Bankrupt oil and gas producer EV Energy Partners LP received court approval Wednesday in Delaware for a quick Chapter 11 process that will see unsecured noteholders convert their debt for most of the equity of the reorganized company.
During a first-day hearing in Wilmington, debtor attorney Joshua A. Sussberg of Kirkland & Ellis LLP told the court that EV Energy was well-positioned after the energy commodity market entered a sustained downturn several years ago and has avoided bankruptcy up to this point because of the diligent efforts of its managers.
“This company, I think, really did something that was important and took an incredibly proactive approach rather than wait and see what would happen and hope and pray that prices would rebound,” Sussberg said.
Last year, the debtor’s management engaged in discussions with its lenders and unsecured noteholders on strategic options available to the company. These talks resulted in the execution of a restructuring support agreement last month in which 94 percent of secured lenders and 70 percent of unsecured noteholders agreed to support EV Energy’s prepackaged Chapter 11 plan.
Under the proposed plan, all $343 million of unsecured notes will be converted to 95 percent of the equity of the debtor, Sussberg said, while existing equityholders would receive the remaining chunk of new equity. A $297 million reserve-based lending facility will ride through the bankruptcy with some modifications, he said.
Milestones in the RSA call for confirmation of the plan within 45 days of the filing of its petition, and U.S. Bankruptcy Judge Christopher S. Sontchi scheduled a combined disclosure statement and confirmation hearing for May 15.
EV Energy is a publicly held partnership formed in 2006 with affiliate ties to EnerVest Ltd. The company owns oil and natural gas properties in the Barnett Shale, the San Juan Basin, the Appalachian Basin, Michigan, Central Texas and other areas in Oklahoma, Texas, Arkansas, Kansas and Louisiana.
According to Sussberg, the company has aggregate interests in 21,500 wells in its nine areas of operation where it focuses on underperforming well sites. EV Energy has proven reserves of more than 12 million barrels of oil and more than 575 billion cubic feet of natural gas. It also has proven reserves of more than 33 million barrels of natural gas liquids, Sussberg said.
The company hit bankruptcy Monday after several years of depressed oil and gas prices led to a precipitous decline in revenue in 2015 and 2016. Though prices rebounded last year, EV Energy did not see a return to prior years’ cash flow sufficient to maintain its obligations under its secured credit facility and its unsecured notes, the company said in court filings.
Sussberg said the prepackaged plan has received overwhelming support from creditors since the solicitation of votes began last month, including 100 percent of its secured creditors and 94 percent of its unsecured creditors. In addition to the noteholders swapping their debt for the bulk of the new equity, other unsecured claims will be paid in full under the plan.
The case will be funded through the use of its secured lenders’ cash collateral, and a final hearing on that relief and other first-day motions approved on an interim basis is set for April 27.
The debtors are represented by Laura Davis Jones of Pachulski Stang Ziehl & Jones LLP and by Joshua A. Sussberg, Jeremy Evans, James H.M. Sprayregen, Brad Weiland and Travis M. Bayer of Kirkland & Ellis LLP.
The case is In re: EV Energy Partners LP et al., case number 18-10814, in the U.S. Bankruptcy Court for the District of Delaware.
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