end of the recovery range in the disclosure statement. RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: Third amended company disclosure statement dated March 12, 2010; first supplement to the plan supplement dated April 7, 2010. Note: This is an update of a case study originally published June 7, 2012.
Bond Price History — Lyondell Chemical Company ($615 Mil., 8.375% Senior Notes Due 2015) (% of Par) 120 100
Filing Date: 01/06/09
80 60
Confirmation Date: 04/23/10
40 20 0
Source: Bloomberg.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
102
Leveraged Finance Lyondell Chemical Company (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date
Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
$858 million (on Dec. 31, 2008). The $1,000 million revolving facility commitment was $994 million drawn on the petition date. As of the petition date, facility borrowings consisted of $1,910 million term loan A, $9,200 million term loan B, $994 million revolver borrowings and $8,100 million of bridge loans. In addition, there was $505 million drawn under a U.S. receivables facility and $377 million European receivables borrowings. There was a new money DIP and a roll up DIP loan. The DIP roll up facility claims were $3,250 million. Not disclosed. Yes, the unsecured portion of secured claims. The deficiency claims were ranked pari passu to general unsecured claims. Yes. There were litigation claims and disputed claims. Various claims with different class rankings. The pension plan was not terminated in the bankruptcy process. The plan was underfunded. There was a pension plan motion filed, but the amount of funding was not listed in the disclosure statement. No Not applicable. Yes Bridge loan and 2015 note claims.
DIP â&#x20AC;&#x201C; Debtor in possession. Source, unless otherwise noted: Third amended company disclosure statement dated March 12, 2010; first supplement to the plan supplement dated April 7, 2010. Note: This is an update of a case study originally published June 7, 2012.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
103
Leveraged Finance Magnum Hunter Resources Corporation ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol
Energy Oil and Gas MHR
Petition Date Assets Emergence Parent Company
1,457 Magnum Hunter Resources
Name/Ticker
Corporation/MAGH
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor
Yes Joint Plan of Debtor and Creditor Delaware Yes 12/15/15 4/18/16 5/6/16 4 Chapter 11 (Prearranged/Negotiated) No
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Voluntary No Emerged/Reorganized (Private)
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period
Amount
Prepetition EBITDA 12/31/15 Post-Emergence EBITDA Forecast 12/31/17 Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
1 22 700 1,000 850 689 989 37.9
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
1,117 1,028.6 — —
11 0.5 1,106 99
Events Leading Up to Bankruptcy (or Contributing Factors) Magnum Hunter Resources Corporation’s (MHRC) distress was initially caused by a decline in U.S. natural gas prices in 2012, and exacerbated by the sharp decline in global oil prices in the second half of 2015. Assets sales of $248 million in 2014 and $1.1 million in 2015 did not generate sufficient liquidity to sustain operations and substantial debt service obligations given the extent of cash flow deficits from the price declines. Capex was sharply cut in 2015 in order to reduce cash burn. Further attempts to reduce operating costs and generate FCF were ultimately insufficient to bridge the commodity price downturn. The company elected to not make an interest payment on its senior notes of approximately $29.3 million that was due on Nov. 15, 2015. The company filed Chapter 11 on Dec. 15, 2015 following the expiration of the 30-day grace period on the missed payment.
Valuation Estimate Summary Fundamental Going Concern Enterprise Valuation The third-party valuation advisor estimated an enterprise value range of $700 million–$1.0 billion, with a midpoint estimate of $850 million. Management financial projections used in the advisor valuations included EBITDA forecasts of $22.4 million in 2017, increasing to $55.2 million in 2018, implying a 2017 EV/EBITDA multiple of 37.9x (skewed by weak commodity prices and cash flow expected in the first year after emergence). Commodity pricing underlying the EBITDA forecast was based on the NYMEX strip as of Dec. 30, 2015. The plan was a compromise, and settlement provided for emergence as a going concern and converted nearly all debt to equity, including the DIP facility, which was provided by noteholders and second-lien lenders. The plan was funded with issuance of new common equity, the exit facility and the remaining cash on hand from the DIP facility proceeds. Liquidation Value Alternative The hypothetical Chapter 7 alternative valuation resulted in a midpoint total net liquidation proceeds of $354.1 million and was based on percentages of pro forma asset book values on the balance sheet as of April 30, 2016. Accounts receivable of $12.7 million were valued at 88% of book value. Oil and gas properties of $618.4 million were valued at 30%. The Eureka Hunter interest net book value represents the Nov. 30, 2015 book value of debtors’ 44.53% stake in Eureka Hunter Holdings, LLC (EHH). Given MHRC’s subordinated economic position to a third party in the LLC agreement, the three- to six-month auction process beginning in the second quarter of 2016 that would reflect the MHRC estate as a compelled seller forced to take the highest offer available in the then-current market, and the liquidation of MHRC, EHH’s largest customer, and the related reduction in forecasted EBITDA due to a loss in reservation fees, an overall business judgement discount has been applied, resulting in an estimated recovery range of 19%–59% of the pro forma value, with a midpoint of $92 million. Oil and gas assets (proved reserves) were valued based on net cash flow (production revenue less production taxes, operating costs and capital costs), which is discounted at a 10% discount rate, or PV10. The PV10 for total proved reserves as of March 31, 2016 was $903.9 million. Due to the distressed nature of the liquidation sales, zero recovery was assumed for probable and possible reserves. DIP – Debtor in possession. Source, unless otherwise noted: Second amended disclosure statement dated Feb. 25 2016, 10-K filed May 6, 2016.
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Leveraged Finance Magnum Hunter Resources Corporation (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP and Priority
Secured Secured Unsecured Unsecured Equity
Claim Type $200 Million DIP Facility and $40 Million Estimated Administrative Claims ABL Bridge Term Loan Facility Second-Lien Term Loan Claims Equipment Notes 9.75% Senior Note Claims General Unsecured Claims Preferred Stock and Common Interests in MHRC Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority DIP and Priority
Claim Type $200 Million DIP Facility and $40 Million Estimated Administrative Claims
Secured
ABL Bridge Term Loan Facility
Secured
Second-Lien Term Loan Claims
Unsecured General Unsecured
Equipment Notes Senior Note Claims
Equity
General Unsecured
Preferred Stock and Common Interests in MHRC
Allowed Claims 202
70 347 11 634 45.4–212.8 0 1,264 0 0
Projected Equivalent Recovery (%) RR Category 100.0 RR1
100.0 78.3–89.2 100.0 35.5–41.4 <50 0.0
RR1 RR2 RR1 RR4 RR4 RR6
— Recoveries — — — —
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants 40 — — — 202 —
— — — — 80 —
— — 11 — — —
— — — — — —
— — — — — —
— 290 — 244 25 —
— — — — — —
120 — —
11 — —
0 — —
0 — —
761 — —
0 — —
Description • DIP lenders received 28.8% of the new common equity as distributions on their claims. • The key element of the plan was an agreement of consenting parties to convert their pre- and post-petition funded debt into the new equity. These parties included the DIP facility lenders, second-lien loan lenders and noteholders. • Providers of the DIP backstop facility received 3% of the new equity. • DIP providers were certain second-lien loan (35% of DIP commitment) and noteholders (65%). • LIBOR plus 8% interest rate on DIP. • Administrative claims paid in cash. • The bridge facility borrowings were paid in full in cash with proceeds of the DIP facility shortly after the bankruptcy petition date. • The bridge was put in place shortly prior to the filing date in November 2015 and was used to repay an ABL revolver. The bridge facility was provided by certain of the noteholders and senior lenders. • Distributions to holders were in the form of 36.8% of the new equity. • Pursuant to the restructuring support agreement (RSA), all second-lien lenders and noteholders were provided an opportunity to participate in the DIP financing based on their pro rata holdings. • For settlement purposes, the RSA placed a $900 million enterprise value on the company. • Equipment notes and real estate loan notes were reinstated. • Noteholders received 31.33% of the new common equity shares, subject to dilution by the management incentive plan. • Pursuant to the restructuring support agreement, all second-lien lenders and noteholders were provided an opportunity to participate in the DIP financing based on their pro rata holdings. • Paid in cash. • The high and low end of the estimated claim range is based on the projected amount of claims and whether or not the claimants elected the unsecured creditor equity option. • Distribution amount assumes midpoint of range. • No distributions. • All interests were cancelled.
a
Total based on midpoint of ranges RR – Recovery Rating. DIP – Debtor in possession. ABL – Asset-based lending. Source, unless otherwise noted: Second amended disclosure statement dated Feb. 25 2016, 10-K filed May 6, 2016.
Bond Price History — Magnum Hunter Resources Corporation ($600.0 Mil., 9.75% Second Unsecured Notes Due 2019) (% of Par) 100 90 80 70 60 50 40 30 20 10 0
Confirmation Date 4/18/16
Filing Date: 12/15/15
Source: Advantage Data, Fitch Ratings.
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Leveraged Finance Magnum Hunter Resources Corporation (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments
Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues Executory Contracts
Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
Not available. The company reported $40.8 million in cash as of Dec. 31, 2015. $70 million bridge loan. The company entered into a $60 million senior secured bridge facility on Nov. 3, 2015, which effectively repaid the existing revolving credit facility. Subsequently, the company obtained an additional $10 million in borrowings under the bridge facility. The company had $70 million in total borrowings under the senior secured bridge facility as of Dec. 31, 2015. The consenting second-lien lenders and consenting noteholders agreed to provide DIP financing. The DIP was converted into a share of the new equity as part of the settlement. Through the contract assumption and rejection process, MHRC was able to renegotiate approximately 12 midstream and downstream contracts. All royalty and working interests were fully preserved. The company estimated that contract rejection claims could be as much as $174 million (and would be classified as general unsecured claims). None noted. Disputed claims. Intercompany claims were reinstated, or the company’s options, with the consent of the majority backstoppers, were cancelled. No distributions made to any intercompany claims. Not available. No — Yes Recipients were second lien, unsecured notes and general unsecured claimholders. The plan was based on a compromise and settlement. Unsecured note claims and second-lien note claims received equity in the new company, and general unsecured creditors received cash.
DIP – Debtor in possession. Source, unless otherwise noted: Second amended disclosure statement dated Feb. 25, 2016, 10-K filed May 6, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Mirant Corporation ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Utilities Wholesale Power Generation MIR 19,415 Mirant Corporation/MIR
Key Driver Key Driver
Deep Cyclical Trough Flawed Business Model or Obsolete Product
Financial Profile 12-Month Period a
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor Texas — North No 7/14/03 12/9/05 1/3/06 29 Chapter 11 Yes — Partial Sale of Assets Voluntary Yes Emerged/Reorganized (Public)
Prepetition EBITDA Post-Emergence EBITDA Forecast Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
2002 2006
Amount 662 1,119 8,266 9,577 8,922 3,500 4,700 8.0
Petition Date Versus Emergence Date b
Emergence Date
9,100 13.7 — —
4,443 4.0 4,657 51
Petition Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Events Leading Up to Bankruptcy (or Contributing Factors) The key drivers of Mirant Corporation’s bankruptcy filing were adverse power market conditions and lack of credit market access. Prior to Mirant’s bankruptcy petition there was a period of turmoil in wholesale power markets, which led to the reduction of liquidity in certain energy-related markets. The power market disruption and lack of liquidity were important drivers of Mirant’s bankruptcy. There was power price volatility and price spikes in the California energy markets. The major California investorowned utilities had fixed tariffs and could not pass through the high power prices to consumers, which led to utilities’ defaults on payments to power suppliers, including payments to Mirant. There was an overcapacity of U.S. generation supply due to a rapid build-out of natural gas-fired generating capacity by wholesale power suppliers. Enron, a major trading counterparty in power markets, filed bankruptcy, and this contributed to a crisis of confidence, market turmoil, and loss of credit availability. Mirant and Mirant Americas Generation (MAG) attempted to negotiate replacement credit facilities but were unable to put new facilities in place as a result of competing creditor interests within the corporate group and the adverse market conditions.
Valuation Estimate Summary Going Concern Value Based on Negotiated Settlement There was a wide range of value estimates and significant disputes over valuation levels among the company, creditors and equityholders. Valuations by the various parties ranged from the corporate committee range of $7,843 million–$8,970 million at the low end to the equity committee range of $11,699 million–$14,549 million on the high end. The valuations provided in the March 25, 2005, disclosure statement were ultimately not used because the final plan was based on a negotiated settlement for EV. A valuation committee was appointed and requested by the court in order to implement a revised valuation methodology. In light of the time and costs the committee anticipated necessary to fulfill the court request, a negotiated settlement was reached with a shareholder group. There was no EV in the final disclosure statement dated Sept. 25, 2005, and the value that established the amount of the final distributions made to creditors under the second amended plan of reorganization were agreed to through a negotiation process. Liquidation Value Alternative Liquidation values estimates of $2,612 million for Mirant and $1,577 million for MAG were provided in the disclosure statement dated Sept. 22, 2005. a
Source for 2002 EBITDA, company 10-K filed April 30, 2003. bPetition date and emergence date debt exclude Mirant Mid-Atlantic leases, which were not part of the estate. Source, unless otherwise noted: Second amended company disclosure statement dated March 25, 2005. Note: This is an update of a case study originally published June 7, 2012.
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Leveraged Finance Mirant Corporation (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority
Claim Type
DIP Secured Unsecured Unsecured
DIP Senior Secured Mirant Corp. Unsecured Debt Mirant Americas Generation (MAG) Long-Term Notes MAG Unsecured Claims PG&E/RMR Claims Subordinated Notes Equity Claims
Unsecured Unsecured Subordinated Equity
Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date Claim Seniority DIP
Claim Type DIP
Secured
Senior Secured
Unsecured
Mirant Corp. Unsecured Debt
Unsecured Unsecured
Mirant Americas Generation (MAG) Long-Term Notes MAG Unsecured Claims
Unsecured Subordinated
PG&E/RMR Claims Subordinated Notes
Equity
Equity Claims
Allowed Projected Equivalent Claims Recovery (%) RR Category
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants
0 152 6,007 2,149
— 100.0 62.0 100.0
— RR1 RR3 RR1
— 152 — —
— — — —
— — — 1,732
— — — —
— — a 3,715 —
— — — —
1,368 133 357 Not Disclosed 10,166 0
100.0 100.0 39.0 —
RR1 RR1 RR4 —
1,231 120 — —
— — — —
— — — —
— — — —
84 8 140 146
— — — —
1,503 —
0 —
1,732 —
0 —
4,093 —
0 —
—
—
—
—
—
—
0
— Recoveries — — — —
Description • The $500 million DIP was a borrowing base facility that was secured by all assets of the DIP borrowers. • There were no borrowings as of the disclosure statement date. • The senior secured debt primarily consisted of the West Georgia Facility debt as well as various other senior secured claims, and certain accrued interest amounts. • Unsecured debt claims included $672.7 million of postpetition interest. Holders received 96.25% of new Mirant common shares, excluding the shares issued to Mirant Americas Generation (MAG) debtors (about 2% of new stock), shares issued for employee compensation plans, and 50% of any proceeds from lawsuits. • The MAG notes were unimpaired. • Claim amount includes $1,732.7 million of notes principal plus $416 million of accrued postpetition interest. • MAG unsecured debt claim includes $1,157 million of debt plus $210.5 million of accrued postpetition interest. • Recovery was paid either with $1,231 million cash or new notes plus 2.1% of new common stock at the holder’s option. • The PG&E/RMR claimholders will receive cash or new notes plus 0.2% of stock of new company. • The subordinated debtholders received 3.42% of new common shares and right to receive 50% of any proceeds from litigation. • Equity claims received 3.66% of new Mirant common shares and warrants to purchase 10% of new stock in a rare case of distributions at the equity holder level.
a
Estimates for the equity distribution amount based on midpoint equity values multiplied by share of new equity. DIP – Debtor in possession. RR – Recovery Rating. PG&E – Pacific Gas & Electric Co. RMR – Reliability-must-run agreements. Source, unless otherwise noted: Second amended company disclosure statement dated March 25, 2005. Note: This is an update of a case study originally published June 7, 2012.
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Leveraged Finance Mirant Corporation (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date
Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
$1,170 million on July 11, 2003, of which $348 million was restricted and $89 million was held for working capital at subsidiaries (Source: 8-K dated July 16, 2003). There was a combined $40 million total unused capacity under the three unsecured credit facilities on March 31, 2003 (no disclosure on filing date). Mirant had three primary senior unsecured credit facilities: a $1,125 million term loan facility due July 2003, a $1,125 four-year revolver due July 2005 and a $450 million five-year revolver due April 2004. MAG had two senior unsecured credit facilities: a $250 million facility that matured in October 2004, and a $50 million facility that matured in October 2004. The bank facilities ranked equally with other senior unsecured claims. The DIP was a new money facility. Excluding the back-to-back power contract agreement, more than $500 million of executory contracts were rejected. Rejection claims were classified as general unsecured claims. — Yes, there were disputed four-year letter of credit facility claims, shareholder and other litigation claims. Various entities treated as a single entity and claims were eliminated upon consolidation. The debtor did not terminate pension plans. The plan was underfunded and there was a pension motion filed (amount not disclosed). Yes Multiple Yes Equity interests received shares as a result of higher-negotiated EV in settlement.
DIP – Debtor in possession. EV – Enterprise value. Source, unless otherwise noted: Second amended company disclosure statement dated March 25, 2005. Note: This is an update of a case study originally published June 7, 2012.
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Leveraged Finance Molycorp, Inc. ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol
Metals & Mining Rare Earth Mining and Metal Manufacturing MCP
Petition Date Assets Emergence Parent Company
2,495 Neo Performance Materials/
Name/Ticker
Not Publicly Traded
No Debtor Delaware No 6/25/15 4/8/16 8/31/16 10
Filing — Type Section 363 Asset Sale by Debtor
Chapter 11 Yes — Partial Sale of Assets
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Voluntary No Emerged/Reorganized (Private)
Untenable Capital Structure Deep Cyclical Trough
Financial Profile 12-Month Period
Amount
Prepetition EBITDA 9/30/15 Post-Emergence EBITDA Forecast 12/31/17 Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
52 47
a
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months)
Key Driver Key Driver
391 443 417 391 443 8.9
Petition Date Versus Emergence Date Petition Date
Emergence Date
1,786 34.3 — —
Not Available Not Available Not Available Not Available
Total Debtb Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Events Leading Up to Bankruptcy (or Contributing Factors) In 2012, Molycorp, Inc., a producer of rare earth metals and owner of the U.S.’s only rare earth mine, acquired Neo Material Technologies, Inc., a processor and distributor of rare earth metals, in an attempt to vertically integrate and expand internationally. The company had been investing heavily in the Mountain Pass mine in California. In 2012, the price of rare earth metals declined significantly as Chinese supply increased on the back of reduced export restrictions and decreases in export tariffs. Upstream assets, mainly the Mountain Pass mine, required continued significant capital to fully ramp up operations, and additional financing was needed to optimize operations and produce positive FCF despite the large prior investments in the mine. In 2014, Oaktree Capital eventually loaned roughly $260 million of secured debt to Molycorp and agreed to provide additional amounts if financial and operational goals were met. The company concluded there was an inability to meet these goals shortly after closing and was in need of additional financing and relief from its liabilities. Restructuring advisors were hired to seek refinancing out of court, but efforts were unsuccessful. A Chapter 11 filing was made after expiration of interest payment grace periods on unsecured note debt.
Valuation Estimate Summary Going Concern Enterprise Valuation The third-party valuation analysis for the downstream business of Molycorp. (which contains the chemicals and oxides, magnetic materials and alloys, and rare metals business units) was estimated at $391 million–$443 million. The estimate was based on the outcomes of several valuation methodologies, including: • Comparable company analysis with a midpoint value of $380 million and median enterprise value (EV)/2015 EBITDA ratio of 7.3x on comparable companies in the market • Precedent transaction analysis with a midpoint value of $395 million median EV/EBITDA ratios of 9.3x LTM EBITDA and 7.0x forward EBITDA on included M&A transactions • Discounted cash flow analysis with a valuation estimate midpoint of $417 million that considered a range of multiples and capital costs • The valuation excludes Molycorp Minerals, LLC (which owns the mothballed Mountain Pass open pit rare earth elements mine in California), Boulder Wind Power, Inc. and other upstream assets, which are in a separate bankruptcy proceeding. The excluded assets remain for sale, and the mine is not operating because of low prices. Proceeds of any sale of Mountain Pass will be divvied up between secured creditors based on pro rata security interests. The management projections for the downstream business were considered in the valuation analysis and included the following: ($ Mil.) Pro Forma EBITDA
2016
2017
2018
2019
2020
43
47
53
61
74
Liquidation Value Alternative The Chapter 7 liquidation valuation alternative estimated a midpoint gross liquidation proceeds amount of $312 million. Asset book value and midpoint recovery estimate percentages included: • Cash of $136 million at 100% • Accounts receivable and deposits of $93.482 million at 46% • Inventories of $182.2 million at 45% • PP&E of $1.6 billion at 4% • Patents and other intangibles of $203.5 million at 3% • Tax assets of $11 million at 0% • Wind-down costs estimated at approximately $84 million, or 27% of assets, for distribution a Prepetition and forecast EBITDA is for the downstream businesses only. bA new term loan was to be issued to Oaktree in partial satisfaction of its claims; however, the amount of this emergence date debt was not disclosed. Source, unless otherwise noted: Second amended disclosure statement and related exhibits dated Jan. 20, 2016.
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Leveraged Finance Molycorp, Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Claim Type DIP and Priority Secured Secured Unsecured
Subordinated Intercompany Equity
Oaktree DIP Facility Oaktree Prepetition Claims $650 Million 10% Senior Secured Notes General Unsecured, Including Three Series of Convertible Notes Totaling $752 Million Subordinated Convertible Notes Intercompany Parent Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Allowed Projected Equivalent Claims Recovery (%) RR Category
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants
142 386 687
100.0 RR1 72–86 N.A. N.A. N.A.
— N.A. N.A.
— — —
— — —
— — —
142 293 —
— — —
1,450
1.0–3.0 RR6
—
—
—
—
—
≤20
— — — 0 — —
— — — 0 — —
— — — 0 — —
— — — 0 — —
— — — 435 — —
— — — ≤20 — —
2 N.A. N.A. 1,664–2,667 0
0.0 100.0 0.0 — — —
RR6 RR1 RR6 Recoveries — —
0
Claim Seniority Claim Type DIP and Priority Oaktree DIP Facility
Secured
Secured
Unsecured
Subordinated Intercompany Equity
Description • Unimpaired • Distributions made in the form of cash remaining in the DIP loan disbursement account and pro rata share of Oaktree stand-alone reorganization distribution, which was made in the form of equity per a settlement. • This distribution is part of the total Oaktree distribution amount of approximately $514 million for pre- and postpetition claims per the settlement. Oaktree Prepetition Claims • Debt outstanding as of the petition date totaled $260.9 million under two term loan facilities and a lease facility. • Claims also included prepayment premium amounts. • The prepetition secured claims as well as DIP facility claims were primarily equitized under the plan. • Oaktree had liens or equity pledges against two buckets of collateral: the assets of the parent, which included 65% equity pledges of subsidiaries and intercompany amounts owed to Molycorp, and all assets of the debtor Molycorp Minerals. Some of this collateral was shared with the 10% noteholders. • Oaktree is also entitled to 92.5% of the proceeds from the future sale of the downstream business until the maximum Oaktree distribution amount is reached. $650 Million 10% Senior Secured • Recovery rate depends on the value received for the sale of Molycorp Minerals assets, which was not Notes determined as of the disclosure statement publication date. The bond bid price was close to $0 (see chart on next page). • Impaired and entitled to vote. • Holders received their pro rata share of 64.71% of the Molycorp, Inc. downstream intercompany amount (effectively all claims of parent against downstream entities), which represented their claims against the shared collateral. General Unsecured, Including • Impaired and entitled to vote, except holders of modest amounts of general unsecured claims at downstream Three Series of Convertible Notes debtors were paid in full and deemed to accept the plan. Totaling $752 Million • Included $210.0 million of convertible notes due 2016, $390.3 million of convertible notes due 2017 and $152.2 million of convertible notes due 2018. Subordinated Convertible Notes • Impaired and deemed to reject the plan. • Received no distributions. Intercompany • Unimpaired and deemed to accept the plan. Reinstated, cancelled or eliminated. Parent Interests • Impaired and deemed to reject the plan. • Cancelled and extinguished under the plan, receiving no distributions.
RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not available. Source, unless otherwise noted: Second amended disclosure statement and related exhibits dated Jan. 20, 2016.
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Leveraged Finance Molycorp, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date
Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues Executory Contracts
Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims
Pension Claims/Motions
Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
$74 million. Parent term loan facility with borrowings of $52.4 million, which could be increased to $185 million if certain conditions were met, and delayed-draw term loan facility with $62.6 million borrowed. $52.4 million under parent term loan (including PIK interest) and $62.6 million under the term loan. The parent term loan was drawn up to the then-current maximum availability because the company had not satisfied the conditions required to draw on the remaining $134.8 million of the facility. $142.5 million DIP was a new money facility provided by Oaktree, the provider of two lending prepetition secured facilities. The company’s upstream and downstream operations were split, with the mothballed upstream mine to be sold in a separate bankruptcy and the downstream operations emerging as a going concern. Yes. The company rejected natural gas transportation agreements with Kern River Gas Transmission Company and rejected nine lease agreements with Komatsu equipment. Due to the implementation of the limited operations plan and the significant reduction of the mining operations at the Mountain Pass facility, the company anticipates that modifications to collective bargaining agreements may be necessary to adjust for the change in working conditions and employees’ changed responsibilities. This was not yet finalized as of the disclosure statement date. Three real estate leases were assumed. Yes Yes Yes. All intercompany claims were assumed to be allowed and entitled to the same distributions as general unsecured claims at each applicable debtor entity, after netting out intercompany receivables and intercompany payables. Continuation or termination was not yet finalized. The plan was frozen, but the company continued to make funding payments during the bankruptcy. The PGBC filed a contingent claim for $3.87 million against each debtor, jointly and severally, for unfunded benefit liabilities owed upon any termination. No Not applicable. Yes General unsecured claims that voted to accept the plan received warrants to purchase new equity that had an estimated value of $20.6 million, but could be higher or lower depending on the company’s performance during the five-year warrant exercise period. The value came from distributions that would have otherwise gone to Oaktree.
