⛽️New Chapter 11 Bankruptcy Filing - White Star Petroleum Holdings LLC⛽️

White Star Petroleum Holdings LLC

May 28, 2019

Hey look. It’s Tuesday. It must be time for another oil and gas bankruptcy filing! White Star Petroleum Holdings LLC is the latest oil and gas company to make an oh-so-2015-like appearance in bankruptcy court. No need to knock your skull or check your watch: yes, it is very much 2019.*

The company, formerly known as American Energy — Woodford LLC, was originally formed in 2013 by American Energy Partners LP, a shared services platform founded by Aubrey McClendon, the eccentric wildcatter who plowed his life (literally) and billions of dollars of cash into the exploration and production business. In 2014, The Energy & Minerals Group LP (“EMG”) and other investors cut an equity check and, in this case, it didn’t take Mr. McClendon as long as usual to fail: by 2016, the company and its businesses were separated from American Energy to become White Star, a standalone company independent of the American Energy platform. Of course, in typical McClendon fashion, the company sprayed and prayed for a while prior to the transition, gobbling up Mississippian Lime and Woodford Shale assets along the way.

Which is not to say that, post separation/transition, the company just sat on its hands. In 2016 and thereafter, the company extended its shopping spree. First it acquired additional Mississippian Lime and Woodford Shale assets from Devon Production Company LP for approximately $200mm (funded in part by equity from ESG and borrowings under the company’s revolving credit facility). Then it acquired Lighthouse Oil and Gas LP (which was 49.4% minority owned by EMG, but whatevs) through a combination of equity and more borrowings under the credit facility. Finally, the company expanded its portfolio into the Sooner Trend Anadarko Canadian Kingfisher area with borrowings under its credit facility. If you’ve been paying attention, yes, E&P is a capital intensive business: there’s a reason why so many of these companies are levered up the wazoo.

What did that capital buy? “As of December 31, 2018, the Debtors had proved reserves of approximately 84.4 million barrels of oil equivalent (“boe”) across approximately 315,000 net leasehold acres….” But, to be sure, this is a company that focuses its exploration and production on “unconventional” resource plays. Said another way, it is a horizontal driller and hydraulic fracker: its assets tend to produce in high volume for two or so years and then tail off considerably requiring capital to acquire and develop a steady stream of new wells. Of course, an investment in new wells only works if the commodity environment permits it to. With oil and gas trading where it has been trading, well…suffice it to say…the environment is proving unaccommodating. Per the company:

“Despite controlling significant leasehold and mineral acreage in the MidContinent region, due to the declines in commodity prices in the fourth quarter of 2018 and the Debtors’ financial condition, the Debtors ceased drilling new wells in April 2019 and have not resumed such activities as of the Petition Date.”

Consequently, the company suffered a net loss of $114mm in 2018 after losing $14mm in 2017; it has negative working capital of $61mm as of 12/31/18 and $70mm as of the petition date. This sucker is burning cash.

The company’s capital structure looks as follows:

Source: First Day Declaration

Source: First Day Declaration

The current capital structure is the result of clear triage undertaken by the company in the midst of a severe commodity downturn. WE CANNOT EMPHASIZE THIS ENOUGH: nearly every oil and gas exploration and production company under the sun was forced into some sort of balance sheet transaction around the 2015 time period — many in-court, others out-of-court in an attempt to stave off bankruptcy. Here, notably, the $10.3mm of unsecured notes represent the remnants of a distressed exchange that took place in 2015 whereby approximately $340mm of unsecured notes (with a 9% cash-pay interest coupon) were exchanged for approximately $348mm 12% second lien notes. Thereafter, in late 2015 and extending through August 2016, the company entered into a series of cash and equity transactions that took out the second lien notes in a cash-draining attempt to strengthen the balance sheet and extend liquidity (by way of reduced interest expense)**. The company was effectively playing whack-a-mole.

Alas, the company is in bankruptcy. That happens when your primary sources of capital are large equity checks, borrowings under a credit facility, and proceeds from producing oil and gas properties in a rough price environment. Of course, not all oil and gas properties are created equal either. This company happens to frack in challenging territory. Per the company:

Independent oil and gas companies, such as the Debtors, with Mississippian Lime-weighted assets in the Mid-Continent region have been particularly hard-hit by volatile market conditions in recent years and the majority of the Debtors’ peers in the region have filed for chapter 11 since 2015. This is in large part due to operational challenges unique to the region, including complex geological characteristics. One of these challenges is the Mississippian Lime’s relatively high ratio of “saltwater” to produced oil and gas. During the normal production of oil and gas, saltwater mixed with hydrocarbon byproducts comes to the surface, and its separation and disposal increases production costs. Low production volumes and higher than expected production costs, together with allegations that increased saltwater injection by the operators in the area caused increased seismic activity, resulted in many operators reducing activity and many capital providers discounting asset values in the region.

