Register, or Login to view the article
January 13, 2020 – Fresh off its addition to the Alta Mesa Resources Chapter 11 cases, former non-debtor Kingfisher Midstream, LLC and certain of its subsidiaries, (collectively, the “KFM Debtors”) filed a motion [Docket No. 817] requesting each of a bidding procedures order and a sales order. The bidding procedures order would approve (i) bidding procedures in relation to the sale of substantially all of the KFM Debtors’ assets (the “Sale”), (ii) the KFM Debtors' selection of BCE-Mach III LLC ("BCE-Mach," an affiliate of equity sponsor Bayou City Energy Management LLC) as a stalking horse with an $85.25mn bid and (iii) an expedited auction and sale process culminating in a January 15th auction and a January 21st sale hearing. The sale order would approve the Sale.
On January 12, 2020, each of the KFM Debtors filed for Chapter 11 protection the United States Bankruptcy Court for the Southern District of Texas. Concurrent with those filings, the KFM Debtors requested that their cases be jointly administered with those of Alta Mesa Resources (“AMR”), Alta Mesa Holdings, LP (“AMH”) and certain of their affiliated Debtors (together, the “Initial Debtors;” with the Initial Debtors and the KFM Debtors, the "Debtors"). The KFM Debtors have historically been a member of the AMR family of companies, deriving the majority of their revenue from the Initial Debtors as well as sharing a management team.
The goal of the Kingfisher Chapter 11 filings is to put the KFM Debtors in position to align a sale of KFM Assets with a process already in place in respect of the Debtors' AMH Assets (defined below) and to do so quickly. The KFM Debtors current motion states: "the KFM Debtors commenced these chapter 11 cases to swiftly implement a comprehensive restructuring through a joint sale (the ‘Joint Sale’) of substantially all of their assets (the ‘KFM Assets’), along with the assets of the Initial Debtors (the ‘AMH Assets’ and, together with the KFM Assets, the ‘Assets’), pursuant to section 363 of title 11 of the United States Code (the ‘Bankruptcy Code’)."
In hindsight, it seems pretty clear that the KFM Debtors present Chapter 11 cases should have been filed with those of the Initial Debtors back on September 11, 2019. The Initial Debtors, who operate an upstream oil and gas exploration and production business, concluded otherwise; ironically (given that they are now looking to maximize the value of the KFM Assets) looking to use Chapter 11 to shed "over-market" arrangements with their "midstream" colleagues at Kingfisher. At filing, the Initial Debtors stated that they "believe that the oil and gas gathering agreements [with Kingfisher] are substantially over-market…and intend to move to reject all three gathering agreements at the outset of these cases." From the outset, the Initial Debtors' strategic vision of separating upstream and midstream elements of the Debtors' business has come under attack, with the Debtors' Creditors' Committee recently belittling the "strange and tortured trajectory resulting from Alta Mesa Resource Inc.’s (‘AMR’) decision not to file Kingfisher Midstream LLC."
The Initial Debtors now appear to have had a change of heart. To wit, the Initial Debtors' CFO John Regan, who described the Kingfisher contracts as "over-market" in his Declaration in support of the Chapter 11 filings of the Initial Debtors, finds himself now espousing (as the Kingfisher CFO, drafting the Kingfisher Declaration) a Joint Sale.
The KFM Debtors' bidding procedures motion sums up the rationale behind the change in approach: "Following months of analysis and process…it…became became clear to the KFM Debtors and their advisors that any value-maximizing sale transaction would have to be implemented through a chapter 11 case, as potential buyers of the KFM Assets were requiring a ‘free and clear’ sale order and the proposed purchase prices would not provide sufficient value to pay the KFM Debtors’ secured debt in full….Further, most, if not all, of the parties that submitted LOIs communicated to the KFM Debtors and the KFM Debtors’ advisors that they were not willing to bid unless they were paired up with an upstream partner." What is unclear is who is responsible for the change in strategic vision; the Debtors' shared management, principal shareholders (including Riverstone Funds, see below) or professional advisors (the KFM Debtors and Initial Debtors have largely separate professional teams, with the notable exception of Perella Weinberg Partners LP who has advised throughout)?