PIK – Payment in kind. DIP – Debtor in possession. Source: Fitch Ratings, disclosure statement and related exhibits dated Jan. 20, 2016.
Bond Price History — MolyCorp, Inc. ($650.0 Mil., 10.00% Senior Secured Notes Due 2020) (% of Par) 100 90 80 70 60 50 40 30 20 10 0
Filing Date: 6/25/15
Confirmation Date 4/8/16
Source: Advantage Data, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Offshore Group Investment Limited ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Energy Offshore Drilling Not Listed 3,507 Vantage Drilling International/ Private
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor Delaware No 12/3/15 1/15/16 2/10/16 1 Chapter 11 (Prepackaged) No Voluntary Not Available Emerged/Reorganized (Private)
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period Prepetition EBITDA 9/30/15 Post-Emergence EBITDA Forecast 12/31/17 Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
Amount 423 99 1,110 1,300 1,205 383 573 12.1
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 2,690 6.4 — —
Emergence Date 969 9.8 1,721 64
Events Leading Up to Bankruptcy (or Contributing Factors) Oil prices began to fall beginning in the late summer of 2014 from over $100 per barrel to less than $40 by the end of 2015. The collapse in prices was driven by the combination of oversupply (especially from fast-growing U.S. shale), weak emerging market demand (particularly China) and OPEC’s decision to maintain market share rather than support prices. As a result, the demand for offshore drilling services, which is largely driven by the capital spending budgets of exploration and production companies, fell. The reduced demand was compounded by an oversupply of existing drilling rigs and a large order book of newly built rigs that continues to saturate the market. Despite owning a premium fleet consisting of four jack-up rigs and three drill ships, the company was unable to replace expiring contracts for their existing rigs because of weaker demand. This caused Offshore Group Investment Limited to rely on the contracts of the Titanium Explorer and Tungsten Explorer drill ships, which extended into 2016. On Aug. 31, 2015, the company received a notice from Petrobras indicating that it was cancelling the contract for the Titanium Explorer. Following the cancellation, the viability of the company’s highly leveraged capital structure was unsustainable in the long term. An interest payment grace period on the 7.5% notes expired on Dec. 2, 2015, and the company and certain holders of the revolver, term loans and secured notes entered a restructuring support agreement on Dec. 2, 2016.
Valuation Estimate Summary Going Concern Enterprise Valuation The third-party valuation advisor estimated an enterprise value range of approximately $1.1 billion–$1.3 billion, with a midpoint estimate of approximately $1.2 billion. The analysis assumed a plan effective date of Feb. 29, 2016. The valuation was based on information as of Dec. 3, 2015 and is based on projections provided by Offshore Group Investment Limited’s management for 2016–2019. Specific methodologies and assumptions were not provided. The valuation includes the proceeds from the $75 million rights offering made available to secured term loan lenders and noteholders. In developing the projections, management reviewed their fleet’s current contracted status and made an assessment of whether or not these contracts were likely to continue and future speculative contracts. The forecast was developed on an individual drilling unit basis based on expected day rates, utilization and efficiency for existing contracts and future speculative contracts. ($ Mil.) Management Forecast of EBITDA
2016 (9)
2017 99
2018 211
2019 304
Liquidation Value Alternative The estimated range of the Chapter 7 alternative liquidation value was approximately $804 million–$956 million and was based on percentages of balance sheet book values as of Dec. 3, 2015. Book values and percentages included: • Cash of $168 million at 100% • Accounts receivable of $62 million at 50%–75% • Inventory of $63 million at 22–26. • PP&E of $2,732 million at 22%– 26%. Due to the current market oversupply of offshore drilling rigs, the advisors assumed an additional 25% market saturation discount from gross liquidation values of $200 million–$250 million for drill ships and $100 million–$115 million for jack-up rigs. • Investment in subsidiaries of $3,840 million at 0% Source, unless otherwise noted: Disclosure statement for joint Chapter 11 plan of offshore group investment and affiliated debtors dated Dec. 2, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Offshore Group Investment Limited (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP and Priority Secured Secured Secured Secured Secured Unsecured Unsecured Equity
Claim Type Administrative and Priority Revolving Credit Facility 7.5% Secured Notes 7.125% Secured Notes 2019 Secured Term Loan 2017 Secured Term Loan General Unsecured Parent Promissory Note Existing Offshore Group Investment Limited Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority DIP and Priority
Claim Type Administrative and Priority
Secured
Revolving Credit Facility
Secured
7.5% Secured Notes
Secured
7.125% Secured Notes
Secured
2019 Secured Term Loan
Secured
2017 Secured Term Loan
Unsecured
General Unsecured
Unsecured
Parent Promissory Note
Equity
Existing Offshore Group Investment Limited Interests
Allowed Projected Claims Recovery (%) N.A. 100.0 150 100.0 1,087 47.0 728 47.0 341 47.0 324 47.0 N.A. 100.0 62 100.0 N.A. 0.0 2,691 969 0
Equivalent RR Category RR1 RR1 RR4 RR4 RR4 RR4 RR1 RR1 RR6
— Recoveries — — — —
Cash N.A. 7 — — — — N.A. — — 7 — —
Form of Distribution Secured Unsecured Subordinated New Options/ Notes Notes Notes Equity Warrants — — — — — 143 — — — — — — 329 182 — — — 220 122 — — — 103 57 — — — 98 54 — — — — — — — — — 62 — — — — — — 143 — —
0 — —
750 — —
477 — —
0 — —
Description • Paid in cash. • Amount not available. • Distributions were made in the form of amended and restated senior secured term loan and letter of credit facility and a cash payment of $7.0 million or at the option of the company payment in full in cash with proceeds of a new revolving facility. • The secured notes and term loans were treated as one class. • Claimants received distributions in the form of a pro rata share of the $750 million secured convertible PIK notes, a pro rata share of the new common stock (subject to dilution from management plan), and the option to subscribe a pro rata share of the $75 million new second lien secured notes to be issued in the rights offering. • The secured notes and term loans were treated as one class. • Claimants received distributions in the form of a pro rata share of the $750 million secured convertible PIK notes, a pro rata share of the new common stock (subject to dilution from management plan) and the option to subscribe a pro rata share of the $75 million new second-lien secured notes to be issued in the rights offering. • The secured notes and term loans were treated as one class. • Claimants received distributions in the form of a pro rata share of the $750 million secured convertible PIK notes, a pro rata share of the new common stock (subject to dilution from management plan) and the option to subscribe a pro rata share of the $75 million new second-lien secured notes to be issued in the rights offering. • The secured notes and term loans were treated as one class. • Claimants received distributions in the form of a pro rata share of the $750 million secured convertible PIK notes, a pro rata share of the new common stock (subject to dilution from management plan) and the option to subscribe a pro rata share of the $75 million new second-lien secured notes to be issued in the rights offering. • Holders of general unsecured claims were unimpaired. • The company continued to pay each claim in the ordinary course of business. • There was $27.9 million of trade debt outstanding on the petition date. • Expected to be owed by Offshore Group Investment Limited to the Vantage parent company as consideration for the transfer of certain assets to Offshore Group Investment Limited prior to the petition date. • $0 recoveries. • Deemed to have rejected the plan.
RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not available. PIK – Payment in kind. Source, unless otherwise noted: Disclosure statement for joint Chapter 11 plan of offshore group investment and affiliated debtors dated Dec. 2, 2015.
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Leveraged Finance Offshore Group Investment Limited (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date
Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues Executory Contracts Deficiency Claims Contingent Claims and/or Contingent Recoveries
Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
Not available. $203.4 million as of Dec. 31, 2015. The revolving credit agreement had a commitment amount available of $200 million, of which $32 million was reserved for letters of credit. In addition, there were two secured term loans. $150 million in principal and $22.9 million in letters of credit under the revolving credit agreement. The agent bank had requested a return of the $150 million revolver loan on Oct. 14, 2015, but the loan was not repaid prior to filing. There was no DIP facility. The plan was based on a restructuring support agreement that provided secured term loan and secure noteholders with the new equity and new debt. Executory contracts and unexpired leases were generally assumed. No Daewoo Shipbuilding & Marine Engineering Co., Ltd (DSME) has a contingent claim. DSME commenced arbitration proceedings over the termination of the Cobalt Explorer construction contract on Aug. 25, 2016. If DSME prevails in the arbitration, it could be entitled to recover from the difference between the contract price for the Cobalt Explorer and the price for which DSME actually sells it. In addition, Vantage parent (nondebtor) is borrower to a $60 million promissory note with F3 Capital as lender. Vantage disputes this claim and is litigating. Contingent recoveries include the BP oil spill award damages being sought by Vantage. All intercompany claims between any Vantage debtor and a nondebtor affiliate shall be unimpaired under the plan. All employee benefit and compensation plans were assumed and continued. Not available. Not available. Yes General unsecured.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, disclosure statement dated Dec. 2, 2015.
Bond Price History â&#x20AC;&#x201D; Offshore Group Investment Limited ($1,727.6 Mil., 7.125% Senior Secured Notes Due 2023) (% of Par) 80 70 60 50 40 30 20 10 0
Confirmation Date 1/5/16
Filing Date: 12/3/15
Source: Advantage Data, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Pacific Energy Resources Ltd. ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Energy Exploration and Production PEGX (U.S. OTC) and PFE (Toronto) 722 Not Applicable/Liquidated
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period b
Bankruptcy Summary a
Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Yes Debtor Delaware No 3/8/09 12/15/10 12/23/10 22 Chapter 11 Yes — Sale of Substantially All Assets (as Liquidation) Voluntary Yes Liquidation (Under Chapter 11)
Prepetition EBITDA Post-Emergence EBITDA Forecast Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
12/31/08 —
Amount 18 Not Applicable 280 310 295 0 0 Not Applicable
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
479 26.8 — —
0 Not Applicable 479 100
Events Leading Up to Bankruptcy (or Contributing Factors) The filing was precipitated by the material decrease in the market price of oil in the five months prior to the filing date. The lower prices combined with Pacific Energy Resources Ltd.’s (PERL) significant level of debt related to past acquisitions and poor capital market conditions, reduced liquidity and cash flow to a level insufficient to operate the business and invest sufficient capex in oil producing assets to increase production. Hedge positions were terminated, which left the company’s production exposed to fluctuations in oil prices. PERL went into default under its credit agreements beginning in March 2008. Lenders entered several forbearance agreements beginning in December 2008 and the last forbearance agreement expired on Feb. 17, 2009. At that point, the company determined that it was unable to operate outside of Chapter 11.
Valuation Estimate Summary Sum of Creditor Distributions Provides Rough Estimate of Value Fitch estimates a rough enterprise value range of $280 million–$310 million using the sum of credit bid sales and other sales. Assets were sold piecemeal in credit bids or to third parties. The credit bid and assumption of debt for the Beta assets totaled $271.3 million. Credit bids for the Beta assets included $80 million owed to Rise Energy Beta LLC (a successor to J. Aron) and $177.5 million plus $22 million (DIP) owed to Silver Point. The Beta assets were offshore production assets near Huntington Beach, California, and a pipeline that runs to the California shore and was the primary source of value. Group 2 Alaska assets were sold for $2.25 million plus the assumption of certain liabilities. There was no fundamental valuation of the company in the disclosure statement. There were residual assets remaining after these asset sales that were placed into a wind-down fund on the plan effective date. The wind-down fund distributions were ultimately sufficient to pay general unsecured claims in full post-emergence. Liquidation Value Alternative There was no fundamental analysis for a Chapter 7 liquidation alternative. The value would have been lower than the Chapter 11 liquidation due to trustee and other costs. a
PERL also filed a CCAA reorganization proceeding in Vancouver to enforce U.S. bankruptcy court orders in Canada because the common stock traded on the Toronto Stock Exchange. bSource of prepetition EBITDA was press release dated April 3, 2009. Source, unless otherwise noted: First amended plan of liquidation dated Dec. 15, 2010; company disclosure statement dated July 2, 2010; post-effective date letters of creditors for unsecured claim distributions, including letters dated Nov. 30, 2012, and Aug. 14, 2013; DIP motion. Note: This is an update of a case study published April 27, 2015.
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Leveraged Finance Pacific Energy Resources Ltd. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP or Other Administrative Secured
Secured Secured Intercompany Subordinated Equity Unsecured Unsecured
Claim Seniority DIP or Other Administrative Secured Secured
Secured
Claim Type Administrative and Priority, including DIP $100 Million Pacific Energy Resources Ltd (PERL) First-Lien Asset Based Revolver (Beta Facility) Pacific Energy Alaska Operating (PEAO) Asset-Based Revolver PEAO Second-Lien Credit Agreement Intercompany Subordinated Equity Interests PERL General Unsecured Claim PEAO General Unsecured Claim Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date Claim Type Administrative and Priority, Including DIP $100 Million PERL First-Lien AssetBased Revolver (Beta Facility) Pacific Energy Alaska Operating (PEAO) Credit Agreement
Form of Distribution Allowed Projected Equivalent Secured Unsecured Subordinated New Options/ Claims Recovery (%) RR Category Cash Notes Notes Notes Equity Warrants
• • • • • PEAO Second-Lien Credit Agreement •
Intercompany Subordinated
Intercompany Subordinated
• • •
Equity Unsecured
Equity Interests PERL General Unsecured Claim
• • •
PEAO General Unsecured Claim
100.0 RR1 100.0 RR1
N.A. 44
— —
— —
— —
— —
— —
99
100.0 RR1
99
—
—
—
—
—
347
48.5 RR4
40
—
—
—
128
—
— — — — — 183 —
— — — — — 0 —
— — — — — 0 —
— — — — — 0 —
— — — — — 128 —
— — — — — 0 —
—
—
—
—
—
—
59 N.A. N.A. N.A. N.A. 549 0
0.0 0.0 0.0 97.6 100.0 — —
0
—
RR6 RR6 RR6 RR1 RR1 Recoveries
Description • Paid in full with combination of cash and credit bid.
•
Unsecured
N.A. 44
• •
Repaid in cash with proceeds of DIP. Secured by first lien on all assets of PERL except PEAO assets. Repaid in cash with proceeds of DIP. Secured by a first lien on PEAO assets, including 50% interest in Cook Inlet Pipe Line Company. Claims included $90.9 million of principal plus prepetition accrued and unpaid interest. Distributions were in the form credit bid for the loan amount plus $40 million cash from unsecured deficiency claim. Recovery rate is a rough estimate of credit bid and cash total and the actual recovery may have been significantly higher or lower. Intercompany claims were waived in the settlement. Received no distributions under the plan of liquidation. Included the Forest Oil Corp. subordinated note unless it was treated as an unsecured claim, which was not determined as of the first amended Chapter 11 plan of liquidation dated Dec. 15, 2010. Cancelled and extinguished with no distributions. The initial distribution made to general unsecured creditors on Dec. 10, 2010, represented 40.55% of the total claim amount, which was not disclosed. There were three subsequent distributions, and the final distribution made Aug. 14, 2013, brought the cumulative total distributions to 100% of the claim amount plus partial payment of interest. The first interim distribution made to general unsecured creditors on Dec. 20, 2010, represented 1.97% of the claim amount and the second distribution made Nov. 30, 2012, paid the remaining 98.03% of the claim. The amount of the claim was not disclosed.
RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not available. Source, unless otherwise noted: First amended plan of liquidation dated Dec. 15, 2010; company disclosure statement dated July 2, 2010; post-effective date letters of creditors for unsecured claim distributions, including letters dated Nov. 30, 2012, and Aug. 14, 2013; DIP motion. Note: This is an update of a case study published April 27, 2015.
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Leveraged Finance Pacific Energy Resources Ltd. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts
Deficiency Claims Contingent Claims Intercompany Claims
Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
Not available. $750,000 as of March 1, 2009, and $1.3 million on March 31, 2009, as per initial monthly operating report. $100 million PERL asset-based revolver and $99 million under the PEAO asset-based revolver. $40 million of PERL revolver borrowings and $99 million of borrowings under the PEAO revolver. In addition, there was approximately $347 million of second-lien loan borrowings. $182.6 million DIP included $40 million of new money and $142.6 million that was a roll-up of amounts owed to the two first-lien facilities. The PERL ISDA agreement for hedges was assumed. Four separate motions were made to reject various contracts and leases including an employment contract of an Alaska employee, an Alaska condo, a company car lease and leases for operations in Alaska and properties in Wyoming. The Spurr platform lease was rejected, and other Alaska properties were abandoned. The beta sale order included the conveyance and assignment of certain contracts. Yes, secured lenders had deficiency claims. There was litigation with Union, an affiliate of Chevron, arising from disputes on the jointly operated Trading Bay Alaska properties. Most intercompany claims were waived. The intercompany claims between the company and San Pedro Bay Pipeline Company (San Pedro) were released when San Pedro’s bankruptcy case was dismissed. PERL owned 100% of the stock of San Pedro and sold the stock to preserve San Pedro’s regulatory approvals. — No Not applicable. Yes Unsecured creditor fund, Alaska fund, if any, and the wind-down fund.
DIP – Debtor in possession. Source: Fitch Ratings, amended plan of liquidation, company disclosure statement, distribution letters, etc. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
118
Leveraged Finance Patriot Coal Corp. (2012) ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Metals & Mining Coal Mining PCX 3,777 Patriot Coal Corp./Privately Held
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by a Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor Eastern District of Missouri No 7/9/12 12/17/13 12/18/13 18 Chapter 11 No Voluntary Yes Emerged/Reorganized (Private)
Key Driver Key Driver
Deep Cyclical Trough Resolve Legacy Liabilities
Financial Profile 12-Month Period Prepetition EBITDAb Post-Emergence EBITDA Forecast Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
6/30/12 2014
Amount 116 188 1,143 1,407 1,275 23 28 6.8
Petition Date Versus Emergence Date Total Debtc Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
835 7.2 — —
527 2.8 308 37
Events Leading Up to Bankruptcy (or Contributing Factors) Key drivers of Patriot Coal Corp.’s Chapter 11 filing included reduced demand for coal, increased environmental regulation of power plants and coal mining, substantial legacy labor and retiree obligation costs, and poor timing of bad news about a customer default on a contract and lower shipments that was disclosed during lender credit facility negotiations in May 2012. Steam coal’s share of total electricity generation declined to 36% in the first quarter of 2012 from 45% in the first quarter of 2011, and demand for metallurgical coal also declined due to weak global economic activity that reduced demand for steel. Patriot was unable to close an extension for a credit facility that was due to mature in 2013 after the adverse news surfaced. The company reported an operating loss of $481 million in the nine months ending Sept. 30, 2012. Patriot was established in October 2007 in a spinoff from Peabody Energy and acquired Magnum Resources (which itself was spun off from Arch Coal) in 2008, creating a large Appalachian coal producer. For additional background on this case, refer to Fitch’s special report U.S. Coal Bankruptcies: Future, Present, and Past published in February 2013.
Valuation Estimate Summary Going Concern Enterprise Value Fitch estimated the reorganization enterprise value based on pro forma balance sheet in the company’s financial projections. The estimate includes the book value of the new debt and new equity, excluding the asset reclamation and Selenium obligation. The equity value was assigned based on the recovery rate of senior noteholders that received distributions in new common stock. No going concern value was explicitly given in the disclosure statement because the plan of reorganization was based on a global settlement among Patriot, Arch Coal, United Mine Workers employees and retirees and Peabody Energy to resolve litigation related to retiree benefit obligations. The settlements included provisions for rights offerings and included provisions that settlement parties would make various contributions to a voluntary employee benefit association (VEBA) for retiree and other obligations. Patriot agreed to contribute $310 million to a trust in one of the retiree healthcare settlement agreements. Peabody agreed to provide $140 million in liquidity funding to Patriot in the form of letters of credit. Liquidation Value Alternative The liquidation alternative valuation analysis was based on assumed discounts to the $3.4 billion gross book value of assets. Two approaches were used: a lower case for a forced liquidation value, and a higher case for an orderly liquidation value. The gross proceeds were assumed to range from $577 million to $936 million before associated liquidation costs. This estimate equates to a range of approximately 13%–23% of the book value of total PP&E and mineral interests of $3.1 billion as of Dec. 31, 2012. Accounts receivable were assumed to be liquidated at 80%–90% of book value. a
The case was originally filed in the Southern District of New York, but after venue challenge and request for West Virginia venue by certain union parties, it was moved to Missouri, the location of the company’s headquarters. bSource is company financial statements. cLong-term debt only. Source, unless otherwise noted: Fitch Ratings, third amended company disclosure statement dated Nov. 4, 2013. Note: This is an update of a case study published April 27, 2015.
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Leveraged Finance Patriot Coal Corp. (2012) (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP or Other Administrative Secured Unsecured Unsecured Unsecured
Claim Type Secured DIP Facility Prepetition Credit Facility 8.25% Guaranteed Senior Notes Due 2018 3.25% Senior Convertible Notes Due 2013 (Non-Guaranteed) General Unsecured Claims Estimated Claims New Borrowings at Emergencea Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority DIP or Other Administrative
Claim Type Secured DIP Facility
Secured Unsecured
Prepetition Credit Facility 8.25% Guaranteed Senior Notes Due 2018
Unsecured
3.25% Senior Convertible Notes Due 2013 (Non-Guaranteed)
Unsecured
General Unsecured Claims
Allowed Projected Claims Recovery (%) 803 100.0
Equivalent RR Category RR1
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants 803 — — — — —
0 250
100.0 6.0
RR1 RR6
— —
— —
— —
— —
— 15
— —
200
<1
RR6
—
—
—
—
2
<0.1
312–558 1,690 500
<1 — —
RR6 Recoveries —
— 803 —
— 0 —
— 0 —
— 0 —
2 19 —
— 0 —
0
—
—
—
—
—
—
—
—
Description • Composed of a $125 million new money first-out asset-based revolver, a $375 million first-out term loan and a $302 million second-out roll up of the outstanding letter of credit obligations under the prepetition credit agreement. • The proceeds from the first-out facilities were used for working capital needs and to pay down the $25 million in outstanding borrowings of the prepetition facility. • The entire $25 million of petition date borrowings were rolled into the DIP facility. • Received 60% of the new equity, in addition to rights to purchase new senior secured second-lien notes and warrants to purchase additional common stock. • Claim amount excludes senior note guarantee claims against 99 subsidiary debtors that exceeded $24 billion. • Holders of the convertible notes in conjunction with general unsecured claims holders received rights to purchase 4.62% of the new senior secured second-lien notes and warrants new common shares at $.01/share. The rights must be exercised together. • Distributions made in the form of 5% of the new common equity. In addition, holders of the convertible notes in conjunction with general unsecured claims holders received rights to purchase 4.62% of the new senior secured second-lien notes and warrants new common shares at $.01/share. The rights must be exercised together.
a
Includes $250 million of proceeds from new notes and $250 million from a rights offering to second-lien lenders. RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: Fitch Ratings, third amended company disclosure statement dated Nov. 4, 2013. Note: This is an update of a case study published April 27, 2015.
Bond Price History — Patriot Coal Corp. ($250 Mil., 8.25% Senior Unsecured Notes Due 2018) (% of Par) 120 100
Filing Date: 7/9/12
80
Confirmation Date: 12/17/13
60 40 20 0
Source: Bloomberg, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Patriot Coal Corp. (2012) (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts
Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions
Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
$46 million at June 30, 2012, as per 10-Q filed August 2012. $427.5 million. $25 million in borrowings and $300.7 million in letters of credit under the $427.5 million facility and $51 million of letters of credit under an accounts receivable securitization facility. The DIP had two tranches: $375 million first-out new money and $302 million second-out roll up of outstanding letters of credit. The company modified its collective bargaining agreements and retiree benefits with the United Mine Workers following a settlement agreement. The changes were anticipated to save $130 million per year over the next four years. Retiree healthcare benefits were terminated in a settlement that included Patriot funding of a retiree VEBA trust. Contract assumptions included a range of customer program, foreign agreement, insurance plans, surety bonds, etc. All claims were discharged. Disputed claims. Unimpaired, and did not receive any distribution under the plan. Pensions were eliminated. The union negotiated a settlement with Patriot to continue funding a VEBA with $310 million through 2017, and the VEBA also received 35% of the new equity, which Fitch estimated had a value of $3 million. No Not applicable. No Not applicable.
DIP â&#x20AC;&#x201C; Debtor in possession. VEBA â&#x20AC;&#x201C; Voluntary employee benefit association. Source, unless otherwise noted: Fitch Ratings, third amended company disclosure statement dated Nov. 4, 2013. Note: This is an update of a case study published April 27, 2015.
