Magnum Hunter Resources Corp. held firm to its plan to exit bankruptcy April 1 after a Delaware judge on Friday approved a revised Chapter 11 disclosure and turned aside a new stockholder group’s bid to slow the schedule and reexamine the company’s value.
Judge Kevin Gross put off stockholder arguments over the oil and gas company's worth until a March 31 plan confirmation hearing, when other objections to the firm's reorganization are expected to be heard, including disputes over agreements with pipeline companies. Judge Gross said it was “probably impractical” to hold a separate hearing on the company's value beforehand.
Magnum Hunter, which operates or has interests in 2,600 wells, is one of dozens of oil and gas companies chased into Delaware bankruptcy court over the past year by a steep, global decline in the crude oil and natural gas markets. The company’s reorganization plan aims to shed about $600 million in debt, mainly through swaps of creditor claims for shares in the reorganized company.
“It’s a tight schedule,” Judge Gross told Ad Hoc Group of Equity Holders attorney Jamie L. Edmonson of Venable LLP. “We’ve known about the April 1 milestone. We’ve known about the schedule. I think we have to live with it.”
Company officials called their reorganization timetable critical, and said delays could exhaust or trigger a termination of Magnum Hunter’s $200 million debtor in possession fund and restructuring agreement, forcing an abrupt liquidation.
Stockholders are hardest hit by the plan, with their shares slated to be canceled without compensation.
“Unfortunately, equity is out of the money. From the first day, that was made clear," Magnum Hunter attorney Anna Rotman of Kirkland & Ellis LLP said. “Since they’ve come at the 11th hour, they shouldn’t be able to force a delay, especially since a delay can cause so much harm.”
Edmonson said Magnum Hunter’s timetable is too compressed to allow stockholders to challenge the company's valuation estimate as too low.
“There are many people who would like to join this group but they cannot because their savings have been wiped out,” Edmonson said. “It’s prejudicial to these individuals because they are having to fund this battle on their own,” rather having legal fees paid from the bankruptcy estate.
The company was valued at as much as $1.5 billion before the bankruptcy, but an analysis of its currently likely recovery in an outright liquidation ranged from $262 million to $452 million.
As part of the company’s reorganization, some $336.6 million in second-lien debt administered by Credit Suisse AG would convert to a 36.9 percent stake in the company. Another $600 million in unsecured, 9.75 percent notes would account for 31.3 percent of the reorganized form, while the debtor-in-possession lenders would own 28.8 percent.
General unsecured claims would be paid from a $23 million cash pool set aside for those recoveries, although creditors are permitted to take stock in the restructured company instead. Claims will be paid at a rate of at least 50 cents for each dollar.
Brian E. Schartz of Kirkland & Ellis LLP, which represents Magnum Hunter, described the effort as a “fragile harmony.”
“That being said, our restructuring efforts are far from complete,” Schartz said. “We have worked very hard to resolve the noise. Maybe there’s some fire, but we have cleared some of the smoke.”
Magnum Hunter is represented by Laura Davis Jones, Colin R. Robinson and Joseph M. Mulvihill of Pachulski Stang Ziehl & Jones LLP, and Edward O. Sassower, Brian E. Schartz, James H.M. Sprayregen, Justin R. Bernbrock, Anna Rotman and Alexandra Schwarzman of Kirkland & Ellis LLP.
The ad hoc group of secured lenders is represented by Kelly DiBlasi, Gary T. Holtzer, Charles M. Persons and Joseph H. Smolinsky of Weil Gotshal & Manges LLP, and Mark D. Collins ofRichards Layton & Finger PA.
The noteholder backstoppers are represented by Rachel E. Albanese, Matthew C. Fagen, Edward A. Mishan, Arik Preis and Michael S. Stamer of Akin Gump Strauss Hauer & Feld LLP, and John Henry Schanne II and David B. Stratton of Pepper Hamilton LLP.
The case is In re: Magnum Hunter Resources Corp. et al., case number 1:15-bk-12533, in the U.S. Bankruptcy Court for the District of Delaware.
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