The unsecured creditors committee in the Samson Resources Corp. bankruptcy began mounting some opposition Thursday to the oil and gas producer’s prearranged reorganization strategy, arguing that several planned moves could “eventually eviscerate” general unsecured creditors’ already-small potential recoveries.
In a series of objections in Delaware bankruptcy court, the official committee of unsecured creditors took aim at a number of measures the Oklahoma-based debtor is planning in the management of its case, chiefly a bid to pay roughly $100 million in prepetition debt early.
The committee contended that Samson should pay those prepetition claims only if failing to do so would create a lien senior to the liens already attached to secured creditors’ collateral, and should not use its unencumbered assets — a small amount of proven reserves, along with certain real and personal property upon which lenders do not have liens, according to a first-day declaration from chief financial officer Philip Cook — under any circumstances.
Instead, it said, the company should pay those claims out of its cash collateral, which would keep secured prepetition lenders’ position in the capital structure the same. Using unencumbered assets would essentially create a windfall for secured lenders and erode, and possibly extinguish, the up-to-1 percent equity that general unsecured creditors are slated to get under Samson’s restructuring support agreement, the committee argued.
“Although the Chapter 11 cases are still in their infancy, it appears that they are being prosecuted largely for the benefit of the prepetition lenders without any regard to the debtors’ duties to general unsecured creditors,” the committee said. “The payment of unsecured prepetition claims at this stage of the Chapter 11 cases is unwarranted, particularly given the stark discrepancy in the proposed recoveries for other general unsecured creditors set forth in the debtors’ plan.”
The committee also took issue with how Samson wants to treat claims related to potential severance and accrued paid time off for noninsider employees, arguing the payout should be capped at $2 million, and with possible payments on mineral rights to selling shareholders connected to a $7.2 billion leveraged buyout in 2011.
Samson is planning to reorganize as a going concern, likely not changing the size of its workforce much in the process. But if a sale becomes necessary, any more than a $2 million cap could start to cut into general unsecured creditors’ recoveries, the committee said.
Regarding the mineral payment, the committee said it could be recharacterized as a debt arrangement, making the transfer unwarranted.
The objections kick off what could wind up being serious opposition to Samson’s reorganization plans from the fiduciary committee and potentially set the oil and gas company up for a contested Chapter 11 plan confirmation hearing.
Among the committee’s targets are the second-lien lenders, which the body claims it will show are “wholly unsecured.”
Representatives for Samson did not immediately respond to requests for comment Thursday.
Samson filed for Chapter 11 on Sept. 17, another victim of the historic drop in crude oil prices that has sent many in the sector flocking to court protection to rework their debt.
The company came to court with a restructuring support agreement in hand backed by more than two thirds of junior lenders to exchange their debt for nearly all of Samson’s equity subject to dilution.
General unsecured creditors would get a 1 percent equity stake in exchange for their aggregate $2.3 billion in claims if they vote in favor of the plan, and a 0.5 percent stake if they don’t, according to court records.
The reorganization would allow Samson, which suspended its exploration and drilling in February, to shed more than $3 billion in debt and emerge with $250 million in cash on hand that will allow it to resume the bulk of its business, according to the Cook declaration.
Samson listed debts that included a $942 million first-lien revolving credit facility, $1 billion in second-lien term notes and more than $2 billion in senior unsecured notes, with much of the liabilities coming from the leveraged buyout from the founding Schusterman family led by Kohlberg Kravis Roberts & Co. LP affiliates and investors Crestview Partners, Itochu Corp. and Natural Gas Partners.
Samson is represented by Ryan J. Dattilo, Robert A. Gretch, Domenic E. Pacitti, Yosef Riemer, Edward O. Sassower, James H.M. Sprayregen and Joshua Sussberg of Kirkland & Ellis LLP and Morton R. Branzburg of Klehr Harrison Harvey Branzburg LLP.
The committee is represented by Joseph J. Farnan Jr., Joseph J. Farnan III and Michael J. Farnan of Farnan LLP and Thomas E Lauria, Glenn M. Kurtz, J. Christopher Shore, Michele J. Meises and Thomas MacWright of White & Case LLP.
The case is In re: Samson Resources Corp., case number 1:15-bk-11934, in the U.S. Bankruptcy Court for the District of Delaware.
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