August 23, 2019
Texas-based KP Engineering LP and an affiliated debtor filed for bankruptcy in the Southern District of Texas. The debtors are “in the business of designing and executing customized engineering, procurement, and construction (“EPC”) projects for the refining, midstream, and chemical industries.” Said another way, the debtors contract to serve as a general contractor for their clients, functioning as project manager overseeing subcontractors during the development and completion of facilities for clients. One thing about this kind of business: particularly when you have over $68mm of debt, your contracts have to be economical and your clients have to like you. It seems that the debtors fail on both counts.
In January 2017, the debtors entered into an EPC contract with Targa Pipeline Mid-Continent WestTex LLC (a subsidiary of Targa Resources Corp. ($TRGP)) to design, procure equipment for and construct a 200mm cubic feet per day gas cryogenic processing plant. The plant is complete and now operational. Unfortunately for the debtors, however, they “sustained a significant economic loss.” Solid job, guys! At least it helped them get additional work from Targa…
…that Targa then fired them from and are now suing over.
In August 2017, the debtors entered into an EPC for a second plant with Targa but prior to full completion, Targa allegedly stopped paying which had the cascading effect of limiting the debtors’ ability to pay its subcontractors. Earlier this month, Targa terminated the EPC agreement and booted the debtors from the job site. Now subcontractors and Targa are suing the debtors for, among other things, lack of payment. The debtors indicate that the litigation forced the debtors into bankruptcy.
So, what now? It’s unclear. The debtors have a $4mm DIP commitment but the papers don’t make it clear where the debtors intend to go from here. Curiously, the debtors provide this hanging explanation for why they’re in chapter 11:
The Debtors face a number of risks to their business. The landscape surrounding the EPC contractor market is competitive, highly technical, and fast-changing. The Debtors face risks related to a changing environment in which technological advancement is altering their core business. An inability to innovate could be detrimental to the future of the Debtors. However, the Debtors’ present innovation has been the cornerstone of its success to date.
We get some of this. We suppose the first plant was uneconomical because fierce competition affected bidding. But what is the rest of this trying to say? What tech advancement are the debtors referring to? What innovation? Are there competitors founded by Jeff Bezos? We mean, WTF? It’s almost like management here forgot for a second that the debtors aren’t a public company and, therefore, there’s no need to throw out buzzwords.
Whatever. Good luck with bankruptcy, you crazy cowboys.
Jurisdiction: S.D. of Texas (Judge Jones)
Capital Structure: $68mm of total debt
Legal: Hunton Andrews Kurth LLP (Jennifer Wuebker, Greg Hesse, Edward Clarkson, Justin Paget) & Okin Adams LLP (Christopher Adams)
Financial Advisor/CRO: Claro Group LLC (Douglas Brickley)
Claims Agent: Omni Management Group (*click on the link above for free docket access)
Other Parties in Interest:
Prepetition Lender: Texas Capital Bank
DIP Lender ($4mm): BTS Enterprises Inc.