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Leveraged Finance Patriot Coal Corp. (2015) ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent
Metals & Mining Coal Production and Marketing PATAQ 2,072 Blackhawk Mining (Aquiror)/
Company Name/Ticker
Not Public
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months)
Yes Debtor Virginia — Eastern No 5/12/15 10/9/15 10/28/15 5
Filing — Type Section 363 Asset Sale by Debtor
Chapter 11 Yes — Sale of Substantially All
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Assets (as Going Concern) Voluntary Yes Acquired, Merged or Sold
Key Driver Key Driver
Resolve Legacy Liabilities Deep Cyclical Trough
Financial Profile 12-Month Period
Amount
Prepetition EBITDA December 2014 c Post-Emergence EBITDA Forecast December 2016 b Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) b Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
Not Available 167 643 752 698 (109) 0 4.2
Petition Date Versus Emergence Date Total Debtb Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
797 Not Available — —
752 4.5 45 6
Events Leading Up to Bankruptcy (or Contributing Factors) After Patriot Coal Corp. emerged from its first bankruptcy reorganization, coal prices were lower than forecast and demand was weaker than projected at the time of reorganization for both thermal and steam coal. Weak markets persisted and worsened for several years leading up to Patriot’s second bankruptcy. In addition to unfavorable pricing and supply/demand challenges, the company was still burdened by legacy liabilities relating to union retiree pension and healthcare plans and costs of mine closing and reclamation and other regulations on producers and consumers of coal. Patriot estimated that retirement obligations for surface and other mines totaled $233 million based on the sum of surety bonding obligations. The regulation of electricity generators made it increasingly difficult for these companies to use coal as an energy source, and many utilities increasingly turned to gas-fired generation. Further challenges resulted from a mine collapse at one of Patriot’s complexes, which led to further cash shortfalls.
Valuation Estimate Summary Proceeds from Sales of Assets Establish Rough Estimate of Value Patriot sold all assets in two transactions, and the related sale proceeds distributed to creditors established a rough value (actual proceeds not disclosed). Most operating assets were sold to Blackhawk Mining LLC for consideration that included $643 million of new debt issued to refinance Blackhawk debt and partially repay Patriot’s creditors, Class B equity units and cash. All remaining assets, including the operating Federal Mining Complex assets and some idle assets and liabilities, were sold to an affiliate the Virginia Conservation Legacy Fund (VCLF), a nonprofit that planned to mine coal and plant trees/clean up the water. Up to $300 million of the $643 million under the APA was used to refinance existing Blackhawk debt, and excluded from Patriot’s value. VCLF assumed certain environmental cleanup, workers compensation and state black lung obligations and did not pay any cash for the mining assets it acquired. VCLF proposes to grant equity ownership in the acquired assets to United Mine Workers of America to support pension and retiree health benefits. The VCLF planned to continue mining at the Federal Mining Complex and bundle reforestation efforts with coal sales under a compliant fuel program. The Blackhawk sale provided Patriot creditors with $643 million of new debt securities plus 30% of the pro forma merged company’s equity and provided for the assumption of certain liabilities, including surety bonds. Liquidation Value Alternative Not provided. a
$167 million represents adjusted EBITDA forecast for the combined company. bPetition date debt and EBITDA are stand-alone Patriot. Forecasted enterprise value, equity value and emergence debt are for the combined Blackhawk/Patriot. Source, unless otherwise noted: Fourth amended disclosure statement dated Sept. 18, 2015, asset purchase agreements.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
122
Leveraged Finance Patriot Coal Corp. (2015) (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP and Priority
Secured Secured
Secured
Secured Secured Unsecured Equity
Claim Seniority DIP and Priority
Secured
Allowed Projected Equivalent Claims Recovery (%) RR Category 112 100.0 RR1
Claim Type $100 Million (Maximum) Multidraw Term Loan DIP and Other Priority ABL Revolving Credit Facility 44 due 2018 First-Lien Term Loan Facility 247 Second-Out Tranche due a 2018 First-Lien First-Out Letter of 198 Credit Facility Subfacility Tranche Other Secured Claims 4.8–132.5 15% Second-Lien Notes 306 due 2023 General Unsecured 83 Equity Interests Not Applicable Estimated Claims 990 New Borrowings at 300 b Emergence Debt of Nonfiling Affiliates on 0 Emergence Date Claim Type $100 Million (Maximum) Multidraw Term Loan DIP and Other Priority ABL Revolving Credit Facility due 2018
Secured
First-Lien Term Loan Facility Second-Out a Tranche due 2018
Secured
First-Lien First-Out Letter of Credit Facility Subfacility Tranche
Secured
Other Secured Claims
Secured
15% Second-Lien Notes due 2023
Unsecured
General Unsecured
Equity
Equity Interests
Form of Distribution Secured Unsecured Subordinated New Cash Notes Notes Notes Equity 112 — — — —
Options/ Warrants —
100.0 RR1
44
—
—
—
—
—
100.0 RR1
—
247
—
—
>0
—
80.0 RR2
—
155
—
—
—
—
100.0 RR1 16.3 RR5
66 —
— 50
— —
— —
— >0
— —
— — 222 —
— — 452 —
— — 0 —
— — 0 —
— — >0 —
— — 0 —
—
—
—
—
—
—
>0.0 0.0 — —
RR6 RR6 Recoveries —
— —
Description • DIP claims were paid in full in cash with a portion of first-lien exit term loan. • The new money DIP carried a fixed interest rate of 12% and included case milestones for asset sales and other restructuring efforts. • Paid in full in cash or converted into the new ABL exit facility for the combined company on a dollar-for-dollar basis. • Secured by first-priority liens on current assets, which include accounts receivable (excluding any accounts arising from the sale of collateral securing the prepetition LC facility and prepetition term loan facility, minerals that have been extracted from real property, inventory (excluding any minerals that have not yet been extracted from real property), as well as deposit, securities and commodity accounts and second-priority liens on substantially all of the debtors’ other assets, equity interests in the debtors and all minerals not yet extracted from real property. • Distributions consisted of a pro rata share of the general unsecured creditor distribution pool (consisting of a share of the equity in the VCLF affiliated company formed to own the assets in the VCLF acquisition) and rights to participate in the rights offering. • The loan tranche junior in right of payment to the letter of credit tranche. • A second-lien PIK note distribution was subsequently converted to the new equity. • Distributions consisted of a $155 million new second-lien exit term loan for the combined company and rights to participate in the rights offering. • Secured by first-priority liens on fixed assets, equity interests in the debtors, all minerals not yet extracted from real property and certain other asset and a second-priority lien on current assets, including accounts receivable (other than any accounts arising from the sale of collateral securing the obligations arising under the prepetition LC/term loan agreement on a first-priority basis), minerals that have been extracted from real property, inventory, as well as deposit, securities and commodity accounts. • The LC facility was first out in right of payment to the prepetition term loan facility. • Distributions paid either in a) cash in full b) collateral transferred and interest paid in cash or c) other treatment rendering the claim unimpaired. • The upper end of the claim range reflects potential claims of lessors under applicable state law to levy against the personal property situated on the land owned by such lessors. • Fitch assumes midpoint of range for distribution value amount. • Distributions consisted of a pro rata share of the general unsecured creditor distribution pool. • Prepetition second-lien noteholders had acquired a majority of these notes via participation in a rights offering in the prior reorganization that was fully backstopped by certain investors. • Distributions consisted of a pro rata share of the general unsecured distribution pool. When the VCLF transaction was consummated, they received an equity grant from the fund for a share of ownership in the acquired assets. • No distributions. • Deemed to have rejected the plan.
a
All distributions to this and other claims assume no payout event occurred (that is, no higher and better bid than Blackhawk and VCLF bids were received). Replacement in full of Blackhawk’s funded debt with new first-lien term loans. RR – Recovery Rating. DIP – Debtor in possession. ABL – Asset-based lending. PIK – Payment in kind. LC – Letters of credit. Source, unless otherwise noted: Fourth amended disclosure statement dated Sept. 18, 2015, asset purchase agreements.
b
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Patriot Coal Corp. (2015) (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP and Priority
Secured Secured
Secured
Secured Secured Unsecured Equity
Claim Seniority DIP and Priority
Secured
Allowed Projected Equivalent Claims Recovery (%) RR Category 112 100.0 RR1
Claim Type $100 Million (Maximum) Multidraw Term Loan DIP and Other Priority ABL Revolving Credit Facility 44 due 2018 First-Lien Term Loan Facility 247 Second-Out Tranche due a 2018 First-Lien First-Out Letter of 198 Credit Facility Subfacility Tranche Other Secured Claims 4.8–132.5 15% Second-Lien Notes 306 due 2023 General Unsecured 83 Equity Interests Not Applicable Estimated Claims 990 New Borrowings at 300 b Emergence Debt of Nonfiling Affiliates on 0 Emergence Date Claim Type $100 Million (Maximum) Multidraw Term Loan DIP and Other Priority ABL Revolving Credit Facility due 2018
Secured
First-Lien Term Loan Facility Second-Out Tranche due 2018a
Secured
First-Lien First-Out Letter of Credit Facility Subfacility Tranche
Secured
Other Secured Claims
Secured
15% Second-Lien Notes due 2023
Unsecured
General Unsecured
Equity
Equity Interests
Form of Distribution Secured Unsecured Subordinated New Cash Notes Notes Notes Equity 112 — — — —
Options/ Warrants —
100.0 RR1
44
—
—
—
—
—
100.0 RR1
—
247
—
—
>0
—
80.0 RR2
—
155
—
—
—
—
100.0 RR1 16.3 RR5
66 —
— 50
— —
— —
— >0
— —
— — 222 —
— — 452 —
— — 0 —
— — 0 —
— — >0 —
— — 0 —
—
—
—
—
—
—
>0.0 0.0 — —
RR6 RR6 Recoveries —
— —
Description • DIP claims were paid in full in cash with a portion of first-lien exit term loan. • The new money DIP carried a fixed interest rate of 12% and included case milestones for asset sales and other restructuring efforts. • Paid in full in cash or converted into the new ABL exit facility for the combined company on a dollar-for-dollar basis. • Secured by first-priority liens on current assets, which include accounts receivable (excluding any accounts arising from the sale of collateral securing the prepetition LC facility and prepetition term loan facility, minerals that have been extracted from real property, inventory (excluding any minerals that have not yet been extracted from real property), as well as deposit, securities and commodity accounts and second-priority liens on substantially all of the debtors’ other assets, equity interests in the debtors and all minerals not yet extracted from real property. • Distributions consisted of a pro rata share of the general unsecured creditor distribution pool (consisting of a share of the equity in the VCLF affiliated company formed to own the assets in the VCLF acquisition) and rights to participate in the rights offering. • The loan tranche junior in right of payment to the letter of credit tranche. • A second-lien PIK note distribution was subsequently converted to the new equity. • Distributions consisted of a $155 million new second-lien exit term loan for the combined company and rights to participate in the rights offering. • Secured by first-priority liens on fixed assets, equity interests in the debtors, all minerals not yet extracted from real property and certain other asset and a second-priority lien on current assets, including accounts receivable (other than any accounts arising from the sale of collateral securing the obligations arising under the prepetition LC/term loan agreement on a first-priority basis), minerals that have been extracted from real property, inventory, as well as deposit, securities and commodity accounts. • The LC facility was first out in right of payment to the prepetition term loan facility. • Distributions paid either in a) cash in full b) collateral transferred and interest paid in cash or c) other treatment rendering the claim unimpaired. • The upper end of the claim range reflects potential claims of lessors under applicable state law to levy against the personal property situated on the land owned by such lessors. • Fitch assumes midpoint of range for distribution value amount. • Distributions consisted of a pro rata share of the general unsecured creditor distribution pool. • Prepetition second-lien noteholders had acquired a majority of these notes via participation in a rights offering in the prior reorganization that was fully backstopped by certain investors. • Distributions consisted of a pro rata share of the general unsecured distribution pool. When the VCLF transaction was consummated, they received an equity grant from the fund for a share of ownership in the acquired assets. • No distributions. • Deemed to have rejected the plan.
a
All distributions to this and other claims assume no payout event occurred (that is, no higher and better bid than Blackhawk and VCLF bids were received). Replacement in full of Blackhawk’s funded debt with new first-lien term loans. RR – Recovery Rating. DIP – Debtor in possession. ABL – Asset-based lending. PIK – Payment in kind. LC – Letters of credit. Source, unless otherwise noted: Fourth amended disclosure statement dated Sept. 18, 2015, asset purchase agreements.
b
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Patriot Coal Corp. (2015) (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues
Executory Contracts
Deficiency Claims Contingent Claims and/or Contingent Recoveries
Intercompany Claims Pension Claims/Motions
Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
Not available. Maximum $65 million ABL facility, $200 million first-out letter of credit facility and $247 million term loan (second out). $44 million of borrowings under ABL facility, $200 million of letters of credit issued under the first-out letter of credit subfacility and $247 million term loan (second out). $100 million new money DIP facility. The DIP was provided by certain prepetition first- and second-lien lenders. The previous 2012–2013 Chapter 11 reorganization plan resulted in reduced wages and benefits for nonunion employees and retirees. However, as a result of new collective bargaining agreements (CBAs) with the United Mine Workers of America (UMWA) and a transitioning of retiree healthcare obligations under preexisting CBAs to the UMWA Voluntary Employee Beneficiary Association (VEBA), burdensome legacy contract liabilities remained in place at Patriot after the initial bankruptcy emergence. In particular, there were substantial pension plan obligations under the 1974 pension plans and under federal statutes including the Coal Act and Black Lung Act. A significant number of executory contracts were assumed. The company was party to a number of CBAs with the UMWA. The acquirors (Blackhawk Mining and Virginia Commonwealth Legacy Fund) reached a settlement with the UMWA for new CBAs to replace the prepetition Patriot CBAs that were negotiated during the prior bankruptcy. Accordingly, the prepetition CBAs were rejected and new contracts were started. Yes, first-lien second-out term loan and second-lien notes. The debtors, certain state and federal government authorities, sureties and coal lessors disagree with respect to whether certain environmental liabilities should be classified as general unsecured claims, administrative claims or non-dischargeable compliance obligations. If the parties are unable to reach an agreement, the dispute may be litigated in connection with plan confirmation. The Wall Street Journal reported on Oct. 8, 2015 that Patriot reached a deal with West Virginia state regulators to provide $50 million to cover cleanup costs, which resolved the regulator’s objections to the plan. The VCLF assumed certain environmental obligations. No distributions. Patriot had pension obligations to certain former UMWA employees relating to a 1974 pension plan as well as a 401(k) plan and a union savings plan. The retiree committee and Patriot were in discussions regarding modifications to obligations of the 1974 UMWA plans as of the Sept. 18, 2015 disclosure statement date. Annual expenses related to the 1974 plans ranged from $16.8 million to $20.8 million in the three years preceding the 2015 filing. The 1974 pension plan estimated a withdrawal liability for Patriot of $911 million, some or all of which may be entitled to administrative status, but the company disagreed with the 1974 plan’s position on the liability. Patriot contributed $8.2 million to the VEBA in 2014. Yes ABL and other secured claims. Yes Second-lien deficiency and other general unsecured claims received nominal distributions from the general unsecured distribution pool.
ABL – Asset-based lending. DIP – Debtor in possession. Source: Fitch Ratings, disclosure statement dated Sept. 18, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
125
Leveraged Finance Penn Virginia Corporation ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Key Drivers of Bankruptcy Filing Energy Oil and Natural Gas Exploration and Development PVAH 518 Penn Virginia/Privately Held
No Debtor Virginia — Eastern No 5/12/16 8/16/16 9/12/16 3 Chapter 11 (Prearranged/Negotiated) No Voluntary Yes Emerged/Reorganized (Private)
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period Prepetition EBITDA 12/31/15 Post-Emergence EBITDA Forecast 12/31/17 Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
Amount 262 55 192 290 241 92 190 4.4
Petition Date Versus Emergence Date Total Debta Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 1,188 4.5 — —
Emergence Date 75 1.4 1,113 94
Events Leading Up to Bankruptcy (or Contributing Factors) Penn Virginia Corporation’s revenue and cash flow deteriorated due to the steep drop in oil and natural gas prices even though there were some commodity hedges in place that locked in above market pricing. As a result of declining oil prices and reserve values, lenders reduced the maximum borrowing base under the reserve-based loan to $275 million from $395 million in November 2015, reducing available liquidity. To conserve cash, the drilling program was suspended in February 2016. In addition, the company liquidated commodity swaps to raise cash prior to filing. Around this time, the company’s auditors to its 2015 results included an explanatory paragraph expressing substantial doubt as to the company’s ability to continue as a going concern. The qualified auditor opinion resulted in a credit facility default and thus all debt was reclassified as coming due as of the year end. Lenders waived the defaults until April 2016, with extension to May 2016. Based on the defaults and the general financial condition, the company sought Chapter 11 protection in an effort to accomplish a court-supervised comprehensive restructuring of the balance sheet.
Valuation Estimate Summary Going Concern Evaluation The third-party valuation advisor estimated an enterprise value of range of $192 million–$290 million, with a midpoint of $241 million. The primary methodologies used by the advisor were a discounted cash flow approach and a comparable company analysis. The names of the comparable companies and discount rate assumptions were not disclosed. The advisor also considered management’s financial projections, which assumed an Aug. 31, 2016 emergence from Chapter 11. It included the following EBITDAX forecastb: • Four months ended 2016: $21.5 million • 2017 full year: $54.6 million • 2018 full year: $56.5 million Liquidation Value Alternative The Chapter 7 alternative liquidation valuation analysis that resulted in a midpoint asset value of $207.1 million was based on the company’s balance sheet asset book values as of Aug. 31, 2016 and forecasts with management input. It assumes a six-month Chapter 7 liquidation period. The disclosure statement notes that the going concern scenario would provide claimholders with a recovery (if any) that is not less than what they would otherwise receive pursuant to a liquidation. Noteholder recovery would have been between 0%–2% in this case. • Cash on hand of approximately $15 million at 100% of book value • Accounts receivable of $34 million at 62%–78% of book value • Inventory of $2.3 million at 15%–25% • Oil and gas properties of $315.8 million at 48%–54% (net of transaction costs and due to accelerated time frame of sale) • Other PPE of $1.3 million at 10%–20% a
Petition date debt excludes $211 million of preferred stock. bSource disclosure statement exhibits filed May 27, 2016. Source, unless otherwise noted: Disclosure statement for the first amended joint plan of reorganization dated June 24, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Penn Virginia Corporation (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP and Priority Secured Unsecured Unsecured Unsecured Equity
Allowed Projected Equivalent Claim Type Claims Recovery (%) RR Category Administrative and Priority 25 25.0 RR1 Reserve-Based Loan (RBL) Facility 113 100.0 RR1 $1.075 Billion Notes 1,122 5–8 RR6 a General Unsecured Claims 133 5–8 RR6 Convenience Claimsa 10 6.1 RR6 Preference Shares 211 — RR6 Estimated Claims 1,614 — Recoveries b New Borrowings at Emergence 128 — — Debt of Nonfiling Affiliates on Unknown — — Emergence Date
Claim Seniority DIP and Priority
Claim Type Administrative and Priority
Secured
RBL Facility
Unsecured
$1.075 Billion Notes
Unsecured
General Unsecured Claims
Unsecured
Convenience Claims
Equity
Preference Shares
a
Cash 25 113 — — 1 — 139 — —
Form of Distribution Secured Unsecured Subordinated New Options/ Notes Notes Notes Equity Warrants — — — — — — — — — — — — — 56.1–89.8 — — — — 8.6 — — — — — — — — — — — 0 0 0 64.7–98.4 0 — — — — — — — — — —
Description • Paid in full in cash using cash on hand and proceeds from the $128 million RBL exit facility that was provided by the prepetition RBL lenders. • Claim amount under the $25 million DIP was not available. The facility was repaid in cash with proceeds from the new equity issuance and an exit facility. • Claims were paid in cash from the new exit facility and equity rights offering. • Secured primarily by a first-priority lien on substantially all of the debtors’ proved oil and gas reserves and a pledge of the equity interests in guarantor subsidiaries. • Borrowing base was reduced prior to the filing date. • Holders of note and general unsecured claims received their pro rata share of 100% of the new common stock, subject to dilution from the management incentive plan and the rights offering and the option to participate in the rights offering. • There were approximately $1.1 billion of note claims in two series: 7.250% senior notes due 2019 and 8.500% senior notes due 2020. • Claim amounts included accrued and unpaid prepetition interest. • Holders received a pro rata share of the new common stock and the right to participate in the rights offering to the extent holder was an accredited investor. The pro rata share was determined based on 50% of the total allowed amount of the claim. • $132.7 million is midpoint of estimated claim amount as of the disclosure date, with an estimated range of $64 million–$237.4 million dependent on decisions with respect to executory contract assumptions or rejections. Total equity value excludes the $50 million rights new money equity. • Any general unsecured claim that elects to settle on a timely basis, which either is allowed in an amount equal to or less than $2.5 million or is allowed in an amount greater than $2.5 million but is reduced by such holder to $2.5 million. Repaid at $0.061 per dollar. • Penn Virginia had two series of preferred stock issued and outstanding: 3,864 shares of Series A preferred stock and 17,152 shares of Series B preferred stock. Each had a stated liquidation preference of $10,000 per share. • The restructuring provided no recovery to holders of the preference shares.
b
Midpoint used. Source was Sept. 12, 2016 Marketwired news release Penn Virginia Corporation Emerges from Bankruptcy. RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: Disclosure statement for the first amended joint plan of reorganization dated June 24, 2016.
Bond Price History — Penn Virginia Corp. ($775.0 Mil., 8.50% Senior Unsecured Notes Due 2020) (% of Par) 110 100 90 80 70 60 50 40 30 20 10 0
Confirmation Date 8/16/16
Filing Date: 5/12/16
Source: Advantage Data, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
127
Leveraged Finance Penn Virginia Corporation (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues Executory Contracts Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
Not available. $37.96 million as of June 1, 2016 per monthly operating report for period ended June 30, 2016. Reserve-based loan (RBL) facility borrowing base maximum was $113 million. The RBL was fully drawn. $25 million new money facility provided by the RBL lenders with a third $5 million tranche conditionally available. The plan was the product of a restructuring support agreement that was entered by the company on May 10, 2016 by 100% of the RBL lenders and 86% of the noteholders. Rejection motion against Republic (a service provider) on agreements covering construction and field gathering, transportation and crude oil marketing. Republic estimated the sum could be up to $200 million. Holders of note claims and holders of general unsecured claims received their pro rata share of the new common stock and holders of note claims shall also be entitled to participate in the rights offering. The unsecured claims include an estimate of certain contingent, unliquidated and disputed litigation claims known. Reinstated or cancelled at the company’s option. Unknown Yes Noteholders No N.A.
DIP – Debtor in possession. N.A. – Not applicable. Source: Fitch Ratings, disclosure statement dated June 24, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
128
Leveraged Finance Quicksilver Resources Inc. ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company
Energy Oil and Gas Exploration and Production KWK 1,214 Not Applicable/All Assets Sold
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period
Amount
b
Name/Ticker
Bankruptcy Summary a
Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months)
No Debtor Delaware No 3/17/15 8/16/16 — 17
Filing — Type Section 363 Asset Sale by Debtor
Chapter 11 Yes — Sale of Substantially All Assets
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
(as Liquidation) Voluntary Yes Section 363 Sale and Liquidating Plan
Prepetition EBITDA 12/31/14 219 Post-Emergence EBITDA Forecast Not Applicable Liquidated Enterprise Value (EV) Range (or Asset Value Range) Low 440 High 455 Midpoint EV (Value) 448 Equity Value Range Low 0 High 0 Midpoint EV/Post-Emergence EBITDA Estimate Not Applicable
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
2,074 9.5 — —
0 Not Applicable 2,074 100
Events Leading Up to Bankruptcy (or Contributing Factors) Quicksilver Resources Inc. was faced with springing maturities under the U.S. and Canadian borrowing base revolvers (October 2015), second-lien term loan and notes (January 2016), poor realizations on natural gas production and liquidity pressures from capital spending requirements under a KKR partnership agreement for assets in British Columbia. Noncore assets in Colorado were sold for $180 million in May 2014, and the KKR capital spending agreement was modified to extend the deadline in efforts to reduce leverage and avoid defaults. The company continued to explore strategic alternatives to address debt maturities and avoid credit agreement defaults. A formal marketing process was launched to sell all assets in the third quarter of 2014. However, at the same time, oil and gas prices began a steep decline. No acceptable bids had been received by January 2015. The company elected not to make an interest payment on its 2019 senior notes in February 2015 and filed in March. Quicksilver had 1P U.S. reserves of 1.2 Tcfe that were 87% natural gas with a PV10 value of $663 million as of the filing date in September 2015, based on strip value as of July 15, 2015.
