Altera Infrastructure L.P. – Following Noteholder Settlement, Court Approves Disclosure Statement and Solicitation/Voting Procedures; Schedules November 4th Combined Hearing

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October 7, 2022 – The Court hearing the Altera Infrastructure cases issued an order approving: (i) the Debtors’ Third Amended Disclosure Statement (conditionally), (ii) proposed Plan solicitation and voting procedures and (iii) a proposed timetable culminating in a November 14th combined hearing [Docket No. 417].

The Disclosure Statement Order attaches the Debtors' Third Amended Disclosure Statement at Schedule 1 (p.11) with Second Amended Plan attached as Exhibit A (p.117) (no redlines filed). 

The Disclosure Statement as approved contains substantial revisions to reflect a breakthrough settlement with the Ad Hoc Noteholders Group (holding more than 70% of the approximately $276.0mn of the Debtors' unsecured notes) following successful mediation led by Judge David R Jones, with the key drafting changes reflected in a redline filed on October 5th noting amendments from the version filed on September 1st [Docket No. 312].

In addition to now attaching a Liquidation Analysis (Exhibit E, see also below), Financial Projections (Exhibit F) and a Valuation Analysis (Exhibit G), the Disclosure Statement now also attaches the Noteholder Plan Support Agreement (Exhibit H) and the UCC Support Letter (Exhibit I).

The latter, noting a "substantial increase in the distribution to Class 8 creditors" now recommends that holders in that class vote in favor of the Plan. Summing up as to the mediation and the revised distribution/recovery for Class 8, the UCC provides: "The mediation was successful. After extensive negotiations, a global settlement was reached that provides that holders of claims in Class 8 of the Plan, i.e., Altera Unsecured Notes Claims and other General Unsecured Claims against Altera Parent and Altera Finance Corp., receive (i) a pro rata share of thirteen percent (13%) of new common equity (the 'New Common Stock') in Altera Parent, after it is reorganized through the Plan, and (ii) certain minority equity holder protections, as described in the Plan. The Committee believes that this resolution represents a significant improvement over the initially-proposed Plan treatment of Class 8 creditors, which were slated to receive 5-year warrants convertible into a portion of 7.6% of New Common Stock (the 'New Warrants'). The Committee believed that the New Warrants, as initially proposed by the Debtors, held little or no value for Class 8 unsecured creditors."

UPDATE: On October 11th, the Debtors filed solicitation versions of their Second Amended Plan of Reorganization and a related Third Amended Disclosure Statement [Docket Nos. 440 and 441, respectively].

Plan Overview (Reflecting Settlement)

The Third Amended Disclosure Statement [Docket No. 417] provides, “On August 12, 2022, the Debtors, Brookfield, and certain of the Bank Lenders entered into the restructuring support agreement (the ‘Restructuring Support Agreement’). After taking into account all joinder agreements to the Restructuring Support Agreement (collectively, the ‘Joinders’) executed after the cases commenced, the Restructuring Support Agreement now enjoys the support of holders of 80% of the Debtors’ prepetition funded debt obligations, including approximately 91% of the debt held by certain holders (and export credit agencies) of the Debtors’ asset-level bank loans (the ‘Consenting Bank Lenders’) and Brookfield, in its capacity as the holder of 100% of the IntermediateCo Obligations and equity sponsor.

The Restructuring Support Agreement embodied a resolution of certain complex issues in these Chapter 11 Cases and was incorporated into the Joint Chapter 11 Plan of Reorganization of Altera Infrastructure L.P. and Its Debtor Affiliates [Docket No. 183] (the ‘Initial Plan’).

Under the terms of the Restructuring Support Agreement, which are embodied in the Plan, the Debtors will re-profile the obligations under the Bank Facilities to better match anticipated vessel-level cash flows, achieve an overall deleveraging through the equitization of more than $1 billion in junior debt obligations (including the IntermediateCo Obligations and the Altera Parent Unsecured Notes), and eliminate Altera Parent’s preferred and common equity. The Restructuring Support Agreement not only comprehensively re-profiles debt service on the Debtors’ obligations under the Bank Facilities, but also includes agreements from certain of the Consenting Bank Lenders and Brookfield to provide Altera’s portion of the new money financing needed to upgrade the Knarr FPSO.

Prior to the Petition Date, the Debtors also commenced negotiations in May 2022 with an ad hoc group (the ‘Noteholder Ad Hoc Group’) holding more than 70% of the approximately $276 million of Altera Unsecured Notes outstanding. After executing a confidentiality agreement and sharing key diligence with the Noteholder Ad Hoc Group, the Debtors initiated discussions with the Noteholder Ad Hoc Group concerning a potential restructuring transaction. Following the execution of the Restructuring Support Agreement and filing of the Initial Plan, the Debtors continued to engage the Noteholder Ad Hoc Group and the newly appointed Official Committee of Unsecured Creditors (the ‘UCC’) to build greater consensus for the restructuring.