Shortly after the Initial Debtors commenced their chapter 11 cases, they filed a motion seeking to sell substantially all of their assets (the “AMH Assets”) and, subject to the consent of Kingfisher, the assets of Kingfisher (the “KFM Assets”) and on October 11th, the Court hearing the Initial Debtors' cases entered a bidding procedures order in respect of the AMH Assets. Further to that order, on December 31st, the Initial Debtors agreed to sell substantially all of the AMH Assets to BCE-Mach. On the same day, Kingfisher selected BCE-Mach as the stalking horse bidder (the “Stalking Horse Bidder”) for the KFM Assets.
Although each of the proposed asset sales had separate asset purchase agreements (the "AMH Stalking Horse PSA" and "KFM Stalking Horse PSA," respectively), the two sales were largely interdependent, with the termination of one effectively terminating the other. On January 9, 2020, following an objection by the Initial Debtors’ Creditors' Committee [Docket No. 761], the proposed break-up fee and expense reimbursement enuring to BCE-Mach in the AMH Stalking Horse PSA was denied by the Court. This rejection constituted a termination event under the AMH Stalking Horse PSA, and by extension, the KFM Stalking Horse PSA.
Key Terms of KFM Stalking Horse PSA
- Seller: Kingfisher Midstream, LLC, Oklahoma Produced Water Solutions, LLC, Kingfisher STACK Oil Pipeline, LLC, and Cimarron Express Pipeline, LLC
- Buyer: BCE-Mach III LLC, an affiliate of Bayou City Energy Management LLC (an equity sponsor of the KFM Debtors)
- Purchase Price: The unadjusted purchase price for the Assets is $85.25mn subject to certain adjustments to give effect to a January 1, 2020 ownership effective time
- Deposit: 10% of the unadjusted purchase price, which has been funded by the Stalking Horse Bidder to a third-party escrow account
- Bid Protections:The Stalking Horse Bidder is entitled to payment of the Bid Protections, subject to the terms of and as provided for in the KFM Stalking Horse PSA, under certain circumstances where:
- the Stalking Horse Bidder is not the Successful Bidder (or the Backup Bidder) for the Assets and the Sale Transaction does not close by the Outside Termination Date;
- the KFM Debtors enter into a definitive agreement regarding a Highest or Best Proposal for the Assets and Buyer is not the Backup Bidder;
- the KFM Debtors enter into one or more agreements to sell, transfer or otherwise dispose of any material portion of the Assets having a fair market value in excess of $20.0mn with one or more Persons other than the Stalking Horse Bidder or the Successful Bidder at the Auction;
- the KFM Debtors withdraw or seek authority to withdraw the Sale Order at any time after the filing thereof, or announce any standalone plan of reorganization or liquidation, in each case, with respect to the Assets other than as set forth in the KFM Stalking Horse PSA; or (A) the AMH Stalking Horse PSA has been terminated by its terms or the transactions under the AMH Stalking Horse PSA do not close contemporaneously with, or prior to, Closing under the KFM Stalking Horse PSA, (B) “Seller” (as defined in the AMH Stalking Horse PSA) is not entitled to the “Deposit” (as defined in the AMH Stalking Horse PSA) pursuant to the terms of the AMH Stalking Horse PSA, and (C) Stalking Horse Bidder is entitled to the “Break-Up Fee and Expense Reimbursement” (as defined in the AMH Stalking Horse PSA) pursuant to the terms of the AMH Stalking Horse PSA; provided Stalking Horse Bidder’s right to the Bid Protections is subject to consummation of a Highest or Best Proposal with respect to the KFM Assets.
- Target Closing Date: February 12, 2020
The petition lists each of the below as holding at least 10% of Alta Mesa's common stock:
- Riverstone Funds
- High Mesa Holdings LLP
- HPS Investment Partners, LLC
- Bayou City Energy Management LLC
Proposed Key Dates:
- Auction: January 15, 2020
- Sale Objection Deadline: January 17, 2020
- Sale Hearing: January 21, 2020
Read more Bankruptcy News