Valuation Estimate Summary Sum of Piecemeal Asset Sale Proceeds and Remaining Cash on Hand U.S. reserves were sold in a bankruptcy auction and were the main source of liquidation value. The U.S. reserves comprised 75% of total reserve assets, with the balance in Canada. Most U.S. assets were located mainly in the Barnett Shale Fort Worth basin, with a smaller portion in the Delaware Basin in West Texas and included 1,017 producing wells. BlueStone Natural Resources II, LLC won the bidding for $245 million in January 2016 in a bid backed by private equity firm Natural Gas Partners. In addition, Quicksilver’s sale of 3,400 acres of unimproved real property in Routt County, CO for $3.75 million to SBRJWM Ltd. was approved by the court on March 17, 2016. Additional value for creditor distributions came from cash on hand, which was $26.3 million as of July 31, 2016, the termination of derivative contracts in 2015 for proceeds of $139 million and an estimate of value for remaining assets. The $440 million sum of the completed U.S. asset sale proceeds, termination of the money derivative contracts, planned remaining asset sale proceeds and cash on hand is used by Fitch as a rough estimate of company value. The valuation excludes Canadian assets that were liquidated in Canada in a separate bankruptcy. Discounted Present Value While not part of the Chapter 11 liquidation valuation, Fitch notes that the present value of the U.S. reserves was $755 million as of Dec. 31, 2014, consisting of $715.6 million for provided, producing reserves, $36.9 million of proved undeveloped reserves and $3.3 million of proven undeveloped reserves. The valuation was completed for the 10-K and based on much higher commodity prices than at the time of filing. The valuation was based on average market prices in 2014 and included $3.97 per Mcf for gas and $81.17 per barrel for oil. Liquidation Value Alternative The Chapter 7 liquidation valuation alternative estimated a midpoint gross liquidation proceeds amount of $156.4 million, consisting of $119.7 million for encumbered assets and $36.7 million for unencumbered assets. The valuation is based on an assumed conversion to a Chapter 7 liquidation process from a Chapter 11 liquidation on July 31, 2016 and is representative of the assets and liabilities on the balance sheet as of that date. There were no remaining first-lien borrowings as of the hypothetical liquidation date, as this debt had already been paid with proceeds of the Barnett Shale asset sale earlier in 2016. a
Filing excluded Canadian subsidiaries that filed a separate proceeding in Canadian court on March 8, 2016. bSource 10-K for year ended Dec. 31, 2014. Source, unless otherwise noted: Disclosure statement for the first amended joint plan of liquidation dated July 5, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
129
Leveraged Finance Quicksilver Resources Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority
Claim Type
DIP and Priority Secured
DIP and Administrative First-Lien U.S. and Canadian Revolving Credit Facilities $625 Million Term Loan and $200 Million Second-Lien Notes due 2019 (Including Waived Deficiency Claim Amounts) General Unsecured, Including $292.8 Million of 9.125% Senior Notes due 2019 and $308.5 Million of 11% Senior Notes due 2021 $350 Million of 7.125% Subordinated Notes due 2016 Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Secured
Unsecured
Subordinated Equity
Allowed Projected Equivalent Claims Recovery (%) RR Category
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants
N.A. 0
100.0 RR1 100.0 RR1
— 273
— —
— —
— —
— —
— —
806
18.1 RR5
149
—
—
—
—
—
735
2.9 RR6
21
—
—
—
—
—
308
0.0 RR6
—
—
—
—
—
—
— 443 — —
— 0 — —
— 0 — —
— 0 — —
— 0 — —
— 0 — —
N.A. 1,849 0 0
0.0 — — —
RR6 Recoveries — —
Claim Seniority DIP and Priority Secured
Claim Type DIP and Administrative First-Lien U.S. and Canadian Revolving Credit Facilities
Secured
$625 Million Term Loan and $200 Million Second-Lien Notes due 2019 (Including Waived Deficiency Claim Amounts) General Unsecured, Including • Included claims related to senior notes, contract rejections, trade claims and lease obligations. $292.8 Million of 9.125% Senior Notes due 2019 and $308.5 Million of 11% Senior Notes due 2021 $350 Million of 7.125% • $0 recovery. Subordinated Notes due 2016 • Deemed to have rejected the plan Interests • $0 recovery.
Unsecured
Subordinated Equity
Description • There was no DIP facility. • The $273 million of petition date borrowings under first-lien facilities had been repaid prior to the disclosure statement date. One source for repayment was the proceeds from the termination of all derivative contracts, which provided $139 million in 2015, and the remainder came from the BlueStone asset sale. • Paid in full in cash. • Secured by oil and gas properties (excluding unencumbered property and cash on hand), related assets, rights under swap agreements and pledges of subsidiary capital stock (100% of domestic subsidiary stock and 65% of foreign subsidiary stock). • Secured portion of the second-lien debt was allowed in a claim amount of $149.1 million. • The unsecured deficiency claim portion of the debt issue was waived, with $0 recovery as a result of the global settlement agreement.
RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not available. Source, unless otherwise noted: Disclosure statement for the first amended joint plan of liquidation dated July 5, 2016.
Bond Price History — Quicksilver Resources Inc. ($325.0 Mil., 11.00% Senior Unsecured Notes Due 2021) (% of Par) 100 90 80 70 60 50 40 30 20 10 0
Confirmation Date 8/16/16 Filing Date: 3/17/15
Source: Advantage Data, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Quicksilver Resources Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues
Executory Contracts
Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
$184 million per monthly operating report filed in July 2016. $325 million reserve base borrowing base revolving and letters of credit facilities (U.S. borrowing base of $185 million and Canadian borrowing base of $140 million). $273 million combined total usage, including letters of credit under the $325 million U.S. and Canadian revolving facilities. There was no DIP facility. The company drew its reserve-based revolver prior to filing to raise liquidity. The unsecured creditors committee contended that certain assets were unencumbered and available for their recoveries, but the court concluded that the second-lien lenders had liens on all assets. There were also adequate protection motions filed by the second-lien lenders requesting second-lien diminution claims of not less than $173 million. A settlement was reached between the unsecured creditorsâ&#x20AC;&#x2122; committee and second-lien lenders on May 1, 2016. As a condition of the sale of assets to BlueStone, the company was required to reject certain gas gathering and processing agreements. After a hearing on the matter, the parties agreed to amend and assume these agreements. The company amended its joint exploration agreement with ENI Petroleum. Yes, second-lien holders had deficiency claims, but waved them as part of a global settlement reached on May 1, 2016. Federal income taxes are disputed. Quicksilver made an intercompany loan to Canadian affiliate QRCI. Recoveries will depend on the outcome of the Canadian proceedings. Not available. The disclosure statement noted that all employeesâ&#x20AC;&#x2122; salaries were converted to hourly wages and a wind-down budget was established for employee wages. Yes First lien. Yes Unsecured creditors received $17.5 million cash and 50% of recoveries from the Canadian proceeds up to $17.5 million maximum additional recovery.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, disclosure statement dated July 5, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
131
Leveraged Finance RAAM Global Energy Company ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol
Energy Exploration and Production RAAM
Petition Date Assets Emergence Parent Company Name/Ticker
392 Upstream Exploration LLC/ Privately Held
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile Prepetition EBITDA Post-Emergence EBITDA Forecast
12-Month Period 12/31/14 Not Applicable
Amount 76 Not Available/ Private Entity
Yes Debtor Texas — Southern Yes 10/26/15 1/19/16 2/2/16 3 Chapter 11 (Prepackaged) Yes — Sale of Substantially All Assets (as Going Concern) Voluntary Yes Section 363 Sale and Liquidation Plan
Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
61 68 65 Not Applicable Not Applicable Not Available
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x)
Petition Date 327 4.3
Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
— —
Emergence Date Not Available Not Applicable/ Private Entity Not Available Not Available
Events Leading Up to Bankruptcy (or Contributing Factors) Several factors led to the bankruptcy of RAAM Global Energy. First, in 2013, RAAM encountered permitting issues in the Gulf of Mexico that caused reserve writedowns. Specifically, the Bureau of Ocean Energy Management updated regulations that left RAAM financially unable to obtain the permits necessary to develop an offshore project, which led to impairment of 8.4 million barrels of oil equivalent, a $277 million write-down and an after-tax loss of $186 million in September 2013. Second, the rapid and unexpected decline in crude oil and continued low natural gas prices adversely affected the company’s financial strength and hampered the ability to operate. Third, RAAM failed to make its April 2015 interest payment on the 12.5% senior secured notes, triggering a credit agreement default. RAAM attempted a debt-to-equity exchange offer requiring that 99% of the principal amount of outstanding bonds had to be validly tendered to close the exchange. The exchange offer terminated on Aug. 20, 2015 with only 94.77% of the principal amount tendered. After the failed exchange offer, RAAM unsuccessfully pursued potential prepetition stalking horse bidders for assets prior to filing for bankruptcy protection. A prepackaged plan was negotiated with creditors that involved an asset purchase agreement among prepetition lenders, Highbridge Principal Strategies, LLC and United Life Insurance Company. RAAM emerged from bankruptcy under new ownership as a company called Upstream Exploration LLC.
Valuation Estimate Summary Proceeds from Sale of All Assets Established Estimate of Value The prepetition first-lien lender, Highbridge, acted as stalking horse bidder in a bankruptcy auction for the sale of assets held on Jan. 8, 2016 with a credit bid of $58.8 million plus $6.8 million of cash plus the assumption of certain obligations. The APA excluded certain assets. No other bids were received. There are no details as to what claims and expenses received the $6.1 million cash portion of the APA consideration. Under the plan, first-lien term loan claims received a 95.3% recovery (received assets in return for debt forgiveness), and the other claims got only nominal recoveries based on a settlement. Liquidation Value Alternative The Chapter 7 alternative liquidation analysis estimated the distributable proceeds from liquidation to range between $35.97 million and $60.30 million. Source: 10-K for fiscal year ended Dec. 31, 2014 dated March 31, 2015, second amended disclosure statement dated Dec. 21, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance RAAM Global Energy Company (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Secured
Claim Type First-Lien Note Claims
Secured Unsecured
Equity
12.5% Senior Secured Notes Second-Lien Notes Deficiency Claims Ace Claims and Other General Unsecured Claims Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority Secured
Claim Type First-Lien Note Claims
Secured
12.5% Senior Secured Notes
Unsecured
Second-Lien Notes Deficiency Claims
Unsecured
Ace Claims and Other General Unsecured Claims
Equity
Interests
Unsecured
Form of Distribution Projected Equivalent Secured Unsecured Subordinated New Options/ Allowed Claims Recovery (%) RR Category Cash Notes Notes Notes Equity Warrants 64 95.3 RR1 — — — — 61 — >0 238 RR1 N.A. — — — — — 25 0.0 RR6 1 — — — — — N.A. Not Applicable 327 0 0
>0 RR6 0.0 — — —
RR6 Recoveries — —
1
—
—
—
—
—
— 2 — —
— 0 — —
— 0 — —
— 0 — —
— 61 — —
— 0 — —
Description • There was a credit bid for assets based on an asset purchase agreement between RAAM and first-lien lender Highbridge. The existing term loan had $63.8 million outstanding as of the petition date, and the claims were 95.3% recovered based on the amount of the credit bid (cancellation of the debt in return for getting the assets in the court auction) and $2.5 million cash. • As the Highbridge credit bid was the best offer, the claimants received no recovery other than a share of any litigation proceeds and a share of the unsecured distributions, as claims were treated as unsecured deficiency claims. • No material recoveries were expected. • Entitled to a pro rata share of proceeds, if any, from litigation recoveries and a share of the Highbridge gift to unsecured claims. • Fitch estimates less than $1 million of distributions. • No material recoveries were expected. • Entitled to pro rata share of proceeds, if any, from litigation recoveries and a gift from the first-lien lenders. • Fitch estimates less than $1 million of distributions. • No recovery. • Deemed to have rejected the plan.
RR – Recovery Rating. N.A. – Not available. Source: 10-K for fiscal year ended Dec. 31, 2014 dated March 31, 2015, second amended disclosure statement dated Dec. 21, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
133
Leveraged Finance RAAM Global Energy Company (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues
Executory Contracts
Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
$7.28 million unrestricted cash. There was no revolving credit facility. There was a $68 million term loan. $68 million term loan. There was no DIP given that RAAM had already sold assets under an asset purchase agreement and had enough cash on hand to bridge to the sale. RAAM secured bonding for its plugging and abandonment obligations from Ace under the Ace bonding agreement, for wells that were sold under the asset purchase agreement. The debtor believes there will not be any unpaid administrative claims related to plugging and abandonment of the debtorâ&#x20AC;&#x2122;s federal offshore leases. The debtor has made relevant arrangements for wells for which there were no bonding arrangements. Plugging and abandonment obligations were paid by prepetition surety provider Ace, and future liabilities were assumed by Highbridge (asset purchaser). All executory contracts and unexpired leases that exist between the debtors and any person or entity were deemed rejected by the debtor except as outlined in the disclosure statement dated Dec. 21, 2015. $25 million deficiency claims relating to the 12.5% senior secured notes that shared pro rata in the general unsecured claim nominal distributions. Preserved causes of action are potential recoveries. There was a dispute over whether certain non-bonded plugging and abandonment liabilities would be treated as a general unsecured claim or an administrative claim. No distributions. All employment and retirement benefit plans that were not previously transferred to the buyer were terminated as of the effective date of the plan. No Not applicable. Yes The first-lien lenders reached a settlement with plugging and abandonment obligation surety bond provider Ace and general unsecured trade claimants to gift a nominal distribution payment to these parties (amount not determined).
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, second amended disclosure statement dated Dec. 21, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
134
Leveraged Finance Sabine Oil & Gas Corporation ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol
Energy On-Shore Oil and Gas E&P SOGC
Petition Date Assets Emergence Parent Company Name/Ticker
2,438 Sabine Oil & Gas/Privately Held
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months)
Yes Debtor New York — Southern No 7/15/15 7/27/16 8/11/16 13
Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Chapter 11 Yes — Partial Sale of Assets Voluntary Not Available Emerged/Reorganized (Private)
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period a Prepetition EBITDA 12/31/14 Post-Emergence EBITDA Forecast 12/31/17 Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
Amount 331 81 450 650 550 290 490 6.8
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 2,770 8.4 — —
Emergence Date 160 2.0 2,610 94
Events Leading Up to Bankruptcy (or Contributing Factors) Sabine Oil & Gas Corporation was formed by the merger of Forest Oil and Sabine Oil and Gas LLC in December 2014. The merger coincided with the beginning of a steep and prolonged decline in the price of oil. This decline, along with the continuation of low natural gas prices and market uncertainty created a challenging operational environment and made it difficult to sustain the leveraged capital structure. Moreover, other challenges included litigation related to the merger, a going concern qualification in the annual audit and a reduction of the borrowing base under the reserve-based loan (RBL) facility. Prior to filing, the company fully drew its RBL, cut capex and decreased its workforce, but was unable to reach a consensual agreement with creditors for an out-of-court or in-court debt restructuring.
Valuation Estimate Summary Going Concern Enterprise Valuation The third-party investment banker estimated a midpoint enterprise value for the reorganized company of approximately $550 million. The estimate was based on reserve information, development schedules, and financial information provided by the company’s management, as well as management financial projections that include the EBITDA estimates below. The company projections were based on March 22, 2016 NYMEX strip pricing on oil and gas, which included natural gas priced at $2.67 and $2.73 per mmBtu in 2017 and 2018, respectively, and oil priced at $41.14 and $42.81 per barrel in those two respective years, rising to $44.65 by 2020. Capex was projected to rise gradually over the forecast period, reaching $110 million in 2020 from $81.3 million in 2017. The EBITDA forecast was as follows: ($ Mil.) EBITDA
2017 81.3
2018 82.40
2019 88.8
2020 114.9
The forecast assumed a $100 million draw on the exit facility RBL was repaid by $90 million on the exit date using cash on hand. The reorganization plan restructured the company through a debt-for-debt exchange, a debt-to-equity conversion, and the issuance of warrants to purchase stock in the reorganized company and was the result of a negotiated settlement. Liquidation Value Alternative The hypothetical liquidation analysis alternative valuation resulted in midpoint estimated liquidation proceeds of $419.2 million, or 62% of the book value of assets as of June 30, 2016. The analysis assumed assets would be sold over a three-month period at a percentage of book value and the wind-down would take 12 months to complete. Asset book value and midpoint percentages applied included: • Cash of $108.9 million at 100% of book value • Accounts receivable of $23.6 million at 90% • Oil and gas properties with a book value of $487.7 million using the full cost method based on an impairment test under SEC Regulation S-X Rule 4-10 as of Feb. 29, 2016 at 58%, which represented an estimated sale value of $283 million a EBITDA is company’s reported EBITDA per 10-K filing dated March 24, 2016. Source, unless otherwise noted: Disclosure statement for the second amended joint plan of reorganization dated April 27, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
135
Leveraged Finance Sabine Oil & Gas Corporation (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Claim Type DIP and Priority Secured Secured Unsecured Unsecured Equity
Administrative and Priority Reserve-Based Loan (RBL) Second Lien, Including Deficiency Claim Portion Senior Notes (Three Series) General Unsecured Sabine Equity Interests Estimated Claims a New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Allowed Projected Equivalent Claims Recovery (%) RR Category N.A. 927 718 1,194 241 N.A. 3,080 100 0
100.0 RR1 54.0–71.0 RR3 7.9–8.6 RR6 0.9–1.7 0.9–1.7 0.0 — — —
RR6 RR6 RR6 Recoveries — —
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants N.A. 145 —
— 150 —
— — —
— — —
— 220 57
— — —
— — — 145 — —
— — — 150 — —
— — — 0 — —
— — — 0 — —
13 2 — 292 — —
— — — 0 — —
Claim Seniority Claim Type DIP and Priority Administrative and Priority Secured
Secured
Unsecured
Unsecured Equity
Description • Paid in full. • There was no DIP facility. Reserve-Based Loan (RBL) • Holders received recoveries in the form of cash in the segregated cash collateral account, the exit revolver, the new second-lien facility and the RBL equity pool. • The $926.7 million claim excludes claims relating to post-petition interest, fees, costs and other charges that had not yet been determined as of the disclosure statement publication date. • Amount of distributions from cash collateral account is Fitch estimate. Actual cash on hand per balance sheet as of March 31, 2016 was $170 million. • Holders waived distributions on their deficiency claims. • Secured by a lien on at least 80% of the PV9 value of the borrowing base evaluated in the most recent reserve report delivered to the agent. Second Lien, Including Deficiency • Second-lien distributions consisted of $50 million of new equity from the second-lien equity pool relating to their Claim Portion adequate protection claims (secured claims portion) and recoveries in the range of 0.9%–1.7% on their second-lien deficiency claims from their pro rata share of the unsecured equity pool and warrants. Senior Notes (Three Series) • Holders received distributions in the form of new common equity shares and warrants from the unsecured equity pool. • Included approximately $364 million of 9.75% senior notes due 2017, $602 million of 7.25% senior notes due 2019 and $228 million of 7.50% senior notes due 2020. General Unsecured • Holders received distributions in the form of new common equity shares and warrants from the unsecured equity pool. Sabine Equity Interests • $0 distributions. • Deemed to have rejected the plan of reorganization.
a
Borrowings under a new $150 million exit RBL facility. RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not available. Source, unless otherwise noted: Disclosure statement for the second amended joint plan of reorganization dated April 27, 2016.
Bond Price History — Sabine Oil and Gas Corporation ($577.9 Mil., 7.25% Senior Unsecured Notes Due 2019) (% of Par) 110 100 90 80 70 60 50 40 30 20 10 0
Confirmation Date 7/27/16 Filing Date: 7/15/15
Source: Advantage Data, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Sabine Oil & Gas Corporation (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments
Prepetition Bank Facility Borrowings on Filing Date
Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues
Executory Contracts
Deficiency Claims
Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
$253 million of cash on hand on filing date. There were creditor disputes as to whether this cash was encumbered. $927 million of borrowings and letters of credit under the reserve-based loan (RBL) credit agreement. The borrowing base under the RBL was revised downward to $750 million from $1 billion on April 27, 2015, resulting in a borrowing base overage. Sabine drew down substantially all remaining availability ($356 million draw) on Feb. 24, 2015 to attempt to secure additional liquidity prior to a borrowing base reduction in April 2015, to fund ordinary operations and to preserve optionality in the event of a future restructuring. There was no DIP. Sabine anticipated that cash on hand from recent full prepetition RBL draw and funds from operations would provide sufficient liquidity to support the business during bankruptcy. Numerous creditor parties, including an ad-hoc group of noteholders asserted that $270 million of disputed cash was unencumbered value available to unsecured claimholders. A mediator was engaged to help reach a timely and efficient resolution to this and other issues. Various gathering and processing agreements, including the Nordheim Eagleford and HPIP agreements were rejected and new agreements for connection facilities were entered. The bankruptcy court did not make a final determination as to whether certain covenants in the gathering agreements “run with the land,” and there were related adversary proceedings initiated by Sabine. A rig and servicing contract with Nabors was also rejected, and this eliminated $29 million of future payments. RBL lenders waived their deficiency claims that would have given the lenders a share of the new common stock. Second-lien lenders had $668.2 million of deficiency claims and received a recovery in the range of 0.9%–1.7% in the form of new common stock and 10-year warrants for the purchase of equity. Most resolved through negotiated settlement. Discharged, waived or reinstated at the company’s election. Legacy plans continued. Financial projections include costs in the range of $0.9 million–$2.8 million per year relating to legacy retiree pension plans, supplemental plans and minimum volume commitments. Yes RBL secured claims received interest payments at the nondefault rate. Yes The RBL creditors waived deficiency claims, and the length of the warrants was extended to 10 years in the final plan, which provides potentially greater recovery to unsecured creditors.
DIP – Debtor in possession. Source: Fitch Ratings, second amended disclosure statement dated April 27, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
137
Leveraged Finance SandRidge Energy, Inc. ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Energy Exploration and Production SDOCQ 2,991 SandRidge Energy/SDOCQ
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months)
Yes Debtor Texas — Southern Yes 5/16/16 9/9/16 10/4/16 4
Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Chapter 11 (Prearranged/Negotiated) No Voluntary No Emerged/Reorganized (Private)
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period Prepetition EBITDAa 12/31/15 Post-Emergence EBITDA Forecast 12/31/17 Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
Amount 589 172 1,042 1,318 1,180 1,037 1,313 6.9
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 4,100 7.0 — —
Emergence Date 800 4.7 3,300 80
Events Leading Up to Bankruptcy (or Contributing Factors) The filing was caused by declining oil prices that eroded liquidity and led to an untenable capital structure. The 50% drop in oil prices from the recent peak of $107.26/barrel in June 2014 created significant issues for SandRidge Energy, Inc. Management implemented corrective actions, including cost-cutting, efficiency enhancing initiatives and asset sales. For example, the number of active rigs was cut to one from 35, and employee headcount was reduced by 65% to 657 from 1,900. Despite all of management’s efforts to steer the company through an unprecedented commodity price downturn, management decided it had no other choice but to engage financial advisors in December 2015 to evaluate strategic alternatives related to the untenable capital structure and dwindling liquidity. In January 2016, SandRidge fully drew the remaining $489 million under the asset-based first-lien revolver (ABL) and subsequently began restructuring negotiations with various creditors, including ABL lenders, an ad hoc group of second-lien noteholders and unsecured senior noteholders. SandRidge entered into a restructuring support agreement (RSA) with consenting creditors, representing 67% of the outstanding principal amount of prepetition funded indebtedness in early May 2016 that laid out the terms of a bankruptcy plan. Specifically, the RSA was executed by holders of approximately 98% of the principal amount under the ABL, 79% of the principal amount of the second-lien notes and holders of approximately 55% of the unsecured senior notes that provided for equitization of the second-lien and unsecured debt issues. A Chapter 11 bankruptcy petition was filed on May 16, 2016.
Valuation Estimate Summary Going Concern Enterprise Valuation Plus Distributable Cash on Hand The third-party valuation advisor estimated a total enterprise value in the range of $1.042 million–$1.318 million. The advisor reviewed the net asset value (NAV) of proved oil and gas reserves, conducted a precedent analysis of peer transactions on an enterprise and asset-level basis, and completed a comparable company trading value analysis. The third-party analysis focused on the NAV approach using NYMEX pricing and also factored in management’s forecasted results and the valuation of other noncore assets such as real estate, undeveloped acreage, trust interests based on public market valuations and derivatives. Based on expected cash on hand of $546 million, the total distributable value was estimated at $1.59 billion–$1.86 billion. Management’s forecast of EBITDA was as follows: ($ Mil.) EBITDA
2017 171.8
2018 283.4
2019 464.3
2020 663.8
The forecast was based on NYMEX strip pricing as of May 26, 2016. Liquidation Value Alternative The hypothetical Chapter 7 alternative liquidation analysis assumes that the cases are converted into a Chapter 7 on the conversion date. This resulted in a recovery estimate ranging from $1.4 billion to $1.6 billion. The three major components of the liquidation are cash proceeds from asset sales, costs related to the liquidation process and distribution of net proceeds generated from asset sales to claimants in accordance with the code. Under this method, cash had a 100% recovery estimate relative to book value, and the other categories had the following factors to book value: • Accounts receivable at 85%–95% • Prepaid expenses and current assets at 45%–55% • Oil and natural gas properties at 56%–65% • Other PP&E at 24%–37% • Other assets at 45%–55% Liquidation costs ranged from $54.1 million to $58.5 million, resulting in net liquidation proceeds available for distribution of $1.3 billion–$1.5 billion. Under this method, first-lien recovery was 100%, second-lien would have been 52.4%–62% and general unsecured recoveries would have been 1.3%–2.0%. a
Prepetition EBITDA sourced from Form 10-K. Source, unless otherwise noted: Company disclosure statement for the first amended joint plan of reorganization dated July 14, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance SandRidge Energy, Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Secured Secured Unsecured Intercompany Equity
Claim Type ABL Revolver Second-Lien Note Claims Senior Notes Claims and General Unsecured Intercompany Equity Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority Secured
Claim Type ABL Revolver
Secured
Second-Lien Note Claims
Unsecured
Senior Notes Claims and General Unsecured
Intercompany Equity
Intercompany Equity
Allowed Projected Claims Recovery (%) 459 100.0 1,381 68.3 2,420 11.1 15 0 3,816 0 0
0.0/100.0 0.0 — — —
Equivalent RR Category RR1 RR4 RR6 RR6 RR6 Recoveries — —
Cash 35 — 37 — — 72 — —
Form of Distribution Secured Unsecured Subordinated New Options/ Notes Notes Notes Equity Warrants 425 — — — — — 300 — 643 — — — — 230 — — — 425 — —
— — 300 — —
— — 0 — —
— — 873 — —
— 0 — —
Description • Distributions primarily in the form of new first-lien ABL exit facility and also included $35 million of cash. • New ABL facility has initial borrowing base of $425 million, interest rate of LIBOR + 475 basis points (with a floor at 1%) and matures on the earlier of March 31, 2020 or 40 months from the plan’s effective date. • New ABL borrowing base will not be redetermined until October 2018 and is secured by first-priority liens of SandRidge and the guarantors. • Prepetition hedges remained in place through bankruptcy and following SandRidge’s emergence. • Holders received their pro rata share of 85% of the new common stock (including convertible debt that will convert into 46.5% of the common stock), but subject to dilution by other equity components if any, $300 million of convertible debt that could become partially or entirely secured by a springing lien depending upon the total share of the new common stock held, and rights to participate in the $150 million common stock rights offering. • Claims of $2,349 million consisted of unpaid principal and interest of the following: 8.75% notes due 2020, 7.5% notes due 2021, 8.125% notes due 2022, 7.5% notes due 2023, $88 million of 8.125% convertible notes due 2022 and $70.5 million of non-note general unsecured claims. • Received their pro rata share of $10 million cash, 15% of the new common stock, the right to participate in the rights offering and warrants, and the new building note proceeds ($29 million was winning bid for the new building note net of fees and expenses). • Cancelled or reinstated at option of debtors. • Extinguished without any distribution. • Deemed to have rejected the plan.