On September 19, 2022, the Debtors, along with Brookfield and the UCC, filed, and the Bankruptcy Court entered, the Joint Stipulation and Agreed Order Appointing a Mediator and Governing Mediation Procedures [Docket No. 247] (the ‘Mediation Order’), appointing the Honorable Chief Judge David R. Jones as a mediator (the ‘Mediator’) in the Chapter 11 Cases in an attempt to negotiate a consensual resolution of certain issues and disputes relating to the Plan, the Final DIP Order, and the relief requested in the 9019 Motion (the mediation process described herein, the ‘Mediation’). The in-person Mediation, which was attended by representatives from each of the Debtors, Brookfield, the UCC, the Noteholder Ad Hoc Group, and the CoCom, commenced on September 28, 2022 and continued for almost 72 hours. With the guidance of the Mediator, the hard-fought negotiations culminated in agreement among the Debtors, Brookfield, and the Consenting Noteholders (such resolution, the ‘Noteholder Settlement’). The terms of the Noteholder Settlement are Acceptable Noteholder Settlement Terms under the Restructuring Support Agreement.

Under the terms of the Noteholder Settlement, which are embodied in the Noteholder Plan Support Agreement and the Plan, the holders of Altera Unsecured Notes Claims will receive their pro rata share of (a) 13% of the New Common Stock, subject to dilution on account of the Management Incentive Plan, the New Warrants, and the Rights Offering and (b) subscription rights to participate in $[12.55] million of the New Common Stock offered as part of the Rights Offering. Holders of IntermediateCo Notes Claims will receive their pro rata share of (x) 87% of the New Common Stock, subject to dilution on account of the Management Incentive Plan, the New Warrants, and the Rights Offering, and (y) 100% of the New GP Common Stock. Additionally, holders of DIP Claims will receive their pro rata share of subscription rights to participate in up to $[71.81] million of the New Common Stock offered as part of the Rights Offering, and holders of IntermediateCo RCF Claims will receive their pro rata share of subscription rights to participate in up to $[12.15] million of the New Common Stock offered as part of the Rights Offering.

On the Effective Date, the Debtors will consummate the Rights Offering, which will be a rights offering for New Common Stock in an aggregate amount up to $96.51 million. The proceeds of the Rights Offering shall be used first to pay in full in cash Allowed DIP Claims, and then to pay in full in cash Allowed IntermediateCo RCF Claims, and then by the Debtors to pay other emergence costs and for general corporate purposes. The New Common Stock purchased pursuant to the Rights Offering shall be at a 40% discount to settlement plan equity value of $363 million. In lieu of cash, Brookfield may exercise any Rights Offering subscription rights received on account of its Allowed DIP Claims and Allowed IntermediateCo RCF Claims by contributing or otherwise exchanging such Allowed DIP Claims and/or Allowed IntermediateCo RCF Claims in an equal amount. The portion of the Rights Offering available to holders of Altera Unsecured Notes Claims and other General Unsecured Claims at Altera and Altera Finance Corp. will not be backstopped and there will be no oversubscription rights for any such holders related to any such subscription rights.

The Noteholder Settlement represents a global compromise of all issues that could have cast uncertainty over the Debtors’ restructuring process, following days of Mediation, weeks of discovery, multiple depositions of the Debtors’ management team and advisors, and a threat of a contested Confirmation Hearing, among other litigation. The Noteholder Settlement avoids further protracted and expensive litigation related to the DIP Facility and Confirmation of the Plan, given the overwhelming support of the Plan among the Noteholders, Brookfield, and the Bank Lenders.

The Plan, which embodies both the Restructuring Support Agreement and Noteholder Plan Support Agreement, contemplates the following:

