A New York bankruptcy judge on Thursday denied a bid by unsecured creditors of Sabine Oil & Gas to bring litigation against the company's secured lenders over its ill-fated merger with Forest Oil that added substantial new debt to the business before it filed for Chapter 11 last year.
In a bench ruling, U.S. Bankruptcy Judge Shelley Chapman denied motions that would have given Sabine’s unsecured creditors committee standing to bring claims stemming from the tie-up against certain secured lenders and company directors and officers.
Unsecured creditors argue that the merger with Forest, first announced in May 2014, should have been called off when commodities prices started to fall. They say the deal was only executed for the benefit of Barclays and Wells Fargo and other secured lenders.
The ruling follows a lengthy trial over the creditor's request that examined the merger and the impact it had on Sabine in the months leading up to its bankruptcy. Sabine filed for bankruptcy in July, listing assets of approximately $2.5 billion and debts of $2.9 billion
During a hearing in Manhattan, Judge Chapman ruled from the bench that the constructive fraudulent conveyance claims unsecured creditors sought to bring against the pre-merger iteration of Forest as well as so-called bad acts claims against directors and officers were not colorable. The court said though a separate group of fraudulent conveyance claims against the pre-merger Sabine were plausible, the committee failed to establish that the debtors' decision not to pursue them was unreasonable.
Judge Chapman declined to rule on a separate group of claims challenging liens that were pursued by BNY Mellon in its role as trustee of certain Sabine notes.
Sabine is represented by Jonathan S. Henes, James H.M. Sprayregen, Paul M. Basta, Christopher Marcus, Gabor Balassa, Ryan B. Bennett, A. Katrine Jakola and Whitney L. Becker of Kirkland & Ellis LLP. Lazard is acting as financial adviser.
The creditors committee is represented by Keith Wofford, D. Ross Martin and Mark R. Somerstein of Ropes & Gray LLP.
BNY Mellon is represented by Daniel H. Golden, Philip C. Dublin and Sara L. Brauner of Akin Gump Strauss Hauer & Feld LLP and Edward P. Zujkowski and Thomas A. Pitta of Emmet Marvin & Martin LLP.
The case is Sabine Oil & Gas Corp., case number 1:15-bk-11835, in the U.S. Bankruptcy Court for the Southern District of New York.
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