The Chapter 11 plan of bankrupt oil and gas exploration firm EV Energy Partners LP received court approval Wednesday in Delaware when a bankruptcy judge overruled the opposition of some equity holders that alleged they were entitled to better recoveries.
At the culmination of a two-day confirmation trial, U.S. Bankruptcy Judge Christopher S. Sontchi said the allegations put forth by the equity holders in their objections to the proposed plan and in a motion seeking appointment of an examiner were not supported by the facts of the case.
"At the end of the day, there is no 'there' there in this case," Judge Sontchi said of the equity holders' claims that EV Energy worked with its parent company to strip the debtor of value, leaving the investors with a smaller recovery than they felt they were entitled to.
The court cited testimony from the debtor's chief financial officer, Nicholas Bobrowski, and disinterested director Daniel Churay that showed EV Energy's prepetition efforts to reach terms on a restructuring support agreement with its senior lenders were on the level.
"Mr. Bobrowski and Mr. Churay spoke to the factual background of the debtor's restructuring and, very importantly, the integrity and robustness of the corporate governance processes," Judge Sontchi said. "I think they established really quite conclusively that the debtors have acted completely consistent with their fiduciary duties to the equity holders throughout this process."
Under the plan, senior lenders will receive 95 percent of the equity of a reorganized company, while existing equity holders will receive the remaining 5 percent.
The equity holders argued that the 5 percent new equity recovery was based on a flawed valuation assessment by the debtor and its advisers, but the court found EV Energy's analysis was credible and found that existing equity was out of the money in the case. As a result, the 5 percent recovery was higher than the equity holders were entitled to, especially in light of the fact that unsecured creditors were not being paid in full in the plan, the court said.
"It would certainly be better if there was more value here for unsecured creditors as well as equity," Judge Sontchi said. "Based on the evidence I have, I'm sorry to say I don't believe they are [in the money] and they are fortunate to get the 5 percent they'll be getting."
EV Energy hit bankruptcy in early April, 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.
Debtor attorneys said the prepackaged plan received overwhelming support from creditors when the solicitation of votes began in March, including 100 percent of its secured creditors and 94 percent of its unsecured creditors.
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 equity holders are represented by Stuart M. Brown, Derrick B. Fowler, Kaitlin MacKenzie Edelman, Jason Daniel Angelo, Eric Goldberg and David M. Riley of DLA Piper 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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