  • Brookfield providing a $50 million new-money debtor-in-possession financing facility on a junior basis relative to the claims and liens of the Bank Lenders (together with the proposed roll-up of a portion of the IntermediateCo RCF, the ‘DIP Facility’) to fund these Chapter 11 Cases;
  • Brookfield will receive its pro rata share of subscription rights to participate in up to $[71.81] and $[12.15] million of the New Common Stock offered as part of the Rights Offering on account of its DIP Claims and IntermediateCo RCF Claims, respectively;
  • Brookfield also will equitize all outstanding IntermediateCo Notes Claims in return for 87% of the common equity in reorganized Altera Parent, subject to dilution on account of the Management Incentive Plan, the New Warrants, and the Rights Offering, as well as 100% of the common equity in Reorganized Altera GP;
  • the Consenting Bank Lenders will agree to a comprehensive re-profiling of the Bank Facilities, including maturity extensions, interest and amortization relief, and other covenant relief, and will agree to the satisfaction of their Altera Parent guarantees in exchange for warrants to acquire their pro rata share of 5% of the new common stock of Reorganized Altera Parent (the ‘New Warrants’ ), subject to dilution on account of the Management Incentive Plan;
  • the Consenting Bank Lenders agreeing to the Debtors’ consensual use of their cash collateral;
  • a corporate reorganization, the result of which will be a ‘siloed’ FFTA structure providing for certain cross-guarantees to the Bank Lenders and direct ownership by reorganized Altera Parent of the Shuttle Tankers business and FPSO joint ventures;
  • certain of the Consenting Bank Lenders and Brookfield will agree to provide commitments for an approximately $183 million new money financing facility to fund the Debtors’ portion of the financing of the Knarr FPSO upgrade costs under the Knarr Contract;
  • the Consenting Noteholders agreeing to the equitization of Altera Unsecured Notes in exchange for their pro rata share (together with recoveries to other General Unsecured Claims at Altera and Altera Finance Corp.) of (a) 13% of the New Common Stock, subject to dilution on account of the Management Incentive Plan, the New Warrants, and the Rights Offering, and (b) subscription rights to participate in up to $[12.55] million of the New Common Stock offered as part of the Rights Offering;
  • General Unsecured Claims at subsidiary Debtors, trade and contract claims, and administrative and priority claims will generally be paid in full in Cash in the ordinary course of business; and
  • all existing common and preferred equity in Altera Parent will be canceled without any distribution.”

The following is an updated summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement also see Liquidation Analysis below):

  • Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $935k and economic recovery is 100%.
  • Class 3 (“IntermediateCo Notes Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $957.1mn and economic recovery is 19.5%. Each Holder will receive its Pro Rata share of the IntermediateCo New Common Stock Distribution, subject to dilution on account of the New Warrants, the Rights Offering, and the Management Incentive Plan.
  • Class 4 (“IntermediateCo RCF Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $12.2mn and economic recovery is 100%. Each Holder will receive Pro Rata share of (i) Cash payments from proceeds of the Rights Offering and (ii) subscription rights to participate in up to $[12.15] million of the New Common Stock offered in the Rights Offering in accordance with the Rights Offering Procedures. In lieu of Cash, holders of IntermediateCo RCF Claims may exercise any Rights Offering subscription rights received on account of their IntermediateCo RCF Claims by contributing or otherwise exchanging such IntermediateCo RCF Claims in an equal amount.
  • Class 5(a)–(g) (“Credit Agreement Claims Against Subsidiary Debtors”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $555.0mn and economic recovery is reprofiling of the applicable Prepetition Credit Agreements on the terms set forth in the Restructuring Support Agreement and described herein. Each Holder will receive:(i) To the extent the applicable holders of Credit Agreement Claims in Classes 5(a)-(g) vote as a class to accept the Plan, the holders of Claims in such accepting class shall retain the liens on the collateral securing such claims and receive treatment as provided for in the Bank Term Sheet. (ii) To the extent the applicable holders of Credit Agreement Claims in Classes 5(a)-(g) vote as a class to reject the Plan, with respect to such rejecting class, return of any collateral securing such Allowed Credit Agreement Claims or treatment otherwise in compliance with section 1129(b)(2)(A) of the Bankruptcy Code.
  • Class 6(a)–(g) (“Credit Agreement Claims Against Altera”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $555.0mn and economic recovery is <1.0%. Each Holder will receive its Pro Rata share (calculated by reference to the aggregate amount of Credit Agreement Claims against Altera and IntermediateCo Guarantee Claims) of the New Warrants, subject to dilution on account of the Management Incentive Plan; provided that to the extent the holders of Credit Agreement Claims against Altera in Classes 6(a)-(g) vote as a Class to accept the Plan, the Pro Rata share of New Warrants to be received by such Class shall be calculated by reference to the aggregate amount of Credit Agreement Claims against Altera only.
  • Class 7 (“IntermediateCo Guarantee Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $969.3mn and economic recovery is 0.0% to < 1.0%. Each Holder will receive its Pro Rata share (calculated by reference to the aggregate amount of Credit Agreement Claims against Altera and IntermediateCo Guarantee Claims) of the New Warrants, subject to dilution on account of the Management Incentive Plan; provided that such holder shall waive its entitlement to its Pro Rata share (calculated as the aggregate amount of Credit Agreement Claims against Altera in accepting Classes divided by Credit Agreement Claims against Altera in all Classes) of any such New Warrants to the extent any or all of Classes 6(a)–(g) vote to accept the Plan (without altering the amount of New Warrants otherwise allocable to such Classes).
  • Class 8 (“Altera Unsecured Notes Claims and other General Unsecured Claims at Altera and Altera Finance Corp”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $289.2mn and economic recovery is 12.5%. Each Holder not otherwise included in Classes 6(a)–(g) or Class 7 shall receive its Pro Rata share of (i) 13% of the New Common Stock, subject to dilution on account of the Management Incentive Plan, the New Warrants, and the Rights Offering and (ii) subscription rights to participate (or to designate its affiliate to participate) in up to $[12.55] million of the New Common Stock offered in the Rights Offering in accordance with the Rights Offering Procedures.
  • Class 9 (“General Unsecured Claims at Debtors other than Altera and Altera Finance Corp”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claim is $5.6mn and economic recovery is 100%.
  • Class 10 (“Intercompany Claims”) is impaired/unimpaired, deemed to accept/reject and not entitled to vote on the Plan.
  • Class 11 (“Intercompany Interests”) is impaired/unimpaired, deemed to accept/reject and not entitled to vote on the Plan.
  • Class 12 (“Existing Preferred Interests in Altera”) is impaired, deemed to reject and not entitled to vote on the Plan.
  • Class 13 (“Existing Common Equity Interests in Altera and Altera GP”) is impaired, deemed to reject and not entitled to vote on the Plan.
  • Class 14 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.