RR – Recovery Rating. ABL – Asset-based lending. Source, unless otherwise noted: Company disclosure statement for the first amended joint plan of reorganization dated July 14, 2016.
Bond Price History — SandRidge Energy, Inc. ($750.0 Mil., 8.25% Senior Unsecured Notes Due 2020) (% of Par) 80 70 60 50 40 30 20 10 0
Filing Date: 5/15/16 Confirmation Date 9/9/16
Source: Advantage Data, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
139
Leveraged Finance SandRidge Energy, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues
Executory Contracts
Deficiency Claims Contingent Claims and/or Contingent Recoveries
Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
$632.3 million per monthly operating report for June 2016. $469 million. SandRidge drew down the full remaining amount then available under its ABL revolver prior to filing bankruptcy. $459 million of borrowings plus $10 million letters of credit. On Jan. 22, 2016, SandRidge drew down the full amount then available under its ABL revolver, net of approximately $10 million of existing letters of credit. There was no DIP facility. There was sufficient cash on hand for needs as a result of the full draw of the revolver prior to the petition date. SandRidge had prepetition hedges with a fair market value of approximately $46 million as of the petition date. Hedge counterparties agreed not to terminate or liquidate their hedges on a postpetition basis. The company had royalty interests in three publicly traded royalty trusts (nondebtors). The trusts were continued. All executory contracts or unexpired leases deemed assumed by the reorganized debtors in accordance with the provisions and requirements of the respective bankruptcy codes, subject to the required consenting creditors other than those rejected under the plan. None Disputed claims include claims asserted by equityholders for undervaluing the company’s assets, reserves and production and to reflect an increase in the market price of oil since the filing date. A disputed claim was established under the plan to pay any claims that ultimately became allowed claims. $14.8 million in total. Each allowed intercompany claim at the option of the debtors was either reinstated or canceled and released without any distribution on account of such claims. N.A. No Not applicable. Yes General unsecured, including unsecured noteholders.
ABL – Asset-based lending. DIP – Debtor in possession. Source: Fitch Ratings, company disclosure statement for the first amended joint plan of reorganization dated July 14, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
140
Leveraged Finance Seahawk Drilling, Inc. ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Energy Provider of Contract Drilling Services HAWK 625 Not Applicable
Key Driver Key Driver
Deep Cyclical Trough Extreme Event
Financial Profile 12-Month Period
Amount
Prepetition EBITDA December 2009 Post-Emergence EBITDA Forecast Not Applicable Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
23 Not Applicable
b
Bankruptcy Summary a
Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor Texas — Southern Yes 2/11/11 9/28/11 10/4/11 8 Chapter 11 Yes — Sale of Substantially All Assets (as Going Concern) Voluntary Yes Section 363 Sale and Liquidating Plan
105 105 105 105 105 Not Available
Petition Date Versus Emergence Date Total Debtc Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
124 5.3 — —
0 Not Applicable 124 100
Events Leading Up to Bankruptcy (or Contributing Factors) The demand for drilling services declined in the first half of 2008 as a result of declining prices of crude oil and natural gas, and deteriorating worldwide economic conditions. The decline in the U.S. jack-up rig market since 2009 was one of the sharpest industry downturns in the past 30 years. In addition, the regulatory and financial uncertainties regarding former customer Petroleos Mexicanos (Pemex) had a significant effect on Seahawk Drilling, Inc.’s business. Revenue from Pemex’s drilling business declined by $171 million from 2008 to 2009. As a result of the lowered demand for its services, Seahawk’s active rig count averaged five to seven working rigs during the period from August 2009 to March 2010. Seahawk’s difficulties were exacerbated by the Macondo well blowout on April 20, 2010, that led to a moratorium on all offshore drilling activities. This caused further erosion of liquidity. When the moratorium was lifted, there were delays in the issuance of permits for activities and the regulatory and cost environment was uncertain. The global credit crisis created more challenges.
Valuation Estimate Summary Asset Sale Price Determined Company Value Hercules Offshore, Inc. (Hercules) acquired substantially all of Seahawk’s assets in a transaction valued at approximately $105 million (excluding adjustments) in a bankruptcy court-approved sale that closed in April 2011. The transaction was funded with $25 million of cash and 22.3 million shares of Hercules common stock. The cash consideration was primarily used to repay Seahawk’s prepetition revolver borrowings. The assets include 20 shallow water jackup rigs located in the Gulf of Mexico and assets related to the rigs, accounts receivable and payable, cash and certain contractual rights. Prior Value at Time of Spinoff for Reference While unrelated to the Chapter 11 case and not representative of a bankruptcy enterprise valuation, Fitch notes that Seahawk had an initial market capitalization of $272.7 million at the time it was spun off from Pride International in August 2009. Liquidation Value Alternative The liquidation alternative analysis estimated a liquidation value of $100.7 million. The valuation was based on the sale of assets to Hercules, cash on hand, and the liquidation costs. This was approximately $27 million less than the estimated value of the estate under a Chapter 11 liquidation sale to Hercules. a The Mexican subsidiaries were not debtors in the cases. bSource is 10-K for year ended Dec. 31, 2009. cIncludes trade claims. Source of debt is bankruptcy petition. Debt details not provided in disclosure statement. Source, unless otherwise noted: Company disclosure statement for the first amended plan of reorganization dated July 8, 2011. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
141
Leveraged Finance Seahawk Drilling, Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP or Other Administrative Unsecured Intercompany Unsecured Unsecured Equity
Claim Seniority DIP or Other Administrative
Unsecured Intercompany Unsecured Unsecured Equity
Claim Type $14.25 Million Wind Down DIP and Priority Claims General Unsecured Claims Intercompany Payables and Receivables Litigation Claims Pride International Claims Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Allowed Projected Claims Recovery (%) Approximately 100.0 15 100.0 16–18 56 0.0 2.4–4.5 0–75 Not Available 56 0 0
Equivalent RR Category RR1 RR1 RR6
100.0 RR1 100.0 Unknown — —
RR1 — Recoveries —
— —
Secured Cash Notes — —
Unsecured Notes —
Form of Distribution Subordinated New Notes Equity — 15
Options/ Warrants —
—
—
—
—
18
—
— —
— —
— —
— —
— 4
— —
— — 0 —
— — 0 —
— — 0 —
— — 0 —
75 — 112 —
— — 0 —
—
—
—
—
—
—
Claim Type Description $14.25 Million Wind Down • The wind down DIP will be paid in full with proceeds from the asset sale held in trust after final wind-down expenses DIP and Priority Claims are determined. • Proceeds of the initial DIP were used to repay the prepetition secured revolver borrowings in full in cash. The initial DIP was in turn paid in full in cash with proceeds asset sale estimated to be $25 million. General Unsecured Claims • Paid in full with proceeds from the asset sale. • Distributions paid with shares of Hercules stock. Intercompany Payables • The net intercompany payables and receivables were cancelled on the plan effective date. and Receivables Litigation Claims • Paid in full with proceeds from asset sale in form of Hercules stock. Pride International Claims • To the extent the disputed claims became allowed, they were paid in full with proceeds from asset sale in form of Hercules stock. Interests • Recovery unknown. No distributions would be made until all other claims were paid in full, including disputed claims and cure claims.
RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement for the first amended plan of reorganization dated July 8, 2011. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Seahawk Drilling, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims
Intercompany Claims Pension Claims/Motions
Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
$4.07 million as per 8-K monthly operating report filings. $36 million first-lien revolving credit facility. Not available. Proceeds from the $35 million initial DIP facility were used to repay prepetition revolving credit facility loans in full. The initial DIP facility was replaced by a wind down DIP facility. Claims for rejection of executory contracts and unexpired leases were estimated to be $1.5 million. No, first-lien lenders and other secured lenders were paid in full. Litigation claims, disputed claims of former Seahawk owner Pride International (Pride), Blake and other contingent unsecured claims. More than $50 million was placed into the Pride disputed claim reserve in the form of Hercules stock to fund potential payments to Pride (primarily related to Mexican tax issues). Cancelled with no distributions. The vast majority of the companyâ&#x20AC;&#x2122;s 505 employees were transferred to Hercules at the time of the asset sale. After the asset sale, 18 employees remained at Seahawk. The disclosure statement indicated the company was unaware of any unpaid wages, bonus or benefits owed to current or former employees. Certain officers have claims under their employment agreements for severance totaling $12.4 million. Yes First lien and various unsecured. No Not applicable.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, company disclosure statement for the first amended plan of reorganization dated July 8, 2011. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
143
Leveraged Finance SemCrude L.P. (SemGroup) ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Energy Energy Trading, Transport and Storage Not Traded at Parent Level 6,140 SemGroup/SEMG
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor Delaware No 7/22/08 10/28/09 12/1/09 15 Chapter 11 Yes — Partial Sale of Assets Voluntary Yes Emerged/Reorganized (Public)
Key Driver Key Driver
Flawed Business Model or Obsolete Product Extreme Event
Financial Profile 12-Month Period
Amount
Prepetition EBITDA Not Public Post-Emergence EBITDA Forecast 2010 Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
Not Available 190 1,400 1,600 1,500 935 1,135 7.9
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
3,316 Not Available — —
465 2.4 2,851 86
Events Leading Up to Bankruptcy (or Contributing Factors) A cash crisis and credit crunch forced SemCrude L.P. (SemGroup) into Chapter 11 protection. The company employed a speculative trading strategy that bet oil prices would decline. Oil prices instead increased and this exposed serious flaws in the trading strategy. The company rolled forward losing positions in hopes that the market would turn. Collateral calls and derivative liabilities increased and placed severe strains on liquidity. SemGroup tried to fix the liquidity problem by transferring its New York Mercantile Exchange (NYMEX) trading book to Barclays for a cash payment of $143 million to Barclays from SemGroup on July 15, 2008. The NYMEX book had a realized cash loss of $2,400 million and cash collateral of $2,300 million. In addition to the NYMEX book losses, SemGroup had a loss of $800 million on its OTC trading books. There were allegations of fraud with regard to collateral reporting to lenders, and an examiner was appointed during the case. Despite the trading book transfer to Barclays, SemGroup still faced a liquidity crisis and filed for bankruptcy on July 22, 2008. SemGroup was inundated with claims from producers seeking relief from the automatic stay, which ultimately was resolved with a producer’s settlement.
Valuation Estimate Summary The midpoint going concern enterprise valuation completed by the third-party valuation advisor of $1.5 billion was based on methodologies including a discounted cash flow analysis, comparable company analysis and precedent transaction analysis. The disclosure statement provides no details on the assumptions employed to estimate the value used in the plan of reorganization. Liquidation Value Alternative The liquidation analysis valued the company at $1,790 million and would have resulted in an estimated 53% recovery for secured revolver claims, 50% for working capital loan claims, and no recovery for junior creditors. The disclosure statement notes that substantially more claims would be classified as priority claims in a liquidation, which contributed to lower recovery for other creditors. Source, unless otherwise noted: Company disclosure statement for the fourth amended joint plan of reorganization dated Sept. 22, 2009. Note: This is an update of a case study originally published June 7, 2012.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
144
Leveraged Finance SemCrude L.P. (SemGroup) (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Claim Type DIP Secured Secured Secured DIP Unsecured Unsecured Unsecured Equity
DIP $2,000 Million Working Capital Facility $750 Million Revolving Credit and Term Loan Facility White Cliffs Credit Facility SemGroup Europe Facility Prepetition Lender Deficiency Claims 8.75% Senior Notes General Unsecured Claims Equity Claims Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Allowed Projected Claims Recovery (%)
Equivalent RR Category
Form of Distribution Secured Unsecured Subordinated Cash Notes Notes Notes
New Equity
Options/ Warrants
95
100.0
RR1
95
—
—
—
—
—
2,128 811
56.0 76.0
RR3 RR2
431 93
174 126
— —
— —
580 401
— —
120 41 1,072
100.0 100.0 0.0
RR1 RR1 RR6
— — —
120 41 —
— — —
— — —
— — —
— — —
610 583 0 5,460 4
9.0 2.91 — — —
— — — 619 —
— — — 461 —
— — — 0 —
— — — 0 —
51 17 — 1,049 —
— — — 0 —
0
—
—
—
—
—
—
—
RR6 RR6 — Recoveries — —
Claim Seniority Claim Type DIP DIP Secured
Secured
Secured DIP Unsecured
Unsecured
Unsecured Equity
Description • Facility commitment amount was $175 million. • Usage included $66 million letters of credit. $2,000 Million Working Capital • First lien on working capital collateral and second lien on revolver/term loan facility collateral. Facility • There was a guarantee from the guarantor group that included the following subsidiaries: SemGroup, L.P., SemCrude, L.P., SemGas, L.P., SemMaterials, L.P., SemStream, L.P. and SemCanada (and subsidiaries) • Borrowings were limited by a borrowing base that included billed and unbilled receivables, the net liquidating value of hedge positions in broker accounts, hedged eligible inventory, and less first purchase crude payables. $750 Million Revolving Credit and • First lien on revolver/term loan collateral and second lien on working capital facility collateral. Term Loan Facility • In addition to distributions in the form of cash and new common stock, holders were entitled to share of litigation trust proceeds. • Guaranteed the same guarantors as the working capital facility. White Cliffs Credit Facility • The White Cliffs facility was rolled into a postpetition facility and exit facility. • This was a pipeline construction financing. SemGroup Europe Facility • The European facility was rolled into postpetition debt (claim is U.S. dollar equivalent of British pound sterling). The claims were paid in full in cash. Prepetition Lender Deficiency • $0 recovery assumes no class of senior unsecured claims approves the plan. Claims • Holders were also entitled to a share of proceeds from the litigation trust, with potential recovery of up of to 4.56% through litigation trust distributions. 8.75% Senior Notes • Notes were guaranteed by certain subsidiaries. • A 9% recovery assumes at least one class of senior notes accepts the plan of reorganization. Holders were also entitled to share of litigation trust settlements and warrants. General Unsecured Claims • The 2.91% recovery rate assumes all classes of general unsecured claims approve the plan. Received distributions in the form of 1.25% of new common stock and warrants. Equity Claims • No recovery.
RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement for the fourth amended joint plan of reorganization dated Sept. 22, 2009. Note: This is an update of a case study originally published June 7, 2012.
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Leveraged Finance SemCrude L.P. (SemGroup) (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
Not disclosed. However, the examiner’s report indicates SemGroup sent an e-mail to agent, Bank of America, on July 10, 2008, stating it was “out of money.” The working capital facility commitment was $2,000 million according to a Fitch Ratings report dated April 8, 2008. The revolving credit and term loan facility commitment was $806 million. Not available. The DIP was a new money facility. More than 1,600 contracts were rejected as of May 31, 2009. The total amount of rejection claims was not disclosed, rank of related claims is general unsecured. Deficiency claims were treated as a separate class. Recoveries were dependent on the outcome of voting. — $7,270 million of claims were classified as general unsecured claims. The plan was not terminated. No Not applicable. Yes Senior notes, deficiency claims, general unsecured.
DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement for the fourth amended joint plan of reorganization dated Sept. 22, 2009. Note: This is an update of a case study originally published June 7, 2012.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
146
Leveraged Finance Seventy Seven Energy Inc. ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol
Energy Oilfield Services SSEIQ
Petition Date Assets Emergence Parent Company
1,903 Seventy Seven Energy Inc./SVNT
Key Driver Key Driver
Financial Profile
Name/Ticker
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months)
Yes Debtor Delaware Yes 6/7/16 7/14/16 8/1/16 1
Filing — Type Section 363 Asset Sale by Debtor
Chapter 11 (Prepackaged) No
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Voluntary Yes Emerged/Reorganized (Public)
Deep Cyclical Trough Untenable Capital Structure
12-Month Period
Amount
Prepetition EBITDA 3/31/16 Post-Emergence EBITDA Forecast 12/31/17 Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
155 144 700 900 800 258 458 5.6
Petition Date Versus Emergence Date Petition Date
Emergence Date
1,592 10.3 — —
476 3.3 1,116 70
Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Events Leading Up to Bankruptcy (or Contributing Factors) Declining oil prices led to a decrease in demand for drilling services and reduced cash flows, making the highly leveraged capital structure unsustainable and ultimately leading Seventy Seven Energy Inc. to file for bankruptcy. Oil prices began plummeting from $100 per barrel in early summer of 2014 to less than $40 per barrel by the end of 2015. The collapse in prices was driven by the combination of oversupply (especially from fast-growing U.S. shale), weak emerging market demand (particularly China) and OPEC’s decision to maintain market share rather than support prices. As a result, the demand for oilfield services, which is largely driven by the capital spending budgets of exploration and production companies that cut capex, fell. Seventy Seven Energy Inc. struggled as demand for drilling rigs and hydraulic fracturing fleets remained weak. Faced with an untenable capital structure, declining revenues and an uncertain near-term outlook in the oilfield service sector, financial and legal advisors were hired to explore capital structure opportunities in January 2016. On April 19, 2016, the company entered into a restructuring support agreement providing for a balance sheet restructuring that converted unsecured debt to equity. Operations continued as usual during the short bankruptcy.
Valuation Estimate Summary Going Concern Enterprise Valuation The estimated range of going concern enterprise value was estimated by the third-party valuation advisor to be $700 million–$900 million, with a midpoint estimate of approximately $800 million, and was based on an assumed plan effective date of June 30, 2016. The specific methodologies employed by the advisor were not disclosed. The valuation was based on the NYMEX strip pricing information as of May 9, 2016 and financial projections provided by Seventy Seven management for 2016–2018. In developing financial projections, management reviewed the backlog of contracted revenues as well as expected customer activity levels based on forecasted commodity prices. Projected cash flow was based on the assumption that activity levels in drilling, hydraulic fracturing and oilfield rentals will begin to recover in the first half of 2017 in response to improved oil and natural gas prices. The EBITDA projections also assume a growing share in revenue from non-Chesapeake customers, which accounted for a majority of revenues. ($ Mil.) Management Forecast of EBITDA
2016
2017
2018
110
144
186
Liquidation Value Alternative The estimated range of the hypothetical liquidation proceeds was calculated to be $482 million–$996 million and was based on the estimated consolidated balance sheet for March 31, 2016. PP&E was given a recovery range of 21%–53% of book value. The company’s subsidiary Nomac Drilling currently owns 92 drilling rigs, consisting of 25 Peake Rigs, 10 Tier 1 rigs and 57 Tier 2 rigs. Peake Rigs were assumed to be sold at the highest values, followed by the Tier 1 and Tier 2 rigs. Performance Technologies currently owns 13 fleets with an aggregate 500,000 horsepower. Based on management’s input and recent comparable distressed sales and purchases, an orderly liquidation range of $121–$227 per horsepower was applied to the company’s 13 fleets. Great Plains assets include oilfield rental equipment and based on certain comparable equipment sales, the liquidation value was determined to be in a range of 6%–18% of book value. Source, unless otherwise noted: Company disclosure statement for the joint prepackaged plan of reorganization dated May 9, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
147
Leveraged Finance Seventy Seven Energy Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority
Claim Type
Secured Secured Secured Unsecured
DIP and Other Term Loan Claims Incremental Term Loan Claims 6.625% OpCo Senior Notes due 2019 and Related Guaranty Claims 6.5% HoldCo Notes Claims General Unsecured Estimated Claims New Borrowings at Emergencea Debt of Nonfiling Affiliates on Emergence Date
Subordinated Unsecured
Claim Seniority Secured Secured
Secured Unsecured Subordinated
Unsecured
Allowed Projected Equivalent Claims Recovery (%) RR Category 100 393 99 650
100.0 100.0 100.0 53.0
450 29 1,054 100 0
1.1 or 6.2 100.0 — — —
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants
RR1 RR1 RR1 RR4
— 8 2 —
100 385 97 —
— — — —
— — — —
— — — 345
— — — —
RR6 RR1 Recoveries — —
— 29 39 — —
— — 582 — —
— — 0 — —
— — 0 — —
14 — 359 — —
— — 0 — —
Claim Type DIP and Other
Description • A new $100 million ABL exit facility was used to repay DIP borrowings, provide additional post-emergence liquidity and pay fees and expenses. Term Loan Claims • Distributions to holders consisted of a cash payment of 2% of their pro rata share of the term loan claims, and the balance of the term loans were converted to exit facilities with a second lien on the ABL exit facility collateral and a first lien on term loan collateral. Incremental Term Loan Claims • Claimants received a cash payment of 2% of their pro rata share of the incremental term loan claims and $15 million in cash, and the remaining amount was converted to third-lien exit facilities. 6.625% OpCo Senior Notes due • Distributions consisted of 96.75% of the new common stock and the OpCo litigation proceeds. 2019 and Related Guaranty Claims • Senior notes were the fulcrum security. 6.5% HoldCo Notes Claims • Claimants received 3.25% of the new common stock, litigation proceeds as well as warrants exercisable for up to 15% of the new common stock with a strike price at a total equity value of $524 million. • Recovery amount dependent on whether class voted to accept or reject the plan. General Unsecured • Holders of vendor, customer and trade claims were paid in the ordinary course of business and were unaffected by the bankruptcy. • 100% recovery.
a
$100 million exit facility. RR – Recovery Rating. DIP – Debtor in possession. ABL – Asset-based lending. Source, unless otherwise noted: Company disclosure statement for the joint prepackaged plan of reorganization dated May 9, 2016.
Bond Price History — Seventy Seven Energy Inc. ($450.0 Mil., 6.50% Senior Unsecured Notes Due 2022) (% of Par) 70 60 Confirmation Date 7/14/16
50 40 30
Filing Date: 6/7/16
20 10 0
Source: Advantage Data, Fitch Ratings.
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Leveraged Finance Seventy Seven Energy Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues Executory Contracts Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
$57.9 million per the monthly operating report. $275 million ABL facility with a maximum borrowing base of $55.1 million net of letters of credit of $14.7 million as of April 21, 2016. $0 borrowings and $14.7 million of letters of credit. A $100 million DIP was partially new money and partially used to refinance $14.7 million of prepetition letters of credit. The DIP debt was converted into an exit ABL with a maturity date of June 25, 2019. The company was spun off from Chesapeake Corp. in June 30, 2014, had several agreements with Chesapeake and depended on its former owner for a majority share of revenues. All compensation and benefit plans and insurance contracts were assumed. No Litigation proceeds are contingent recoveries for OpCo and HoldCo unsecured claims. All intercompany claims and intercompany interests shall be reinstated. Not available. No — Yes The HoldCo note claims of approximately $450 million in principal are obligations of the HoldCo and are subordinate to the OpCo note claims. The HoldCo note claims received a concession payment of 3.25% of the new HoldCo common shares plus warrants exercisable for 15% of the new HoldCo common shares.
ABL – Asset-based lending. DIP – Debtor in possession. Source: Fitch Ratings, disclosure statement dated May 9, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
149
Leveraged Finance Stallion Oilfield Services Ltd. ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/ Ticker
Key Drivers of Bankruptcy Filing Energy Oilfield Services Privately Held 141 Stallion Oilfield Services/Privately Held
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Yes Debtor Delaware Yes 10/19/09 1/12/10 2/2/10 3 Chapter 11 (Prearranged/Negotiated) No Voluntary No Emerged/Reorganized (Private)
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period Prepetition EBITDA Post-Emergence EBITDA Forecast Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
Amount
12/31/08 12/31/11
168 116 533 619 576 349 435 5.0
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
755 4.5 — —
221 1.9 534 71
Events Leading Up to Bankruptcy (or Contributing Factors) Stallion Oilfield Services Ltd. had significant amounts of debt. A series of adverse events placed strains on the company’s ability to comply with covenants in the senior secured credit facility and the unsecured bridge loan and eventually led to the bankruptcy filing. These events included the downturn in the oil and gas industry, adverse capital markets, deteriorating financial performance, unsuccessful out-of-court restructuring efforts and covenant violations. Natural gas prices decreased to almost $3/mmBtu in August 2009 from $13/mmBtu in June 2008. This led to a nearly 70% reduction in domestic drilling rigs aimed at natural gas production, which in turn reduced demand for Stallion’s services, including well site preparation, rig deployment, communictaions, construction, equipment hauling and well de-commissioning. During the first half of 2009, revenues were $181.1 million compared with $288.3 million in the same period of 2008. As a result of a worsening financial performance, covenants were breached, including the maximum 4.25x debt/EBITDA ratio under the bridge loan. Then, Stallion elected not to make August 2009 interest payments on the bridge loan and unsecured notes. Stallion negotiated with creditors and pre-arranged the financial restructuring prior to the petition date.
