A Delaware bankruptcy judge on Tuesday gave her nod to oil and gas producer Furie Operating Alaska LLC’s $15 million post-petition Chapter 11 financing while continuing to acknowledge that like some of Furie’s creditors, she had concerns about aspects of the financing.
During a lengthy hearing in Wilmington, U.S. Bankruptcy Judge Laurie Selber Silverstein said she continues to call into question about roughly $5 million of the debtor-in-possession funds set to be used to pay prepetition lender fees.
“I have concerns about the DIP financing,” Judge Silverstein said. “It has to do with the noneconomic terms of the financing.”
While no one is questioning the need for the financing to keep the company operating as a going concern in the Chapter 11 as a purchaser is sought, the judge took pause given objections raised by certain unsecured creditors.
“Not having a committee that can take a look at this financing is quite frankly not helpful,” Judge Silverstein said.
In Chapter 11 cases, official committees of unsecured creditors may be appointed to represent creditors’ interests and give them a voice at the bargaining table throughout the process. A committee was not assigned in Furie’s case given the nature of prepetition debt and the small unsecured creditor pool, according to comments made in court.
However, since Furie’s trip into Chapter 11 in August and continuing at Tuesday’s hearing, a small group of creditors have voiced displeasure with details of the DIP, including the amount of prepetition lender fees being paid, certain liens being included on avoidance actions and releases of potential claims against prepetition lenders.
Objecting creditors also told the judge they want to be provided money that would have been budgeted for use by the committee so they can investigate to see if they will lodge certain challenges in the Chapter 11.
The judge refused that request, saying she didn’t believe there was a basis per the bankruptcy code to do such. However, certain terms to address some of the creditors’ concerns will be worked into the final version of the financing order to be submitted to the court for approval, including a limitation on liens for avoidance actions, the judge said.
Furie and two affiliates retreated into bankruptcy after a multiyear run of operating troubles, cost overruns, credit agreement breaches and operating losses on its natural gas platform, which can produce from up to six wells. The business was additionally burdened by the state of Alaska's failure to fully fund a tax credit program for oil and gas producers in recent years, undercutting operators, including Furie, that borrowed against future receipts of the tax credit to finance their businesses.
The oil and gas producer hit Chapter 11 with about $450 million in debt and sale plans. The company’s debt includes $368 million owed on a secured term loan facility administered by private equity entity Energy Capital Partners Mezzanine Opportunities Fund, about $75 million owed on a tax credit term loan facility administered by ING Capital LLC, about $1 million in prepetition royalty obligations and $8 million in trade debt. ECP is administering the DIP.
At an initial hearing on the post-petition financing in August, Judge Silverstein also zeroed in on provisions to budget DIP funds for fees incurred by prepetition lenders for the drilling rig operator.
Attorney Leonard H. Simon of Pendergraft & Simon LLP, who represents an unsecured creditor and former officer with wage claims against Furie, according to court filings, argued on Tuesday that a group of three objecting unsecured creditors should be provided some “relief” in the case including receiving funds that would have gone to the committee.
The objecting creditors have not been privy to enough information about how the DIP funds are being used, Simon asserted. Also, while Furie is releasing certain potential claims and causes of action that the estate could pursue to bring in more value to be distributed to creditors, unsecured creditors likely stand to get nothing given that the amount of secured debt is expected to be far more than a sale of assets will bring in, he added.
Judge Silverstein said it is more difficult to address creditors’ concerns in this case because there is no committee to serve as a fiduciary to negotiate on their behalf.
Furie did broker an agreement Tuesday with DIP lenders, in response to concerns raised, to extend deadlines associated with the Chapter 11 sale. The sale hearing is now scheduled for November. A stalking horse offer has yet to be secured, but Furie has until later this month to declare one.
Furie operates “as an independent energy company primarily focused on the acquisition, exploration, production, and development of offshore oil and gas properties” in Alaska’s Cook Inlet region, a first-day declaration said.
Furie Operating Alaska LLC is represented by Matthew P. Ward and Ericka F. Johnson of Womble Bond Dickinson and Timothy W. Walsh, Darren Azman and Riley T. Orloff of McDermott Will & Emery LLP.
Energy Capital Partners Mezzanine Opportunities Fund A, LP is represented by Brett Michael Haywood and Mark D. Collins of Richards Layton & Finger PA and Chad J. Husnick and George Kildonas of Kirkland & Ellis LLP.
The case is In re: Furie Operating Alaska LLC et al., case number 1:19-bk-11781, in the U.S. Bankruptcy Court for the District of Delaware.