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Magnum Hunter's $1B Chapter 11 Plan Confirmed

Hunter Resources Corp. had its $1 billion Chapter 11 reorganization plan confirmed on Monday, over the objections of equity holders that questioned the valuation of the company in a bid to have an equity committee formed.

During a hearing in Wilmington, Delaware, U.S. Bankruptcy Judge Kevin Gross confirmed the plan — which will see $1 billion in Magnum Hunter’s prepetition debt converted to equity in the reorganized company — after hearing testimony from both the debtors and an equity holder that was representing dozens of other similarly situated shareholders. Judge Gross overruled the group’s objections to the plan, saying that an equity committee wouldn’t be reasonable because the equity holders were too far out of the money in the case.

“We certainly understand and sympathize with [the equity holders] over the loss of value in this company,” debtors’ attorney Brenton Rogers of Kirkland & Ellis LLP said of the equity holders.

Rogers said that the questions over the valuation of the company stemmed from earnings reports and financial presentations made last summer and fall, and that the equity holders’ claims that Magnum Hunter intentionally undervalued itself in bankruptcy were “misguided.”

In an Aug. 7 earnings call and an October presentation, the company and its executives made forward-looking statements about the company’s business prospects that depended on several factors outside of the company’s control, Rogers said. The dramatic decline in oil and natural gas prices that have caused ripple effects industrywide impacted Magnum Hunter’s bottom line, and bids for the company’s stake in a joint venture were lower than anticipated.

Realizing that they would not recover anything in the proposed Chapter 11, the equity holders said that a Chapter 7 liquidation would be to their benefit, but saw problems with the value assigned to the company’s assets. They believe they had about $1.2 billion in equity claims against the company.

The equity holders argued that the $850 million valuation of Magnum Hunter’s assets determined by independent firm PJT Partners Inc. was too low. They especially thought that its interest in the venture with Eureka Hunter was low, citing comments made during the August earnings call. Judge Gross overruled that argument in denying their motion for the formation of an equity committee, finding that the assessments were right on the money.

“The movants argue that the interest in Eureka Hunter is artificially low. ... The court is satisfied that PJT’s valuation of $388 million accurately reflects the debtors’ interest in Eureka Hunter,” Judge Gross said.

Judge Gross also said that even if the $1.2 billion valuation were accurate, the priority of claims would mean that they would still finish out of the money and not recover anything after other creditors were paid.

Magnum Hunter was able to reach resolutions with other objecting parties, including reaching an agreement framework with Eureka Hunter in its bid to reject a gas gathering agreement that Judge Gross ruled would need to be decided through an adversary proceeding. A similar deal was reached on a midstream contract issue with Continuum Energy. The plan was approved by 90 percent of the company’s creditors holding 99 percent of the debt, according to debtors’ attorney Brian Schartz of Kirkland & Ellis LLP.

Judge Gross commended counsel for the debtors and the other parties involved in the case for working to reach consensual resolutions to the issues facing Magnum Hunter since its December petition date. He said that he was expecting a contested hearing on Monday, but was happy to see that the only unresolved objections were those of the equity holders.

“I read like crazy this weekend,” Judge Gross said. “I thought you might resolve things, but you can never be sure, so I had to be prepared. I think it’s remarkable all the work that went into this.”

Magnum Hunter filed for Chapter 11 protection in December, listing more than $1 billion in debt and blaming the worldwide drop in crude oil and natural gas prices for driving it into bankruptcy. The Chapter 11 plan confirmed on Monday will satisfy all secured claims, a $200 million debtor-in-possession loan and noteholder debt by converting it into equity in the reorganized company. Unsecured creditors will also see a significant recovery of up to 55 percent.

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 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.