Recognizing the dire nature of the situation, the company’s RBL lenders effectuated a debilitating borrowing base redetermination that created a deficiency payment that the company simply couldn’t manage. This triggered a “potential” Event of Default under the facility. Thereafter, the company entered into an amendment with the RBL lenders with the hope of securing some capital to refinance the RBL. Spoiler alert: the company couldn’t get it done. The amendment also dictated that the company attempt to secure a buyer so as to repay the debt. To chapter 11 filing is meant to aid that marketing and sale process.*** To aid this process, the company has a commitment from MUFG Union Bank NA, its prepetition RBL Agent, for a DIP credit facility of $28.5mm as well as the use of cash collateral.

*We’d be remiss if we didn’t highlight that in the “AlixPartners 14th Annual Turnaround & Restructuring Experts Survey” released in February 2019, oil and gas was listed as the second most likely sector to face distress, with 36% of respondents predicting it would be a hot and heavy sector (up from 31% the in 2018).

**The company also refinanced its RBL, sold midstream and non-strategic properties and adjusted midstream pipeline commitments.

***Some trigger happy creditors beat the company to the punch here. On May 24, five “purported” creditors filed an involuntary bankruptcy petition against the company in the Western District of Oklahoma. Considering Baker Hughes Oilfield Operations Inc. ($GE) is among the top 5 largest creditors, we can’t say we’re that surprised.

  • Jurisdiction: D. of Delaware (Judge )

  • Capital Structure: see above.

  • Professionals:

    • Legal: Sullivan & Cromwell LLP (Andrew Dietderich, Brian Glueckstein, Alexa Kranzley) & (local) Morris Nichols Arsht & Tunnel LLP (Derek Abbott, Gregory Werkheiser, Tamara Mann, Joseph Barsalona)

    • Independent Director: Patrick Bartels Jr.

    • Financial Advisor: Alvarez & Marsal LLC (Ed Mosley)

    • Investment Banker: Guggenheim Securities LLC

    • Claims Agent: KCC (*click on the link above for free docket access)

  • Other Parties in Interest:

    • RBL Agent: MUFG Union Bank NA

      • Legal: Winston & Strawn LLP (Justin Rawlins)

    • TL Agent: EnLink Oklahoma Processing LP

    • Indenture Trustee: Wilmington Trust NA

New Chapter 11 Filing - The Weinstein Company Holdings LLC

The Weinstein Company Holdings LLC

3/19/18

The good news is that the company believes that its total exposure to victims (and creditors) is limited to 999 people/entities and its liability exposure is capped at $1 billion - or at least that's what one could glean from the boxes that the company checked on its chapter 11 petition. 

TWC Chapter 11 Petition
TWC Chapter 11 Petition

TWC Chapter 11 Petition

Let's review what's "new" here without regurgitating everything the mainstream media has covered the last several months... 

The Weinstein Company's primary assets fall into three categories: (i) the film library, (ii) the television business, and (iii) the unreleased films portfolio. The library consists of 277 films and thanks to distribution rights sales internationally and to the likes of Netflix and broadcast/cable networks, generates ongoing cash flow. The television business includes the Project Runway franchise and other content like Peaky Blinders, Scream and Six. The latter unreleased portfolio includes five completed films (including Benedict Cumberbatch's "Current War") and other projects in various stages of development. 

The sale effort to a consortium of investors including Yucaipa, Lantern Asset Management and Maria Contreras-Sweet is well documented. As is the Attorney General of New York's complaint against the company. Neither are worth noting in detail here after months of incessant press coverage. Notably, however, Lantern Asset Management stuck with the process after its consortium partners dropped out, agreeing to become the stalking horse bidder for the assets pursuant to a proposed expedited sale process. Why expedited? In the company's words,

"It is an understatement to say that the last six months have been trying for the Company. Intense media scrutiny and various other factors have resulted in, among other things, the Company’s loss of goodwill with employees, contract counterparties, key talent and the entertainment industry at large. In order to preserve the going concern value of the Company’s Assets for the benefit of its stakeholders, the Debtors have determined that a sale of substantially all of their Assets is necessary. Further, the Debtors believe that time is of the essence and that effectuating any such sale as quickly as possible is necessary to maintain operations and preserve value for the benefit of the Debtors’ stakeholders."

Well, also, the company has no cash and the buyer is pushing for speed as a condition to its bid. Lantern has that luxury as the remaining bidder; it is offering $310 million and the assumption of certain project-level non-recourse indebtedness (read: the debt associated with individual projects). Moreover, the company has indicated that Lantern anticipates retaining "most of the Company's employees." That's good: something positive must come out of this for those who had nothing to do with Mr. Weinstein's behavior. Speed is needed, the company argues, to prevent more employees from leaving (25% have already left). 

