JP Morgan Chase Bank NA, the first-lien creditor agent for bankrupt Samson Resources Corp., blasted a bid by the unsecured creditors committee to launch derivative claims and challenges to secured lenders’ liens, arguing the issue is being improperly used as a sword to gain leverage and an “unjustifiable” windfall.
In an objection before the Delaware bankruptcy court, JP Morgan argued that committee allegations centering on the energy company's $8 billion leveraged buyout in 2011 are not only implausible but their success wouldn’t bring new value to the debtor’s estate, only reallocate who gets what recovery.
“Because the only creditors that would be entitled to realize the benefits of a successful fraudulent transfer action would be at most a small percentage of the committee’s constituency, nothing asserted justifies the risk, time, and massive expense to the estates of any committee-sanctioned litigation at this time,” the objection states. “Given that the litigation expense primarily would affect the recoveries of other constituents, it is unsurprising that the committee is willing to gamble with estate funds in the hopes of reaping an unearned, unexpected and unjustifiable windfall for its out-of-the-money bondholder constituents that invested in the debtors on the heels of the very same set of transactions the committee now claims left the debtors hopelessly insolvent.”
The issue stems from a motion the committee filed in August seeking derivative standing to assert causes of action and lien challenges with a value unsecured creditors say could exceed $1 billion. The motion concerns Samson's leveraged buyout from the founding Schusterman family in 2011, led by Kohlberg Kravis Roberts & Co. LP affiliates and investors Crestview Partners, Itochu Corp. and Natural Gas Partners, as well as more debt the company had to take on just nine months later.
The committee claims that Samson kept giving up interests in assets for loans that were beyond its ability to pay and to execute business plans that were “doomed” from the start.
Samson gave up its ability to pursue those claims in exchange for several deals granting it access to cash collateral to fund its case, and now would not be able to settle the claims with secured lenders on equal footing, the committee argues.
But JP Morgan, who would be one of the committee’s targets if the litigation were to go forward, argues the committee’s claims don’t make sense, especially related to the leveraged buyout.
The committee is assuming that “a wide assortment of Wall Street’s most sophisticated financial parties” completely misunderstood Samson’s financial underpinnings when putting billions of their own dollars at risk, and ignoring the effect of the largest drop in energy commodity prices in decades that occurred a few years later, JP Morgan said in court papers.
“The committee’s assertion is unsustainable on its face and the court should therefore deny the committee’s motion for derivative standing,” JP Morgan said.
What’s more, many of the committee’s constituents participated in the transactions at issue and would thus be barred from realizing the benefits of any litigation, the bank said.
The dispute comes about two weeks after Samson floated a revised Chapter 11 plan that has sparked intense conflict. The case had been in something of a holding pattern since the restructuring support agreement Samson had entered bankruptcy with fell apart last fall, a victim of the continuing uncertainty in the energy market.
An attorney for the unsecured creditors committee called the new restructuring strategy, which would hand over control of the company to second-lien lenders and raise money through a stalking horse sale, a “declaration of war” that wipes away any chance of lien challenges and puts unsecured creditors on the short end of the equation.
The committee had been trying to wrest control of the case from Samson and propose its own Chapter 11 plan, but so far has not gotten a go-ahead from the bankruptcy court.
Attorneys for the committee did not immediately respond to requests for comment Tuesday.
Samson, which operates or has royalty or working interests in about 8,700 oil and gas wells, filed for Chapter 11 protection in September 2015, in part because of the same bearish forces in the energy commodity market that have sent many of its peers flocking into bankruptcy court.
The company listed more than $4 billion in debt, including a $942 million first-lien revolving credit facility, $1 billion in second-lien term notes and more than $2 billion in senior unsecured notes, and the 2011 leveraged buyout faced scrutiny almost immediately upon the filing.
JP Morgan is represented by Jeffrey M. Schlerf, L. John Bird and Courtney A. Emerson of Fox Rothschild LLP and by Sean T. Scott, Aaron Gavant, Tyler R. Ferguson, Charles S. Kelley and Michael P. Lennon Jr. of Mayer Brown LLP.
The committee is represented by Joseph J. Farnan Jr., Joseph J. Farnan III and Michael J. Farnan of Farnan LLP and by Thomas E. Lauria, Glenn M. Kurtz, J. Christopher Shore, Michele J. Meises and Thomas MacWright of White & Case LLP.
Samson is represented by James Sprayregen, Paul Basta, Edward Sassower, Ross Kwasteniet, Brad Weiland, Yosef Riemer and Joshua Sussberg of Kirkland & Ellis LLP and by Morton Branzburg of Klehr Harrison Harvey Branzburg 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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