Valuation Estimate Summary Going Concern Enterprise Valuation The third-party financial advisor estimated a midpoint going concern value of $576 million through the discounted cash flow and comparable companies trading multiple methodologies. The discount rate assumptions trading multiples and names of the comparable companies were not provided. The advisor relied on the management financial forecast, which included the following EBITDA forecast. 2010 2011 2012 2013 ($ Mil.) EBITDA 81 116 137 139 Liquidation Value Alternative The Chapter 7 liquidation alternative valuation assumed a forced liquidation under Chapter 7. The valuation assumed business activities would be substantially stopped within 45 days, that there would be a 12-month wind-down period and that the trustee would have difficulties in collecting physical assets that can be moved around. The proceeds of the hypothetical liquidation were based on the balance sheet book value of assets and were estimated to be in the range of $213 million–$276 million before wind-down costs and trustee fees of $63 million. The secured credit facility claims would recover 51%–76% of their value under this scenario. Source, unless otherwise noted: Company disclosure statement for the joint plan of reorganization dated Nov. 18, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
150
Leveraged Finance Stallion Oilfield Services Ltd. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Claim Type DIP or Other DIP Administrative Secured First-Lien Revolving and Term Loan Credit Facility Due March 2011 Unsecured Bridge Loan Due Unsecured August 2012 Unsecured 9.75% Unsecured Notes Due 2015 Unsecured Trade Claims Intercompany
Intercompany
Intercompany
Equity Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Allowed Claims 0
Projected Equivalent Recovery (%) RR Category Not Applicable —
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants — — — — — —
249
99.0 RR1
25
221
—
—
—
—
259 265 Not Available Not Available Not Available 773 0
66.0 RR3 66.0 RR3 100.0 RR1
— — —
— — —
— — —
— — —
171 175 —
— — —
100.0 RR1
—
—
—
—
—
—
—
—
—
—
7
—
— Recoveries — —
25 —
221 —
0 —
0 —
353 —
0 —
— —
—
—
—
—
—
—
0
Not Available —
Claim Seniority Claim Type Description DIP or Other DIP • There was no DIP facility. Administrative Secured First-Lien Revolving and Term Loan • Distributions consisted of $220.9 million of new senior secured facility debt plus the senior secured paydown in Credit Facility Due March 2011 the amount of $25 million. • In the event the company elected to enter a new financing, the holders would receive cash instead of new debt. • Facility consisted of a $175 million revolver ($166.8 million loans and $5.2 million unfunded letters of credit on petition date) and a $75 million term loan. • Secured by all assets and guaranteed by Stallion and certain affiliates. Unsecured Unsecured Bridge Loan Due • Allowed claim amount was $259.3 million. August 2012 • The holders of bridge loan and unsecured note claims received their pro rata share of 98% of the new common stock. Unsecured 9.75% Unsecured Notes Due 2015 • Original issue size was $300 million. Stallion repurchased $35 million in the open market in October 2008. • Allowed claim amount was $283.9 million. • The holders of unsecured note and bridge loan claims received their pro rata share of 98% of the new common stock. Unsecured Trade Claims • Paid in full in cash. Intercompany Intercompany • Reinstated Intercompany Equity Interests • Received 2% of the common stock and warrants exercisable if enterprise value reaches certain thresholds. RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement for the joint plan of reorganization dated Nov. 18, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
151
Leveraged Finance Stallion Oilfield Services Ltd. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
Not available. $32 million as of Dec. 31, 2009 as per management financial forecast. $175 million revolver and $75 million secured facility. $166.8 million loans and $5.2 million of unfunded letters of credit under the revolver. There was no DIP. Not disclosed. None No Yes, reinstated. All retiree benefits continued to be paid. Not available. Not available. Yes General unsecured and equity interests.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, company disclosure statement dated Nov. 18, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
152
Leveraged Finance Swift Energy Company ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Tickera
Key Drivers of Bankruptcy Filing Energy Exploration and Production SFY 1,024 Swift Energy Company/SWTF
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtora Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Yes Joint Plan of Debtor and Creditor Delaware No 12/31/15 3/31/16 4/22/16 3 Chapter 11 Yes — Partial Sale of Assets Voluntary No Emerged/Reorganized (Private)
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period Prepetition EBITDA 12/31/15 Post-Emergence EBITDA Forecast 12/31/17 Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
Amount 99 90 460 800 630 191 531 7.0
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 1,238 12.5 — —
Emergence Date 253 2.8 985 80
Events Leading Up to Bankruptcy (or Contributing Factors) Swift Energy Company’s financial distress was initiated by the decline in U.S. natural gas prices in 2012, and exacerbated by the sharp decline in global oil prices in the second half of 2015 and a leveraged capital structure. Assets sales of $145 million in 2014 and $1.1 million in 2015 did not generate sufficient liquidity given the extent of price declines. The company’s reserve-based loan (RBL) borrowing base was cut several times, from an original $500 million commitment to $330 million on Nov. 2, 2015 and another redetermination date on or about Feb. 16, 2016 was scheduled unless unsecured debt was reduced by 50% by that date. Efforts to refinance the RBL were unsuccessful, as were efforts to raise capital for capex from private equity by selling working interest stakes in specific wells. Capex was sharply cut in 2015 to reduce cash burn. Subsequent attempts to reduce operating costs and generate FCF were ultimately insufficient to bridge revenues lost in the commodity price downturn, and the company reached a restructuring support agreement (RSA) with creditors that outlined terms for converting senior note debt to new equity in bankruptcy. $906 million of senior notes, $75 million in borrowings under the company’s DIP credit agreement and certain other unsecured claims were exchanged for 88.5% of the post-emergence common stock.
Valuation Estimate Summary Fundamental Going Concern Enterprise Valuation The third-party valuation advisor estimated an enterprise valuation range of $460 million–$800 million, with a midpoint of $630 million. The valuation was based on reserve information, reserve development schedules and financial information provided by management. Financial projections underlying the valuations included EBITDA forecasts of $89.9 million in 2017, increasing to $145.8 million in 2020, implying a 2017 EV/EBITDA multiple of 7.0x. Commodity pricing underlying the EBITDA forecast was based on the 14-day average NYMEX strip as of Jan. 19, 2015, with natural gas liquids priced at 31% of crude oil. Liquidation Value Alternative The hypothetical Chapter 7 alternative liquidation value analysis resulted in a midpoint liquidation value estimate of $361 million and assumes a liquidation period of four months, to ensure an orderly marketing and disposition of oil and gas assets as well as collection of receivables. The analysis was based on percentages of balance sheet book values. • Accounts receivable of $21 million were assumed to be 90% recoverable. • Oil and gas assets (proved reserves) of $903 million were valued based on net cash flow (production revenue less production taxes, operating costs and capital costs), which is discounted at a 10% discount rate, or PV10. Proved developed producing (PDP) reserves were viewed as having higher realizable values than proved developed non-producing (PDNP) and proved undeveloped (PUD) reserves because the latter two categories of proved reserves require capital in order to convert them to PDPs and do not have an actual production history that can be evaluated. Accordingly, PDNPs and PUDs have been subjected to additional liquidation value adjustments in the analysis. The resulting recovery estimates for proved reserves indicated a value range for proved reserves of $289 million–$388 million, with a midpoint of $338.5 million, or $4.8 per barrel of oil equivalent. Due to the distressed nature of the liquidation sales, zero recovery was assumed for probable and possible reserves. • Liquidation costs of $42 million were assumed, leaving $319 million for distributions to claimants. a Shares started trading on the OTCQX Best Market in October 2016. bThe sale of Texegy LLC South Bearhead Creek and Burr Ferry fields for for $48.75 million for a 75% interest in the assets is assumed to have closed March 1, 2016, with proceeds used to pay down ABL borrrowings. Source, unless otherwise noted: Petition dated Dec. 15, 2015, disclosure statement dated Feb. 5, 2016, 10-Q dated Aug. 9, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Swift Energy Company (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP and Priority Secured Unsecured Unsecured Equity
Claim Type DIP and Administrative RBL Secured Claims Senior Notes (Three Series) General Unsecured Claims Stock Interest of Swift (SFY) Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority DIP and Priority
Claim Type DIP and Administrative
Secured Unsecured
RBL Secured Claims Senior Notes (three series)
Unsecured
General unsecured claims
Equity
Stock Interest of Swift (SFY)
Allowed Projected Equivalent Claims Recovery (%) RR Category 75 100.0 RR1 330 100.0 RR1 908 20.0 RR5 46 100.0 RR1 0 4.0 RR6 1,359 — Recoveries 253 — — 0 — —
Cash — — — — — 0 — —
Form of Distribution Secured Unsecured Subordinated New Options/ Notes Notes Notes Equity Warrants — — — 75 — 330 — — — — — — — 181 — — — — 46 — — — — 20 — 330 0 0 322 0 — — — — — — — — — —
Description • Distributions expected to be made in the form of new equity or paid in cash with proceeds of an equity rights offering. • Facility consisted of a multidraw term loan of up to $75 million that was provided by prepetition noteholders and was fully drawn on the plan effective date. • For this analysis, Fitch allocated a full $75 million recovery to the DIP facility from the 88.5% of new common stock shared by DIP claims, notes claims and unsecured rejection claims. • Certain of the prepetition lenders received an additional backstop fee for agreeing to backstop the DIP loan. The fee was paid in the form of 7.5% of the reorganized company’s common stock, which was worth approximately $27 million based on midpoint equity value. • Paid in full in cash using proceeds from an exit RBL facility and cash. • Distributions were in the form of holder’s pro rata share of the new common stock. • New stock was distributed to DIP claims, rejection claims and senior notes claims, with allocations contingent upon whether the DIP holders agreed to take stock and other factors. Assuming $75 million of DIP borrowings and a $361 million midpoint equity value, noteholders received approximately 68% of the new common stock, for approximately a 20% recovery. • The range includes potential dilution from a rights offering and/or the equitization of the DIP, which may range from 25% to 75% dilution of the senior notes claims equity. • Notes included: $250 million of 7.125% notes due June 1, 2017, $225 million of 8.875% notes due 2020 and $250 million of 7.875% notes due 2022. • Paid in cash or reinstated. • Unimpaired, deemed to accept the plan of reorganization. • There was approximately $50 million of trade debt for prepetition services on the filing date. • Prepetition common stock was canceled, and the shareholders received distributions in the form of 4% of the reorganized company’s common stock as well as warrants to purchase up to 30% of the reorganized company’s equity during the exercise period based upon a total equity value of $800 million–$875 million. • Exercise of the warrants would dilute the stock distributions of other classes that received new stock.
RR – Recovery Rating. DIP – Debtor in possession. RBL – Reserve-based loan. Source, unless otherwise noted: Petition dated Dec. 15, 2015, disclosure statement dated Feb. 5, 2016, 10-Q dated Aug. 9, 2016.
Bond Price History — Swift Energy Company ($400.0 Mil., 7.875% Senior Unsecured Notes Due 2017) (% of Par) 60 50 40 30
Confirmation Date 3/13/16 Filing Date: 12/31/15
20 10 0
Source: Advantage Data, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
154
Leveraged Finance Swift Energy Company (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues Executory Contracts Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
$29.5 million. Reserve-based first-lien (RBL) credit facility with a borrowing base of $330 million as of the filing date. $324.9 million of loans drawn and $5 million of letters of credit under the RBL facility. New money $75 million DIP provided by certain holders of the senior notes, which became available to the company in stages upon the satisfaction of certain case milestones and contingencies. None noted. Oil and gas leases were assumed. Twenty-six executory contracts were rejected. No Disputed claims. Yes, $508 million of intercompany claims were reinstated. No defined benefit plan. Yes First-lien credit facility. Yes General unsecured creditors and stock equity interests.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, disclosure statement dated Feb. 5, 2016, 10-Q dated Aug. 9, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
155
Leveraged Finance Teton Energy Corp. ($ Mil., Except Where Noted)
Key Drivers of Bankruptcy Filing
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Energy Oil and Gas Exploration TEC 127 Acquired by Caerus/Privately Held
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period a
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor
Key Driver Key Driver
Yes Debtor Delaware No 11/8/09 1/20/10 1/22/10 2 Chapter 11 (Prepackaged) Yes — Sale of Substantially All Assets (as Going Concern) Voluntary No Emerged/Reorganized (Private)
Prepetition EBITDA Post-Emergence EBITDA Forecast Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
Amount
June 2009 2010
6.5 Not Available 20 20 20 13 13 Not Available
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
43 6.6 — —
7 Not Available 36 84
Events Leading Up to Bankruptcy (or Contributing Factors) Teton Energy Corp. (TEC) was in a severe liquidity crisis attributable to overall exposure to the extreme volatility in oil and gas prices in 2009 and to the over-tightening and volatile credit and financing markets prevailing at the same time. The company’s ABL revolver borrowings of $22.4 million exceeded the $14 million borrowing base as of Sept. 30, 2009. The company was unable to repay the deficiency amount. Lenders initially agreed to forbear this default through Nov. 6, 2009. Due to liquidity constraints, the July 2009 interest payment on the convertible debentures was not made.
Valuation Estimate Summary Sale of all assets determined the company’s value. All assets were sold to Caerus Oil and Gas, which paid $20.05 million cash (including $750,000 from the application of the deposit that was paid to the stalking horse bidder), excluding post-closing reconciliation adjustment and 50% of the net profits from the WashCo assets and Big Horn assets (net of drilling and other costs). Caerus outbid the stalking horse bid of $18.7 million plus additional amounts necessary to pay the DIP financing at closing made by Rise Energy. Liquidation Value Alternative No liquidation value was given. a
Prepetition EBITDA was sourced from 10-K for 2008 and 10-Q filings for June 2008 and June 2009. ABL – Asset-based loan. DIP – Debtor in possession. Source, unless otherwise noted: Amended joint disclosure statement dated Dec. 4, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Teton Energy Corp. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP or Other Administrative DIP or Other Administrative DIP or Other Administrative Secured Secured
Claim Type Administrative Claims Priority Tax Claims DIP Financing
Unsecured Unsecured Equity
Credit Facilities 10.75% Secured Subordinated Convertible Debentures General Unsecured Claims Trade Claims Interests in the Subsidiaries
Equity
Interests in TEC Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Allowed Projected Claims Recovery (%) Not 100.0 Available 0.6 100.0
Equivalent RR Category RR2
Form of Distribution Secured Unsecured Subordinated Cash Notes Notes Notes — — — —
New Equity —
Options/ Warrants —
RR1
0.6
—
—
—
—
—
0.7
100.0 RR1
0.7
—
—
—
—
—
22.5 20.5
79.0 RR2 4.0 RR6
17.8 0.9
— —
— —
— —
— —
— —
1.4 0.5 Not Available Not Available 46 0 0
4.0 RR6 100.0 RR1 100.0 RR1
0.1 0.5 —
— — —
— — —
— — —
— — —
— — —
0.0 RR6
—
—
—
—
—
—
21 — —
0 — —
0 — —
0 — —
0 — —
0 — —
— Recoveries — — — —
Claim Seniority DIP or Other Administrative DIP or Other Administrative DIP or Other Administrative
Claim Type Administrative Claims
Description • Claims paid in cash.
Priority Tax Claims
• Paid in full in cash.
DIP Financing
Secured
Credit Facilities
Secured
10.75% Secured Subordinated Convertible Debentures
Unsecured Unsecured
General Unsecured Claims Trade Claims
Equity Equity
Interests in the Subsidiaries Interests in TEC
• A limited DIP financing was provided. The commitment amount was $750,000. • No specific information was given as to the claim amount, and Fitch assumed $750,000 for estimated recovery purpose. • At the filing date, the outstanding amount was $22.5 million, about $8.5 million in excess of the borrowing base determined on Aug. 25, 2009. • TEC initially issued $30 million of the debentures due on June 18, 2013. As of October 2009, approximately $9.5 million had been retired or converted. • The debentures were secured by a second lien on all assets, in which the credit facilities had a first lien. • No details were disclosed. • Paid in full. • No details were disclosed on the amount of claims. • TEC retained all interests in its subsidiaries on the effective date. • Cancelled.
RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: Amended joint disclosure statement dated Dec. 4, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
157
Leveraged Finance Teton Energy Corp. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
$0 ABL with borrowings limited to the lesser of the borrowing base or $150 million. The petition date borrowing base was $14 million. $22.5 million (there was a borrowing base deficiency). The $750,000 facility was new money. Certain lease contracts were rejected. All discharged. No Intercompany claims were cancelled. No pension liabilities. No Not applicable. No Not applicable.
ABL â&#x20AC;&#x201C; Asset-based loan. DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, amended joint disclosure statement dated Dec. 4, 2009. Note: This is an update of a case study published April 27, 2015.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
158
Leveraged Finance Texas Competitive Electric Holdings Company LLC ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Energy Wholesale and Competitive Retail Electric Power Not Public —
Key Driver Key Driver
Deep Cyclical Trough Flawed Business Model or Obsolete Product
Financial Profile 12-Month Period
Amount
Prepetition EBITDA 12/31/13 Post-Emergence EBITDA Forecast 12/31/18 Enterprise Value (EV) Range (or Asset Value Range)
2,923 1,184
b
TCEH Corp./Privately Held
Bankruptcy Summary
Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Datea Duration (Months) Filing — Type
Yes Debtor Delaware No 4/29/14 8/26/16 10/3/16 28 Chapter 11
Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Voluntary No Emerged/Reorganized (Private)
10,800 12,400 11,600 7,232 8,763 9.8
Petition Date Versus Emergence Date c
Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
31,732 10.9 — —
3,600 3.0 28,132 89
Events Leading Up to Bankruptcy (or Contributing Factors) Texas Competitive Electric Holdings Company LLC (TCEH) incurred approximately $27 billion of debt in the $43.8 billion LBO transaction completed by its parent company, Energy Future Holdings Co. (formerly TXU Energy), in 2007. Management financial projections for the LBO incorporated continuing robust electricity and natural gas prices. Following this, wholesale electricity prices materially declined as a result of an increase in natural gas supply due to increased hydraulic fracturing (fracking) activities and other drilling technology advances that led to lower prices as well as the addition of more wind generation capacity. Electricity prices in TCEH’s Texas market are largely determined by natural gas prices. Moreover, demand for electricity declined, coal prices increased, there was increasing exposure to environmental costs and regulations and the Texas retail electric market was fiercely competitive. Although the company’s operating track record for plant assets and the retail business was strong, the debt load quickly became unsustainable under the markedly worse-than-projected market pricing conditions assumed in the LBO. Cash flow declined and liquidity became progressively tighter. As above-market natural gas hedges rolled off in 2013 and 2014, cash flow further declined. Restructuring negotiations with various creditors were initiated, and a liability management program was taken. Despite various amend and extend transactions, the capital structure needed a more significant restructuring.
Valuation Estimate Summary Fundamental Going Concern Enterprise Valuation TCEH was valued independently from its parent company, Energy Future Holdings Corp. (EFH), by a third-party valuation advisor and emerged separately in a tax-free spin-off from EFH.d The advisor used several analytical approaches, including a discounted cash flow (DCF) analysis and a peer group company analysis. The DCF used a weighted average cost of capital assumption range of 6.7%–7.2% for reorganized TCEH. The terminal value was derived by multiplying 2023 projected EBITDA by a two-year forward range of 6.8x–7.8x. In the peer analysis, the advisor used multiple ranges of 7.8x–8.8x, 6.8x–7.8x and 6.4x–7.4x for 2017, 2018 and 2019 base case EBITDA projections, respectively. The net present value of the tax receivable agreement (TRA) contemplated in the plan is estimated at $900 million–$1.0 billion, and the reorganized equity value is net of the value of the TRA deduction. Management’s TCEH EBITDA forecast (excluding amortization of nuclear fuel) is as follows: ($ Mil.)
2016
2017
2018
2019
2020
EBITDA (Valuation Basis)
1,395
1,134
1,184
1,289
1,407
The value excludes value to come from the $700 million claim of TCEH to EFH. Liquidation Value Alternative The estimated net proceeds in a hypothetical liquidation alternative were assumed to be in the $9.2 billion–$10.8 billion range. The analysis was based on discounts to balance sheet book values as of Dec. 31, 2015 and expected changes over the following six months to project changes in book values expected from operating cash flows, employee retention, estate wind-down costs and trustee and professional fees. The analysis included the following projected book values and percentage ranges: • Cash of $1.874 billion at 100% • Accounts receivable of $289 million at 75%–100% • PP&E of $4.833 billion at 84%–100% • Intangibles and IP of $3.558 billion at 85%–100% a Plan effective date for TCEH debtors only. bHistorical EBITDA source is 8-k lender presentation dated July 12, 2016 and includes hedge cash flows. cEmergence debt inclues $650 million funded letter of credit term loan. dThe parent bankruptcy case, EFH, is still underway and contemplates a merger of the regulated Oncor business with NextEra Energy. Source, unless otherwise noted: Disclosure statement for the fourth amended joint plan of reorganization of Energy Future Holdings Corp. dated Sept. 21, 2016, disclosure statement dated June 16, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
159
Leveraged Finance Texas Competitive Electric Holdings Company LLC (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Claim Type DIP and Priority TCEH DIP Facility Secured $22.635 Billion of First-Lien Credit Agreement and $1.2 Billion of Assumed Swap Claims Secured 11.5% First-Lien Notes due October 2020 Secured Second-Lien Notes due April 2021 Unsecured Unsecured Notes due November 2015 and PIK Toggle Notes due November 2016 Unsecured Pollution Control Revenue Bonds Equity Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date Claim Seniority Claim Type DIP and Priority TCEH DIP Facility
Secured
$22.635 Billion of First-Lien Credit Agreement and $1.2 Billion of Assumed Swap Claims
Secured
11.5% First-Lien Notes due October 2020 Second-Lien Notes due April 2021
Secured
Unsecured
Unsecured Notes due November 2015 and PIK Toggle Notes due November 2016
Unsecured
Pollution Control Revenue Bonds
Equity
Interests
Allowed Projected Claims Recovery (%) 2,880 100.0 23,835 41.4
Equivalent RR Category RR1 RR4
Form of Distribution Secured Unsecured Subordinated New Cash Notes Notes Notes Equity 2,880 — — — — 2,489 — — — 7,379
Options/ Warrants — —
1,750
41.4
RR4
218
—
—
—
506
—
1,571 5,237
6.6 6.8
RR6 RR6
104
—
—
—
—
—
356
—
—
—
—
—
22 — 6,069 — —
— — 0 — —
— — 0 — —
— — 0 — —
— — 7,885 — —
— — 0 — —
888 N.A. 36,161 2,880 0
2.5 0.0 — — —
RR6 RR6 Recoveries — —
Description • DIP borrowings and letters of credit were paid in cash using proceeds from the exit facilities put in place at the new operating company on the emergence date of Oct. 3, 2016. • New facilities consisted of a $750 million revolver, a $2.85 billion term loan B and a $650 million letter of credit funded term loan C. • Distributions were made in the form of 100% of the new TCEH common stock, 100% of the TCEH cash on hand, cash proceeds from the issuance of the exit debt and the spin-off preferred stock sale, and any proceeds of the TCEH settlement claim to be paid when EFH emerges from Chapter 11. • Holders waived their deficiency claims, which were estimated to be $12 billion–$14 billion. • Cash distribution amount is Fitch estimate. The estimate is based on footnote to the financial projections exhibit in the June 16, 2016 disclosure statement that shows first-lien holders were projected to share $7.9 billion of new common stock, $1.6 billion of cash and $1.1 tax receivable obligation (receivable shown as cash). • Holders waived their deficiency claims. • Pari passu with first-lien credit agreement debt and swap claims. • Claims were treated as unsecured deficiency claims. • Recoveries paid in cash. • TCEH unsecured creditors shared pro rata distribution of $550 million. • Recoveries paid in cash. • Received pro rata share of $550 million cash. • The note issues included: 10.25% senior notes due 2015 ($3.488 billion outstanding) and 10.50%/11.25% senior PIK toggle notes due 2016 ($1.749 billion outstanding). • Distributions consisted of pro rata share of $550 million. • Recovery rate assumes holders do not share in any proceeds from the waiver of deficiency claims by first-lien lenders. If holders shared in the deficiency claim waiver payments to other unsecured creditors, then the recovery rate would increase to 6.8%. • $0 recovery. • Deemed to have rejected the plan.
RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not available. Source, unless otherwise noted: Disclosure statement for the fourth amended joint plan of reorganization of Energy Future Holdings Corp. dated Sept. 21, 2016, disclosure statement dated June 16, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
160
Leveraged Finance Texas Competitive Electric Holdings Company LLC (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues
Executory Contracts Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims
Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
Not available. $2.054 billion revolver. $2.054 billion of loans borrowed under a revolving credit facility (fully drawn), $1.062 billion of letters of credit term loan facilities and $19.519 billion of term loan facilities. The $3.375 billion TCEH DIP was a new money facility. The EFH debtors had their own DIP facilities. TCEH was spun off from EFH under its own plan and emerged as a reorganized company separately from the parent company and the regulated utility affiliate, Oncor Electric. There is a tax receivables agreement (TRA) that allows holders (TCEH first-lien creditors) to monetize 85% of benefits from a tax basis step-up to the extent cash savings are realized. There is also a shared services agreement with EFH. The financial projections assumed $70 million of payments to cure assumed executory contracts. First-lien lenders waived their deficiency claims. Disputed claims. TCEH had an allowed $700 million claim and distribution right in the EFH estate as a result of a settlement. The first-lien TCEH creditors waived their deficiency claims, and these proceeds were redistributed to unsecured creditors. Plans were assumed and continued in accordance with their terms. Yes First lien. Yes Unsecured creditors received additional proceeds from waived first-lien lender deficiency claims. First-lien lenders are to receive the $700 million settlement claim proceeds on the effective date of the EFH bankruptcy plan.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, disclosure statement dated June 16, 2016.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
161
Leveraged Finance Trico Marine Services, Inc. ($ Mil., Except Where Noted)
Issuer Profile
Key Drivers of Bankruptcy Filing
Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Miscellaneous Provides Services and Vessels to Offshore Oil Industry TRMA 1,076 Not Applicable
Bankruptcy Summary a
Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor
Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor Delaware No 8/25/10 8/2/11 8/11/11 11 Chapter 11 Yes — Sale of Substantially All Assets (as Liquidation) Voluntary No Liquidation (Under Chapter 11)
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period Prepetition EBITDA Post-Emergence EBITDA Forecast Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
Amount
2009 —
59 Liquidated 397 477 437 Not Applicable Not Applicable Not Applicable
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
816 13.8 — —
0 Not Applicable 816 100
Events Leading Up to Bankruptcy (or Contributing Factors) There was a significant reduction in the level of operating and capital expenditures in the offshore oil and gas industries in 2009 and 2010, as well as other industries that would require offshore services such as those provided by Trico Marine Services, Inc. This reduction in customer demand was driven mainly by the deep recession that occurred during 2009 and unfavorable commodity pricing trends. As oil and gas prices fell, producers reduced drilling activities and had less need for Trico’s drilling services. Utilization rates and day rates in the towing and supply businesses decreased, driven by reduced exploration and production spending as well as an increase in the supply of vessels. These factors led to insufficient liquidity to service the debts and other obligations. Prior to the bankruptcy date, Trico’s auditors identified material weaknesses in financial reporting and raised substantial doubt about the company’s ability to continue as a going concern. In addition, interest payments were missed and there were various credit facility covenant defaults.
Valuation Estimate Summary Proceeds of Asset Sales During the Bankruptcy There were numerous sales of vessels during the bankruptcy and prior to voting on the plan of reorganization. The sum of the proceeds from these sales provided a significant portion of the total company value. Fitch estimated the company’s value by summing the proceeds from Trico Marine asset sales plus the value from the spinoff of Trico Supply outside of the Chapter 11 case. The largest single sale in the bankruptcy was for two vessels for $31.3 million and many of the sales were for less than $1 million. The approximate sum of the proceeds from the collective vessel sales was $62 million. Out-of-Court Debt-for-Equity Settlement Included in Total Enterprise Value The secured debt of Trico Supply AS and its subsidiaries, including Trico Shipping (together, the OpCo entities), including the $400 million secured notes and the Trico Shipping working capital facility, were converted into 95% of new common stock of a reorganized and deleveraged Trico Supply in an out-of-court restructuring of Trico Supply. The OpCo entities were no longer part of Trico following the spinoff and were renamed Deep Ocean. Trico Marine Services received 5% of the new common stock of Deep Ocean and warrants to acquire 10% of the new stock in exchange for cancelling intercompany debt, other claims and other considerations. The independent evaluation of the OpCo entities enterprise valuation was $335 million–$415 million. This value would result in an out-of-court recovery of at least $299 million for OpCo entity noteholders and $22 million for Trico Marine in the spinoff. The vessels sold during bankruptcy and the OpCo entities debt for equity restructuring accounted the vast majority of the value of Trico Marine. Based on the asset sales proceeds and debt-for-equity settlement enterprise valuation range provided by the independent advisor, Fitch Ratings estimates a total liquidation/reorganization value range of $397 million–$477 million. Liquidation Value Alternative There was no fundamental liquidation or enterprise valuation analysis provided in the disclosure statement for Trico Marine. a
Trico Supply AS and foreign operations were not included in the filing, except for the Cayman Islands company. Trico Supply AS and its subsidiaries were recapitalized and reorganized outside of Chapter 11. Source, unless otherwise noted: Company disclosure statement for second amended plan of reorganization dated May 25, 2011. Note: This is an update of a case study originally published June 7, 2012.
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Leveraged Finance Trico Marine Services, Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Claim Type DIP Secured Secured Secured Secured Secured Unsecured
Unsecured Intercompany Equity
$35 Million Trico Marine DIP $25 First-Lien Credit Facility Trico Shipping (OpCo) $400 Million 11 7/8 Senior Secured Notes $202.8 Million 8.25% Second-Lien Notes $5 Million Marad Notes Trico Shipping (OpCo) Working Capital Facility $150 Million 3% Senior Unsecured Convertible Debentures and $13 Million Other Unsecured Claims General Unsecured Claims Intercompany Claims Equity Claims Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Allowed Projected Claims Recovery (%)
Equivalent RR Category
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants
0 0
100.0 100.0
RR1 RR1
— —
— —
— —
— —
— —
— —
400
69.0
RR3
—
—
—
—
276
—
216 5 34
13.0 100.0 69.0
RR5 RR1 RR2
28 5 —
— — —
— — —
— — —
— — 23
— — —
163
5.5
RR6
—
—
—
—
—
—
3 0 0 821 0
11–16 0.0 0.0 —
RR5 RR6 — Recoveries —
— — — 33 —
— — — 0 —
— — — 0 —
— — — 0 —
— — — 299 —
— — — 0 —
0
—
—
—
—
—
—
—
—
Claim Seniority Claim Type DIP $35 Million Trico Marine DIP
Secured
Secured
Secured
Secured Secured
Unsecured
Unsecured Intercompany Equity
Description • Repaid in full using proceeds from asset sales during April 2011 (prior to the disclosure statement for the second amended plan). • Consisted of $10 million new money loans and $25 million of loans to refinance the loans incurred by the company under the prepetition first-lien loan agreement. • Guaranteed by all subsidiaries other than OpCo entities. The DIP was secured by a first-priority lien over all assets that are not subject to liens as of the time of filing of the Chapter 11. • The DIP had a priming lien on all assets that were encumbered by liens securing the prepetition first-lien facility, the 8.125% secured convertible debentures due 2013, and a junior lien on all other assets already subject to security interests. $25 Million First-Lien Credit • $25 million repaid via DIP borrowings on April 18, 2011. Facility • Secured by an equity interest in domestic subsidiaries, first preferred mortgages on vessels owned by Trico Marine Assets (TMA), and a pledge on the intercompany note due from OpCo to Trico Marine Operators (TMO). Trico Shipping (OpCo) • OpCo noteholders received “recovery” in an out-of-court restructuring debt for equity exchange and were not $400 Million 11 7/8 Senior part of the bankruptcy filing. The notes are shown in Fitch’s presentation, as they were a significant part of the Secured Notes Trico Marine capital structure. • Received the OpCo equity in an out-of-court restructuring that closed prior to the Trico reorganization plan. The Trico Shipping AS notes were secured by the assets and earnings of OpCo and subsidiaries, including Trico Shipping, DeepOcean AS and CTC Marine Projects, Ltd. (the “Trico Supply Group”), and the proceeds from the sale of these assets (security included 11 vessels, intercompany notes payable from OpCo to Trico Marine, etc.). The notes were also guaranteed. • In May 2011, the noteholders agreed to accept 95% of the new equity of OpCo in a debt-for-equity swap for shares of a new company called DeepOcean Group Holding AS, based in Norway. $202.8 Million 8.25% • Secured by a second lien on certain assets pledged to secure the U.S. credit facility, including certain vessels Second-Lien Notes owned by TMA, the $194 million OpCo intercompany note, and 100% of the equity interests of TMA and TMO. • $6.5 million of the $216 million claim was secured and the $209 million balance was classified as an unsecured claim (deficiency claim). $5 Million Marad Notes • Paid with asset sale proceeds and was not a claim as of the disclosure statement date. The Marad notes were secured by first-priority lien on specific vessels and were paid with proceeds from asset sales. Trico Shipping (OpCo) Working • Recovery on the working-capital facility was realized through an out-of-court restructuring of OpCo, and not via Capital Facility the plan. • The total outstanding amount on the petition date was not disclosed and is estimated by Fitch to be $34 million. $150 Million 3% Senior Unsecured • Received recoveries of 5.5%. Convertible Debentures and $13 Million Other Unsecured Claims General Unsecured Claims • Received $350,000 in cash and a share of the proceeds, if any, from the directors and officers litigation. Intercompany Claims • Holders of allowed claims received no distributions under the plan. Equity Claims • No recovery.
RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement for second amended plan of reorganization dated May 25, 2011. Note: This is an update of a case study originally published June 7, 2012.
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Leveraged Finance Trico Marine Services, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions
Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
Not disclosed. $25 million first-lien credit facility and OpCo working capital facility ($10 million revolver and $28 million term loan). The $25 million revolver was fully drawn. The OpCo facility borrowings were not disclosed. $10 million of the $35 DIP was incremental liquidity. Rejected leases included two headquarters leases in Houston and an unused industrial space in St. Rose, Louisiana. Yes, the 8.125% second-lien notes had a $209 million deficiency claim that was treated as a separate class of unsecured claims. — The intercompany note from OpCo to Trico was canceled as part of the out-of-court restructuring agreement There was no recovery for intercompany claims in the plan. OpCo’s Norwegian operations had a defined benefit pension plan. There was no information on the status of the plan after the debt-for-equity swap at OpCo. As of the 2009 10-K, this plan was approximately $4 million underfunded. No Not applicable. No Not applicable.
a
Source is company press release dated Nov. 5, 2010. DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement for second amended plan of reorganization dated May 25, 2011. Note: This is an update of a case study originally published June 7, 2012.
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Leveraged Finance Tronox, Inc. ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Chemicals Pigment, Coating and Specialty Chemical Manufacturer TRX 1,732 Tronox, Inc./TROX
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor New York — Southern Yes 1/12/09 11/30/10 2/14/11 23 Chapter 11 No Voluntary Yes Emerged/Reorganized (Public)
Key Driver Key Driver
Resolve Legacy Liabilities Litigation
Financial Profile 12-Month Period Prepetition EBITDA Post-Emergence EBITDA Forecast Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate (x)
2008 2011
Amount 74 181 975 1,150 1,063 507 682 5.9
Petition Date Versus Emergence Date Petition Date
Emergence Date
638 8.6 — —
470 2.6 168 26
Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Events Leading Up to Bankruptcy (or Contributing Factors) Environmental liabilities were the key driver of Tronox, Inc.’s bankruptcy. The company retained significant legacy liabilities in connection with its spinoff from KerrMcGee Corp. in 2005, specifically environmental claims from the government and personal injury tort claims. Following the spinoff, the legacy liabilities consumed a large portion of Tronox’s cash from operations, which led to a deteriorating finances. Negotiations with Kerr-McGee’s new owner, Anadarko Petroleum Corporation (Anadarko), to reduce the burden of legacy liabilities were unsuccessful. Tronox failed to make an interest payment on its $350 million senior notes in December 2008 and secured credit facility defaults occurred in January 2009 upon expiration of a waiver. Environmental claims were ultimately resolved through a settlement with U.S. government and other environmental claims parties and thus avoided protracted litigation. A majority of the contingent proceeds from a favorable outcome in the Anadarko litigation were to be allocated to various environmental claimants, and the U.S. government environmental claims also received $295 million of distributions through cash placed into environmental trusts under the settlement.
Valuation Estimate Summary Going Concern Approach The independent valuation advisor used various approaches to estimate a going concern value, including the discounted cash flow approach, precedent transaction approach and discussions with Tronox management to estimate the enterprise value range of $975 million–$1,150 million. The advisor relied on management’s financial projections, which included the EBITDA forecast below. There was no information provided in the disclosure statement on specific assumptions used in the various valuation approaches. 2010 2011 2012 2013 ($ Mil.) EBITDA 192 181 156 157 Liquidation Value Alternative The Chapter 7 liquidation analysis estimated a total liquidation value of $581 million based on balance sheet book values as of Jan. 31, 2010. As percentages of book value, accounts receivable were valued at 58%, inventories were valued at 66%, and property plant and equipment were valued at 82%. Nondebtor subsidiaries were assumed to be sold. The liquidation alternative would have resulted in 100% recovery for debtor-in-possession lender and secured lender claims, 74% for administrative claims, and 0% for unsecured claims. Source, unless otherwise noted: Company disclosure statement for the first amended joint plan of reorganization dated Oct. 10, 2010. Note: This is an update of a case study originally published June 7, 2012.
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Leveraged Finance Tronox, Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority Claim Type DIP Secured Secured
Unsecured Intercompany
$425 Million Amended DIP Facility Secured Claims $109.8 Million Revolver, $101 Million Term Loan Facility and $75 Million Accounts Receivable Securitization Facility Unsecured Claims, Including $350 Million of 9.5% Senior Unsecured Notes Government and Tribal Unsecured Environmental Claims Personal Injury Claims Intercompany Claims
Equity
Equity Interests of Tronox Inc.
Unsecured
Unsecured
Estimated Claims New Borrowings at Emergencea Debt of Nonfiling Affiliates on Emergence Date
Allowed Projected Claims Recovery (%)
Equivalent RR Category
Form of Distribution Secured Unsecured Subordinated Cash Notes Notes Notes
New Equity
Options/ Warrants
425 1 0
100.0 100.0 100.0
RR1 RR1 RR1
— 1 —
425 — —
— — —
— — —
— — —
— — —
446
78–100
RR2
—
—
—
—
348
—
4,960 Not Available
—
330
—
—
—
—
—
2,000 Not Available Not Disclosed — Not Disclosed — 7,832 — 45 —
—
18
—
—
—
—
—
—
—
—
—
—
—
—
— 349 —
— 425 —
— 0 —
— 0 —
— 348 —
— 0 —
—
—
—
—
—
—
0
—
— Recoveries — —
Claim Seniority Claim Type Description DIP $425 Million Amended DIP Facility • Original facility was secured with first-priority and priming lien and was $125 million maximum commitment subject to a borrowing base. • The original DIP was used to repay the $75 million prepetition accounts receivable facility and fund operating needs. The facility was upsized and amended to repay the prepetition revolver and term loan facility (the amended DIP facility). • Borrowings under the amended DIP facility were converted into a senior secured exit revolving credit facility. Secured Secured Claims • Other secured claims were paid in full in cash. Secured $109.8 Million Revolver, • Borrowings and interest under the prepetition secured revolving, term loan and receivables facilities were repaid $101 Million Term Loan Facility and in full in cash with drawings under the original DIP or amended DIP facility. $75 Million Accounts Receivable • Lenders waived the rights to incremental interest at the default interest rate. Securitization Facility Unsecured Unsecured Claims, Including $350 • Unsecured claims (excluding environmental claims) received 50.9% of the new common stock, subject to Million of 9.5% Senior Unsecured dilution by shares issued in connection with the management equity plan and exercise of the new warrants. Notes (but Excluding • The plan also provides for a $185 million new money investment in reorganized Tronox in the form of a rights Environmental Claims) offering open to unsecured creditors who are eligible holders. Eligible holders will be given “rights” to purchase up to 45.5% of the new common stock issued on the effective date, based on a 17.6% discount to the plan total enterprise value of reorganized Tronox of $1,063 million. • Holders waived rights to any contingent recovery from Anadarko litigation proceeds. General unsecured claims that do not participate in the rights offering were expected to recover between 58%–78%. Unsecured Government and Tribal Unsecured • The $4,960 million claim estimate was sourced from the liquidation valuation analysis. The recovery cannot be Environmental Claims estimated given the wide range of claim amounts and other unknowns. • The environmental claims received 88% of any proceeds from a favorable outcome in the Anadarko litigation (over the original spinoff transaction) and via cash payments from trusts and contribution of certain owned sites. • Distributions of $325.9 million made in cash, accounts receivable, other nonmonetary assets (including the sites associated with the legacy environmental liabilities) valued at $68.4 million, and the rights to 88% of proceeds, if any, from the litigation that the company commenced in May 2009 against Kerr-McGee and its new parent, Anadarko Petroleum Corporation. Unsecured Personal Injury Claims • Recovery of tort claims was solely from distributions from the monies placed into tort claim trusts. These trusts were to be funded with 12.5% of any proceeds from the Anadarko litigation and tort claim insurance proceeds. • The personal injury claims include claims related to asbestos, benzene, and creosote exposure. The $2,000 million claim estimate amount was sourced from the liquidation valuation analysis. Tort creditors received approximately $17.6 million in cash and accounts receivable and the rights to 12% of any proceeds that may be recovered in the Anadarko litigation, Intercompany Intercompany Claims • Either reinstated or canceled at the option of Tronox. Equity Equity Interests of • Holders were expected to receive $1 million–$4 million in the form of new warrants if they voted to accept the Tronox plan, and $0 if they voted to reject the plan. a Estimated new borrowings consisted of drawings under a $125 million asset-based loan facility. DIP – Debtor in possession. RR – Recovery Rating. Source, unless otherwise noted: Company disclosure statement for the first amended joint plan of reorganization dated Oct. 10, 2010. Note: This is an update of a case study originally published June 7, 2012.
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Leveraged Finance Tronox, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts
Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions
Postpetition Interest? If Yes, Recipient Class Concession Payments Recipienta
Not disclosed. $143 million cash as of Dec. 31, 2009, as per 2010 annual report. $109.8 million under $250 million revolving credit facility; $75 million under accounts receivable securitization facility. $109.8 million under $250 million revolving credit facility; $103 million under term loan; $75 million under accounts receivable securitization facility. The DIP was partial new money and was also used to roll up prepetition secured borrowings. Rejections included the headquarters lease, an unexpired warehouse lease for the Savannah pigment facility and related equipment, burdensome supply contracts with Air Liquide Large Industries, MeadWestvacao, and certain prepetition transaction agreements. The secured lenders waived their rights to default interest rate payments of approximately $2 million in the settlement agreement. To be settled via trusts established in the plan including the environmental response trust, Anadarko trust, and tort claims trust. Tronox could elect to cancel or reinstate intercompany claims. Tronox assumed the pension plan obligations in its plan of reorganization. Effective June 1, 2009, all future benefit accruals were eliminated for non-bargaining participants in the pension plan. On that date, the pension plan was also closed to new participants. It is Tronox’s intention to deliver retirement benefits prospectively under a 401(k) arrangement. Yes Senior secured debt. Yes Unsecured debt.
a
The settlement with various parties provided unsecured creditors with higher recoveries than environmental claimants. DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement for the first amended joint plan of reorganization dated Oct. 10, 2010. Note: This is an update of a case study originally published June 7, 2012.
Bond Price History — Tronox, Inc. ($350 Mil., 9.50% Senior Notes Due 2012) (% of Par) 140 120 100 80 60 40 20 0
Filing Date: 1/12/09
Confirmation Date: 11/30/10
Source: Bloomberg, Fitch Ratings.
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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Leveraged Finance Tuscany Holdings (USA) Ltd. ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Energy Oilfield Services TID (Toronto), Delisted in January 2014 645 Not Applicable/Acquired by Lenders
Bankruptcy Summary Did All Entities in the Group File?a Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Debtor Delaware No 2/20/14 5/21/14 6/9/14 3 Chapter 11 (Prearranged/Negotiated) Yes — Sale of Substantially All Assets (as Going Concern) Voluntary Yes Acquired, Merged or Sold
Key Driver Key Driver
Flawed Business Model or Obsolete Product Untenable Capital Structure
Financial Profile 12-Month Period Prepetition EBITDAb Post-Emergence EBITDA Forecastc Enterprise Value (EV) Range (or Asset Value) Low Low Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
Amount
12/31/13 12/31/15
17 44 245 245 245 155 155 5.6
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date
Emergence Date
202 11.9 — —
90 2.0 112 55
Events Leading Up to Bankruptcy (or Contributing Factors) The main drivers of the bankruptcy filing were low rig utilization rates, unprofitable acquisitions and a large, uncontrollable receivables balance. The rig utilization rate was less than 60% on the petition date, and the Brazilian operations were generating negative EBITDA. The Brazilian and African acquisitions made in 2011 did not meet expectations or generate profits. Receivables that were unlikely to be collected were $8.9 million from a Colombian customer to a debtor affiliate and $4 million in Ecuador. The company entered a forbearance agreement with first-lien lenders on Jan. 24, 2014. Prior to the filing, Tuscany Holdings reached a restructuring support agreement with a majority of the prepetition lenders.
Valuation Estimate Summary Credit Bid for Assets Plus Exit Debt The prepetition lenders provided a stalking horse bid for the company’s assets (or new stock) of $125 million if certain heli-rigs were sold prior to the plan effective date or $155 million if these heli-rigs were not sold prior to the plan effective date. The $155 million value estimated by Fitch assumes the heli-rigs were not sold. Tuscany Holdings, through its new management team, will operate the company’s previous Colombian and Ecuadorian businesses. The prepetition lenders formed a new company to bid for the assets and own the common stock of the company after the effective date. No other bidders emerged to bid for the assets against the stalking horse bid. As part of the credit bid transactions, NewCo was expected to become an obligor for the portion of the prepetition credit agreement claims and DIP facility claims that were not part of the credit bid. In the financial projections, the debtors forecasted exit debt of $90 million. Fitch summed the $155 million credit bid for the assets and the exit debt to estimate the $245 million enterprise value. Liquidation Value Alternative The Chapter 7 alternative liquidation analysis assumed that the liquidation would occur within 60 days and all drilling activities would immediately cease so that the rigs could be returned to a central location to facilitate an auction. The liquidation alternative assumes a liquidation value range of $87.1 million to $128.9 million. The Colombian operations were estimated to be the largest source of value, with proceeds in the range of $48 million–$68 million. After payment of liquidation costs and fees, first-lien lenders were estimated to obtain recoveries in the range of 37%–55.7% in a Chapter 7 process. a
Separate Canadian proceedings filed in Alberta and certain affiliates were non-debtors. bProjected EBITDA for 2013 as stated in DIP financing request filed Feb. 2, 2014. cMidpoint of low and high EBITDA forecasts. Source, unless otherwise noted: Company disclosure statement dated April 9, 2014. Note: This is an update of a case study published April 27, 2015.
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Leveraged Finance Tuscany Holdings (USA) Ltd. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP or Other Administrative Secured Unsecured Intercompany Equity
Claim Type DIP Facility Prepetition First-Lien Credit Facility General Unsecured Intercompany Holding Company Equity Interests Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority DIP or Other Administrative
Claim Type DIP Facility
Secured
Prepetition First-Lien Credit Facility
Unsecured Intercompany
General Unsecured Intercompany
Equity
Holding Company Equity Interests
Form of Distribution Projected Equivalent Secured Unsecured Subordinated New Options/ Allowed Claims Recovery (%) RR Category Cash Notes Notes Notes Equity Warrants Not Available 100.0 RR1 — 90 — — 35 — 202
81.0 RR2
—
—
—
—
120
—
6 Not Available Not Available
0.0 RR6 0–100 RR6 0.0 RR6
— — —
— — —
— — —
— — —
— — —
— — —
0 — —
90 — —
0 — —
0 — —
155 — —
0 — —
208 80 0
— Recoveries — — — —
Description • DIP claims were satisfied in cash or other less favorable treatment that was agreed to by the debtor and the DIP lender, which may include rollover into an exit facility. • The actual claim amount was not provided. This case study shows the $35 million DIP roll up as being refinanced into the exit facility, but actual treatment is not available. • Claims were partially satisfied with new administrative priority debt in the $35 million DIP roll up and partially satisfied through the purchase of the assets in the credit bid. • NewCo, on behalf of first-lien lenders, bids for the assets by using its newly issued equity. • Fitch estimates an 81% blended recovery rate by adding a 76.7% recovery on the $166.97 prepetition facility claim amount outstanding as of the disclosure statement and a 100% recovery on the $35 million roll up portion. • Received $0 recovery under the plan. • Received $0 recovery under the plan. • With consent of required lenders, claims may be reinstated, canceled or otherwise compromised. • Cancelled on the effective date with no distribution.
RR – Recovery Rating. DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement dated April 9, 2014. Note: This is an update of a case study published April 27, 2015.
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Leveraged Finance Tuscany Holdings (USA) Ltd. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
Not available. $6.3 million as of Dec. 31, 2013. $202 million facility. There was no remaining availability. $202 million outstanding under the first-lien credit agreement. $70 million DIP facility consisted of $35 million of new money and $35 million of roll up debt. The schedules of assumed and rejected contracts were not available. Yes, secured claims had a deficiency claim that was exchanged for new debt that was issued by NewCo. A cash reserve was set up to distribute to disputed claims that became allowed. Canceled or reinstated. The disclosure statement indicated that workforce arrangements were continued on a postpetition basis. No Not applicable. No Not applicable.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, company disclosure statement dated April 9, 2014. Note: This is an update of a case study published April 27, 2015.