Some other miscellaneous facts of note:

  1. Top Creditor. The number one creditor is a judgment creditor to the tune of $17.36 million.
  2. It's Hard Out There for a Pimp. Boies Schiller & Flexner LLC is listed twice in the top 25 creditors. Fresh on the heels of the Theranos fraud suit, this has not been a good week for David Boies and company. 
  3. Other Creditors. Other major creditors include Viacom International ($5.6 million), Sony Pictures Entertainment ($3.7 million), Creative Artist Agency ($1.49 million), and Disney ($1.13 million).
  4. It's Hard Out There for a Pimp Part II. Several law firms are listed in the top 25 creditors for accounts payable due and owing for professional services. Notably, O'Melveny & Myers LLP is listed at #10 and $3.1 million; it had long been rumored to be representing the company leading into the bankruptcy filing. This means, more likely than not, that Cravath was hired as an 11th hour replacement, leaving O'Melveny as a creditor. Also, Debevoise & Plimpton LLP has been left hanging after conducting the internal investigation of the charges against Mr. Weinstein. 
  5. The Cumberbatch. "Current War," the feature starring Benedict Cumberbatch is levered up by $7mm under a production-level loan agreement with East West Bank. Nothing unusual here: just a fun fact. We'll see if Cumberbatch's star power can raise this movie above the debt and the Weinstein taint. 
  6. Timing. To the extent any bidder wants to trump Lantern Asset Management, the deadline for bids is April 30 and an auction will occur on May 2 for court approval on May 4. 
  7. #FakeNews. The New York Times and the New Yorker both get credit for taking down Mr. Weinstein and for starting the #metoo movement and Time's Up campaign. 
  8. Ramifications. The company notes that the response to Mr. Weinstein's misconduct was fast and furious including (i) Apple ceasing plans for a 10-part Elvis biopic to be produced by TWC; (ii) Lin Manuel Miranda demanding that TWC release its rights to the movie adaptation of In the Heights, (iii) Amazon ditching TWC, cancelling plans for a David O'Russell series and dropped TWC as co-producer of a Matthew Weiner series; (iv) Channing Tatum halting development of a movie with the company, and (v) Quentin Tarantino seeking a different studio for his next and ninth film, the first time he would use a studio other than TWC. 
  9. Board of Directors. 5 members went running for the exits, including Paul Tudor Jones and Marc Lasry. 
  10. Lawsuits. TWC has been named in at least 9 civil actions by victims of Mr. Weinstein, including a broad federal class action, two civil actions by Mr. Weinstein himself, and 6 civil actions by contract counterparties. 

Lastly, it has been reported that any and all NDAs will be "lifted" and no longer apply. This means that those who aren't as financially able as, say, Uma Thurman and Saima Hayek, may now speak out with impunity. Hopefully this frees various women from the shackles of their memories. 

  • Jurisdiction: D. of Delaware (Judge Walrath)
  • Capital Structure: $156.4mm secured debt (ex-accrued and unpaid interest, MUFG Union Bank NA), $15.6mm junior secured debt (UnionBanCal Equities Inc.), $18.1mm secured term loan (Bank of America NA), $45.4mm secured industries debt (AI International Holdings BVI Ltd.), $42.5mm secured production facility (MUFG Union Bank NA), $57.2mm of production level debt (including Spy Kids and Current War), $8.3mm secured debt (Viacom Media Networks)

  • Company Professionals:
    • Legal: Cravath Swaine & Moore LLP (Paul Zumbro, George Zobitz, Karin DeMasi) & (local) Richards Layton & Finger PA (Mark Collins, Paul Heath, Zachary Shapiro, Brett Haywood, David Queroli)
    • Restructuring Advisor/CRO: FTI Consulting (Robert Del Genio, Luke Schaeffer, Michael Healy, Thomas Ackerman)
    • Investment Banker: Moelis & Company LLC
    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Stalking Horse Bidder: Lantern Asset Management
      • Legal: Akin Gump Strauss Hauer & Feld LLP (Stephen Kuhn, Meredith Lahaie) & (local) Pepper Hamilton LLP (David Stratton, David Fournier) 
    • DIP Agent ($25mm): MUFG Union Bank NA (11% minimum)
      • Legal: Sidley Austin LLP (Jennifer Hagle) & (local) Young Conaway Stargatt & Taylor LLP (Robert Brady)
    • Official Committee of Unsecured Creditors
      • Legal: Pachulski Stang Ziehl & Jones LLP (James Stang, Debra Grassgreen, Robert Feinstein, Bradford Sandler)

Updated 3/30/18