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Leveraged Finance TXCO Resources, Inc. ($ Mil., Except Where Noted)
Key Drivers of Bankruptcy Filing
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Energy Exploration and Production TXCO 487 Anadarko Exploration and Production (Purchaser)/Privately Held
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed bya Court District Substantive Consolidationb Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
No Joint Plan of Debtor and Creditor Texas — Western Certain Classes 5/17/09 1/27/10 2/11/10 9 Chapter 11 Yes — Sale of Substantially All Assets (as Going Concern) Voluntary Yes Acquired, Merged or Sold
Key Driver Key Driver
Deep Cyclical Trough Untenable Capital Structure
Financial Profile 12-Month Period Prepetition EBITDA 2008 Post-Emergence EBITDA Forecast — Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
Amount 89 Not Applicable 303 310 306 10 10 Not Applicable
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 151 1.7 — —
Emergence Date 0 Not Applicable 151 100
Events Leading Up to Bankruptcy (or Contributing Factors) TXCO Resources, Inc. engaged in the largest capital expenditure program in its history in 2008. The costs incurred in the development and purchase of oil and natural gas properties increased to $182 million in 2008 from $117 million in 2007. After the drilling program was initiated, costs to drill escalated throughout the summer of 2008 followed by a commodity price collapse in the fall of 2008. TXCO’s liquidity deteriorated, which impaired its ability to operate its business. By year end 2008, there was a $256 million working capital deficit. The company experienced substantial difficulties in meeting short-term cash needs, particularly for vendor and drilling and completion commitments. The high volatility in energy prices and a deteriorating global economy created difficulties accessing the capital markets and hindered TXCO’s ability to raise debt and/or equity capital. The lenders under the revolving credit facility and term loan facility provided a notice of default and acceleration in April 2009. In addition, trade counterparties began demanding liens and repayments.
Valuation Estimate Summary Sale of All Assets Determined Value TXCO agreed to sell a substantial portion of its assets to Anadarko E&P Company (Anadarko) and Newfield Exploration for total consideration of the lesser of: A) $1 million more than the amount needed to repay the DIP facility loans and prepetition revolver and term loans in full, repay all other creditors in full, pay assumed contract cure amounts or B) $310 million in cash. All creditors were paid in full, including interest and attorney’s fees, and equity holders received distribution from certain assets that were excluded from the Anadarko asset sale and placed in a trust. The remaining oil and gas assets that were not transferred to Newfield Exploration or Anadarko were transferred to the TXCO liquidating trust. Fitch estimates a total value of approximately $303 million–$310 million based on the $285 million sum of the DIP, secured and unsecured claims plus an additional amount assumed to pay legal and professional fees as well as payments of $7.6 million and $10 million, respectively, to holders of preferred and common stock from the proceeds of excluded assets placed in trust (not part of asset sale and placed into a trust). Earlier Stalking Horse Bid Provides Additional Information on Approximate Value Newfield Exploration offered to purchase all assets for $223 million. However, Anadarko made a higher and better offer and was the primary purchaser of the assets. Liquidation Value Alternative The liquidation alternative valuation analysis was based on discounts to asset book value and resulted in an estimated gross value in the range of $171 million–$229 million. Reserve assets accounted for a significant majority of the estimated value. The book value of reserve assets was $318 million, and the liquidation value range was estimated to be $163 million–$217 million. a
The plan was jointly proposed by TXCO and the DIP lenders. bThe plan provided for a substantive consolidation of the estate, excluding TXCO Drilling. DIP – Debtor in possession. Source, unless otherwise noted: First amended company disclosure statement dated Dec. 18, 2009; second amended plan of reorganization dated Jan. 25, 2010. Note: This is an update of a case study published April 27, 2015.
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Leveraged Finance TXCO Resources, Inc. (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP or Other Administrative Secured Secured Unsecured Equity
Claim Type Administrative, Priority Tax and DIP Facility Claims First-Lien Reserve Based Revolving Facility Second-Lien Term Loan Agreement Trade Debt Preferred and Common Equity Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority DIP or Other Administrative Secured
Claim Type Administrative, Priority Tax and DIP Facility Claims First-Lien Reserve-Based Revolving Facility
Secured
Second-Lien Term Loan Agreement
Unsecured
Trade Debt
Equity
Preferred and Common Equity
Allowed Projected Equivalent Claims Recovery (%) RR Category 47 100.0 RR1 51 107 80 N.A 285 0 0
100.0 RR1 100.0 100.0 N.A. — — —
RR1 RR1 RR6 Recoveries — —
Form of Distribution Secured Unsecured Subordinated New Options/ Cash Notes Notes Notes Equity Warrants 47 — — — — — 51
—
—
—
—
—
107 80 18 303 — —
— — — 0 — —
— — — 0 — —
— — — 0 — —
— — — 0 — —
— — — 0 — —
Description • Estimated claims included $8.5 million of administrative claims, $6.7 million of priority tax claims and $32 million of DIP facility claims. • The facility was secured by a first-priority security interest in certain of the assets of TXCO and affiliates including: Tar Sands, Energy, Output and OPEX, including certain proved oil and natural gas reserves and in the equity interests of certain subsidiaries. • Paid in full, including interest, with proceeds from sale of assets. • Secured by a second lien on the assets that secured the reserve-based revolver. • Paid in full including interest with proceeds from sale of assets. • The claim included principal of $100 million and interest of $7 million. • Includes secured claims of mineral lienholders and unsecured trade debt. • Paid in full with proceeds from sale of assets. • Certain properties were not sold were placed into trust. The preferred holders could recover $7.6 million from trust distributions, and after this was paid, common stock shareholders could receive up to $10 million.
RR – Recovery Rating. DIP – Debtor in possession. N.A. – Not available. Source, unless otherwise noted: First amended company disclosure statement dated Dec. 18, 2009; second amended plan of reorganization dated Jan. 25, 2010. Note: This is an update of a case study published April 27, 2015.
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Leveraged Finance TXCO Resources, Inc. (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Executory Contracts
Deficiency Claims Contingent Claims Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
Not available. $125 million borrowing base revolver with $55 million of borrowing base and $50 million of borrowings and $100 million second-lien loan. The company had a $125 million reserve base facility. There was $55 million of borrowing base availability and $50 million of borrowings under this reserve-based facility as of the petition date. $32 million DIP. The plan proposed settlements with certain counterparties. The disclosure statement noted that TXCO was party to 400 executory contracts and was evaluating whether to assume or reject these contracts. The process was expected to be completed prior to the confirmation hearing. Mineral leases were continued. Not applicable. All creditors were paid in full. Disputed claims, including certain tax claims. Discharged on the plan effective date, except for the intercompany claims of TXCO Drilling. Not available. Yes Various No All creditors were paid in full.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings; first amended company disclosure statement dated Dec. 18, 2009; second amended plan of reorganization dated Jan. 25, 2010. Note: This is an update of a case study published April 27, 2015.
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Leveraged Finance Venoco, Inc. (Denver Parent) ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Energy Exploration and Production VQ 616 Venoco, Inc./Privately Held
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Yes Debtor Delaware No 3/18/16 7/14/16 7/25/16 4 Chapter 11 No Voluntary No Emerged/Reorganized (Private)
Key Driver Key Driver
Deep Cyclical Trough Extreme Event
Financial Profile 12-Month Period a Prepetition EBITDA 12/31/14 Post-Emergence EBITDA Forecast 12/31/17 Enterprise Value (EV) Range (or Asset Value Range) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
Amount 119 17 0 150 75 0 150 4.4
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 950 8.0 — —
Emergence Date 0 0.0 950 100
Events Leading Up to Bankruptcy (or Contributing Factors) A combination of low oil prices, a leveraged capital structure and the adverse production impact of an oil spill that disrupted transportation services led to Venoco, Inc.’s bankruptcy filing. Venoco, an exploration and production company operating mainly in California was taken private in 2012 in a management buyout deal that involved an $845 million debt-funded stock buyback. The rapid decline in oil prices in late 2015 created liquidity challenges. The company took proactive steps to cut costs, execute asset sales and engage financial advisors to advise on strategic options to enhance liquidity and review its capital structure following the market price declines. However, these steps were thwarted by an extreme event that resulted in a 50% unplanned production decline. Specifically, a pipeline (Pipeline 901) belonging to Plains All American that served some of Venoco’s major drilling locations was closed as a result of a spill near the Santa Barbara shore, which forced Venoco to shut in production. Venoco sued Plains All American for to the material adverse effect of the event on its daily operations. Bankruptcy was filed after a $13.7 million interest payment due in February 2016 was missed. The company and its secured noteholders entered a restructuring support agreement (RSA) to expedite the bankruptcy process, equitize the prepetition debt and offer some de minimis value to the junior creditors. The plan implemented a debt-to-equity conversion of the prepetition indebtedness, which deleveraged the balance sheet. As of the petition date, Venoco held interests in approximately 72,053 net acres in California, of which 48,836 were developed.
Valuation Estimate Summary Total Asset Value Methodology The third-party valuation advisor estimated the value using a net asset value analysis, which was comprised of three components: reserve value, other asset value less unallocated general and administrative costs. Reserve value was estimated by taking a risk-adjusted value of Venoco’s oil and gas reserves, with net cash flows from the reserves discounted at a standard rate of 10%. Other asset value consisted of the Carpinteria Land and Bluffs (55 acres of land with an onshore processing facility) and net operating losses that can be used to offset future taxable income for up to 20 years, subject to statutory limitations. Other asset value excludes potential proceeds from litigation (e.g. the lawsuit filed against Plains All American related to the oil spill and shut-in of Pipeline 901). The estimated present value of unallocated G&A expenses that were not otherwise captured were deducted to derive the total enterprise value estimate. The total value of the reorganized company was estimated to be $0–$150 million. Liquidation Value Alternative The hypothetical liquidation valuation analysis was based on an anticipated liquidation effective date of Aug. 31, 2016. The analysis assumed a shutdown of operations following a conversion to Chapter 7 and that certain assets would be sold as a going concern where possible, but likely on a piecemeal basis. Based on pro forma book values as of Aug. 31, 2016, the liquidation analysis resulted in recovery range of $0–$17 million. The percentage of book values applied to assets include: • Unrestricted cash of $26 million at 100% of book value • Cash securing letters of credit of $4 million at 90%–95% • Other cash collateral of $1 million at 90%–100% • Accounts receivable of $3 million at 75%–100% • Blended recovery of oil and natural gas properties ranging from $0 to $50 million • Overall, total book value of assets ranged from $43 million to $110 million and total costs (liquidation adjustments and plugging and abandonment liabilities) ranged from $121 million to $92 million. The liquidation alternative would have resulted in recovery of $0–$17 million, resulting in first-lien recovery of 8.7% at the high end, 0% at the low end for the rest of the capital structure. a
Source of prepetition EBITDA was earnings release dated April 16, 2015. Company did not file 10-K until June 2016 during Chapter 11 proceedings. 2015 estimated EBITDA was negative, so was not deemed to be a useful comparison. Source, unless otherwise noted: Disclosure statement for the first amended joint plan of reorganization dated July 12, 2016.
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Leveraged Finance Venoco, Inc. (Denver Parent) (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Claim Seniority DIP and Priority Secured Secured Unsecured Unsecured Subordinated Equity
Claim Type $35 Million DIP Facility First-Lien Notes Second-Lien Notes General Unsecured Notes 8.875% Senior Notes Senior PIK Toggle Notes VQ Stock Estimated Claims New Borrowings at Emergence Debt of Nonfiling Affiliates on Emergence Date
Claim Seniority DIP and Priority
Claim Type $35 Million DIP Facility
Secured
First Lien Notes
Secured
Second Lien Notes
Unsecured Unsecured
General Unsecured Notes 8.875% Senior Notes
Subordinated
Senior PIK Toggle Notes
Equity
VQ Stock
Allowed Projected Equivalent Claims Recovery (%) RR Category 35 100.0 RR1 195 0–64 RR3 172 0–6 RR6 1 0–100 RR1 324 2–4 RR6 327 0–0.4 RR6 0 0.0 RR6 1,054 — Recoveries 0 — — 0 — —
Cash 35 — — 1 6.5 — — 43 — —
Form of Distribution Secured Unsecured Subordinated New Options/ Notes Notes Notes Equity Warrants — — — — — — — — 68 — — — — — 0 — — — — — — — — 2 — — — — — 0 — — — — — 0 0 0 69 0 — — — — — — — — — —
Description • DIP was composed of a senior secured super-priority non-amortizing delayed-draw term loan facility. • Paid in full. • The first-lien notes were issued in April 2015 in connection with an out-of-court recapitalization plan that retired an existing reserve-based revolving loan. • Distributions consisted of holder’s pro rata share of 90% of the new common stock. • The first-lien notes were the fulcrum security. • Distributions consisted of a 10% pro rata share of new second-lien warrants. • In connection with the April 2015 recapitalization, the second-lien notes were issued in exchange for the then-existing 8.875% senior unsecured notes. • These notes had a second-priority lien on the same collateral that secured the first-lien notes. • Claims were paid in full in cash ($1 million of estimated claims). • Distributions on the 8.875% senior unsecured notes consisted of $6.5 million in cash, 2.6% of the new common stock and the shares or other equity interests in the noteholder HoldCo to be formed on the emergence date. • Holders of the senior PIK toggle notes (upon acceptance of the plan) received a pro rata share of the new Denver Parent Corporation (DPC) warrants, the DPC residual value and the DPC settlement payments. • Extinguished without any distribution.
RR – Recovery Rating. DIP – Debtor in possession. PIK – Payment in kind. Source, unless otherwise noted: Disclosure statement for the first amended joint plan of reorganization dated July 12, 2016.
Bond Price History — Venoco, Inc. (Denver Parent) ($308.0 Mil., 8.875% Senior Unsecured Notes Due 2019) (% of Par) 60 50 Confirmation Date 7/14/16
40 30 20
Filing Date: 3/18/16
10 0
Source: Advantage Data, Fitch Ratings.
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Leveraged Finance Venoco, Inc. (Denver Parent) (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments
Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility? Other Notable Issues Executory Contracts
Deficiency Claims Contingent Claims and/or Contingent Recoveries Intercompany Claims Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient and Comments
$55.9 million per 10-K filed June 16, 2016. $0. The former reserve-based revolving loan facility was repaid and retired to avoid breach of financial covenants in April 2016 during the challenging commodity price environment. As a result, the company did not have any bank facility commitments on the petition date. $0 The DIP facility was a new money facility that provided for a secured super-priority non-amortizing delayeddraw term loan facility in the aggregate amount of up to $35 million. Venoco has filed a lawsuit against Plains All American regarding the pipeline incident. Any potential payments from a successful outcome have not been factored into the recovery or valuation. Prior to the petition date and in the ordinary course of business, Venoco entered into over 1,000 executory contracts and unexpired leases. The plan provides that any such contracts not already rejected during the Chapter 11 cases will be assumed by the reorganized company. Not available. Litigation proceeds are a contingent recovery. All intercompany claims were reinstated or compromised by the company, consistent with the business plan, and subject to the consent of the DIP lenders and the consenting secured noteholders. Venoco has no retirement obligations except for 401(k) plans, and such plans were continued in the reorganized company. No Not applicable. Yes Second-lien and unsecured claims.
DIP â&#x20AC;&#x201C; Debtor in possession. Source: Fitch Ratings, disclosure statement for the first amended joint plan of reorganization dated May 17, 2016.
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Leveraged Finance VeraSun Energy Corporation ($ Mil., Except Where Noted)
Issuer Profile Fitch Industry Classification Subsector Prepetition Ticker Symbol Petition Date Assets Emergence Parent Company Name/Ticker
Key Drivers of Bankruptcy Filing Energy Ethanol Production VSUN 1,864 Liquidated/Not Applicable
Bankruptcy Summary Did All Entities in the Group File? Plan Proposed by Court District Substantive Consolidation Petition Date Confirmation or Conversion Date Effective Date Duration (Months) Filing — Type Section 363 Asset Sale by Debtor Voluntary or Involuntary Filing Postconfirmation Liquidating Trust Resolution
Yes Debtor Delaware Certain Classes 10/31/08 10/23/09 12/17/09 12 Chapter 11 Yes — Sale of Substantially All Assets (as Liquidation) Voluntary No Liquidation (Under Chapter 11)
Key Driver Key Driver
Flawed Business Model or Obsolete Product Deep Cyclical Trough
Financial Profile 12-Month Period a Prepetition EBITDA 2007 Post-Emergence EBITDA Forecast — Enterprise Value (EV) Range (or Asset Value) Low High Midpoint EV (Value) Equity Value Range Low High Midpoint EV/Post-Emergence EBITDA Estimate
Amount 90 Not Applicable 1,072 1,072 1,072 0 0 Not Applicable
Petition Date Versus Emergence Date Total Debt Consolidated Leverage (x) Debt Shed in Bankruptcy Debt Shed in Bankruptcy (%)
Petition Date 1,500 16.6 — —
Emergence Date 0 Not Applicable 1,500 100
Events Leading Up to Bankruptcy (or Contributing Factors) VeraSun Energy Corporation (VSE) was subject to significant price risk on inputs, including corn, the main raw material, and natural gas. VSE was also subject to market price risk on the ethanol final product as cash flows are highly dependent on the spread between corn and ethanol prices. The company’s liquidity was challenged by volatile commodity prices for corn, natural gas and ethanol. In addition, the company signficantly expanded its production capacity in the year preceding the bankruptcy filing through the ASA acquisition and the US BioEnergy acquisition and this increased debt. EBITDA decreased to $90 million in 2007 from $178 million in 2006. Efforts to raise additional liquidity were unsucessful due to the deterioration in credit markets starting in mid-2008 and the uncertain and volatile pricing environment. Ultimately, the volatility in commodity prices and an inability to raise new capital drove the company into bankruptcy. VSE was one of the largest ethanol producers in the U.S. and operated 14 ethanol plants with capacity of more than 1.4 billion gallons per year.
Valuation Estimate Summary Sum of Piecemeal Asset Sale Amounts Fitch estimates a $1,072 million liquidation value by summing the transaction amounts of the various asset sales. Plants were sold piecemeal in groups or individually to a third party or via credit bids in April and May 2009. We note that the actual values of the assets sold in the credit bid transactions may be less than the amounts of the various credit bids. However, the credit bid amounts are used as a proxy for asset value, as this is the only valuation information available. Sales Price Assets ($ Mil.) Buyer Notes VSE Assets 424.3 Valero Renewable Fuels Corp. Paid in cash. Valero was stalking horse bidder and there were no better bids. VeraSun Albert City, LLC 74.6 Valero Renewable Fuels Corp. Paid in cash. ASA Albion, LLC 57.1 Valero Renewable Fuels Corp. Paid in cash. US Bio Marion, LLC 93.0 Dougherty Funding LLC Credit bid for loan amount. VeraSun Central City, LLC etc.b 324.0 AgStar Credit bid for loan amount. ASA Bloomingburg, LLC and ASA Linden LLC 99.0 WestLB Credit bid for loan amount. Sum of Asset Sale Amounts 1,072.0 Liquidation Value Alternative There was no Chapter 7 alternative liquidation analysis presented in the disclosure statement as the sale of substantially all assets had already been completed by the publication date and the company completed a liquidation under Chapter 11. The disclosure statement noted that a conversion to Chapter 7 would result trustee costs that would reduce recoveries compared to the Chapter 11 plan. a
Source is 2007 10-K. bAssets included VeraSun Central City, LLC; VeraSun Ord, LLC; VeraSun Dyersville, LLC; VeraSun Hankinson, LLC; VeraSun Janesville, LLC; and VeraSun Woodbury, LLC. Source, unless otherwise noted: Company disclosure statement for the joint plan of liquidation dated July 31, 2009. Note: This is an update of a case study published April 27, 2015.
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Leveraged Finance VeraSun Energy Corporation (Continued) Estimated Recoveries for Select Claims ($ Mil., Except Where Noted) Allowed Projected Claim Seniority Claim Type Claims Recovery (%) DIP or Other Not Not Administrative Administrative and Priority Available Available Secured $125 Million VeraSun Revolving Facility 95 100.0 Secured 210 100.0 VeraSun 9.875% Secured Notes Due 2010 Secured ASA Holdings Secured Credit Facility 267 59.0 ($175 Million Tranche A and $100 Million Tranche B) Secured AgStar Credit Facilities 465 70.0 Secured Marion Term Loan 90 100.0 Unsecured Trade Obligations 105 0.0 Unsecured Verasun 9.375% Senior Notes Due 2017 437 45.0 Equity Interests 0 0.0 Estimated Claims 1,669 — New Borrowings at Emergence 0 — Debt of Nonfiling Affiliates on Emergence Date 0 —
Form of Distribution Equivalent Secured Unsecured Subordinated New Options/ RR Category Cash Notes Notes Notes Equity Warrants Equivalent Recovery — — — — — — RR1 95 — — — — — RR1 210 — — — — — RR3 57 — — — 99 —
RR3 RR1 RR6 RR4 RR6 Recoveries — —
— — — 195 — 557 —
— — — — — 0 —
— — — — — 0 —
— — — — — 0 —
324 93 — — — 516 —
— — — — — 0 —
—
—
—
—
—
—
Claim Seniority Claim Type DIP or Other Administrative and Priority Administrative Secured
Secured
Secured
Secured
Secured
Unsecured Unsecured
Description • Certain secured claims were rolled into DIP facilities. • The $103 million of borrowings under the VSE DIP roll-up facility were paid in full in cash on April 16, 2009, with a portion of the proceeds of the Valero sale. $125 Million VeraSun Revolving Facility • Petition date principal outstanding of $95 million. • Secured by inventory and receivables of VeraSun segment. • Paid in full in cash with a portion of the proceeds from Valero sale. VeraSun 9.875% Secured Notes Due 2010 • Unimpaired, paid in full with proceeds from a DIP roll-up or from the proceeds of asset sales to Valero. • Secured by VeraSun segment assets excluding receivables and inventory. • Recovery rates based on Fitch estimate using liquidation sale amounts. Actual recovery rate may have differed from this estimate. ASA Holdings Secured Credit Facility • Secured by the assets of the ASA Holdings segment and a parent equity pledge of the subsidiary stock. ($175 Million Tranche A and $100 Million • Borrowings were used for the development, engineering and construction of the Linden, Albion and Tranche B) Bloomingberg plants. • The recovery rate of 59% is Fitch’s estimate of the blended recovery on secured and deficiency portion of total claim based on the liquidation sale and credit bid for the three units securing the facilities. AgStar Credit Facilities • All of the US Bio Marion segment subsidiaries had their own credit facilities secured by the plant assets. Except for the Marion unit (see below), each unit had a credit facility with AgStar bank. • The total amount of the AgStar facilities was $464.9 million. • Credit bid made for assets by the lender with recovery rate estimate based on bid amount relative to outstanding $469.4 million loan. Marion Term Loan • Secured by substantially all assets of the Marion plant excluding the working capital assets that were pledged to a $7 million revolver. • Credit bid made for loan amount plus accrued. Lenders foreclosed on the plant collateral. Trade Obligations • There were $104.5 million of trade debt obligations as of the petition date. Additional liabilities were created during the bankruptcy on account of contracts and leases that were rejected. Verasun 9.375% Senior Notes Due 2017 • No distributions. • Deemed to have rejected the plan.
RR – Recovery rating. DIP – Debtor in possession. Source, unless otherwise noted: Company disclosure statement for the joint plan of liquidation dated July 31, 2009. Note: This is an update of a case study published April 27, 2015.
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Leveraged Finance VeraSun Energy Corporation (Continued) Additional Information Cash on Filing Date Prepetition Bank Facility Commitments Prepetition Bank Facility Borrowings on Filing Date Was the DIP a New Money Facility or Roll Up of a Prepetition Facility?
Executory Contracts Deficiency Claims Contingent Claims Intercompany Claims
Pension Claims/Motions Postpetition Interest? If Yes, Recipient Class Concession Payments Recipient
$15.2 million as per 10-Q for period ended Sept. 30, 2008, in Subsequent Events section. $125 million VeraSun credit facility $95 million borrowings under VeraSun credit facility There were three initial DIP facilities. The largest was the $196 million VSE DIP provided by VSE prepetition secured noteholders. $103 million of the VSE DIP facility proceeds were used to roll up a portion of the VSE prepetition 9.875% secured notes and the remaining $93 million was new money available for the VSE borrowing group’s postpetition needs. AgStar provided a $24.5 million interim DIP facility to provide liquidity to the plants in its borrowing group to keep the plants in a safe mode until permanent financing was obtained. A third $20 million initial DIP was put in place by West LB for the units in its borrowing group. Additional DIP borrowings occurred later in the liquidation. Corn supply contracts and other contacts were rejected. Yes Disputed claims including make-whole interest claims on VSE secured debt. A disputed claim reserve was established. VeraSun Marketing LLC and the US Bio Marion debtors settled certain claims against each other. The settlement provided that the VSE debtors, on behalf of the marketing segment, will transfer an amount to settle this claim to US Bio Marion. — Yes Various secured credit facilities including VSE secured notes and facilities. Yes Intercompany claim settlement benefiting US Bio Marion.
DIP – Debtor in possession. Source: Fitch Ratings, company disclosure statement for the joint plan of liquidation dated July 31, 2009. Note: This is an update of a case study published April 27, 2015.
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Leveraged Finance
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Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries January 18, 2017
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