Key Documents

The Disclosure Statement [Docket No. 417] attaches the following exhibits:

  • Exhibit A: Plan of Reorganization
  • Exhibit B: Restructuring Support Agreement
  • Exhibit C: Corporate Organization Chart
  • Exhibit D: Disclosure Statement Order (filed separately)
  • Exhibit E: Liquidation Analysis
  • Exhibit F: Financial Projections
  • Exhibit G: Valuation Analysis
  • Exhibit H: Noteholder Plan Support Agreement
  • Exhibit I: UCC Support Letter

Approved Key Dates

  • Solicitation Deadline: October 12, 2022
  • Publication Deadline: October 14, 2022
  • Plan Supplement Deadline: October 25, 2022
  • Voting Deadline: November 1, 2022
  • Plan and Disclosure Statement Objection Deadline: November 1, 2022
  • Combined Hearing: November 4, 2022

Petition Date Perspective

On August 12, 2022, Altera Infrastructure L.P. and 37 affiliated debtors (f/k/a “Teekay Offshore Partners L.P.,” and together “Altera*” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case No. 22-90130 (Judge Isgur). At filing, the Debtors, “a global energy infrastructure services partnership primarily focused on the ownership and operation of critical infrastructure assets in the offshore oil regions of the North Sea, Brazil and the East Coast of Canada,” noted estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn ($1.6bn of funded debt, see table below).

*Altera’s preferred units trade on the New York Stock Exchange under the symbols “ALIN PR A”, “ALIN PR B” and “ALIN PR E”, respectively. The Debtors are controlled by Brookfield Asset Management, which purchased what was then known as Teekay Offshore in January 2020 and rebranded the acquired business as Altera.

In a press release announcing their Q2 2022 results, the Debtors reported revenues of $296.2mn and net loss of $40.0mn, or $(0.11) per common unit, for that quarter. The Aberdeen, Scotland-based Debtors also noted that they had opted not to make a July 15th interest payment on their 8.50% senior unsecured bonds ($276.0mn principal, maturing in July 2023) with a 30-day grace period in respect of the missed payment expiring on August 14th.

In a 6-K filed in respect of Q1 2022, the Debtors had earlier commented as to their liquidity and going concern prospects: “As at March 31, 2022, the Partnership had a working capital deficit of $381.3 million. The Partnership’s working capital deficit has increased from $276.4 million as at December 31, 2021, primarily due to a $165.6 million increase in scheduled maturities and repayments of outstanding borrowings during the 12 months ending March 31, 2023, which were classified as current as at March 31, 2022, partially offset by a $59.0 million decrease in accounts payable and other.

During 2021, the Partnership completed various measures to improve its debt maturity profile and enhance its liquidity and financial flexibility, including but not limited to exchanging $769.3 million of Brookfield debt with 2022 to 2024 maturities into debt with interest paid in kind and with a 2026 maturity, discontinuing distributions on the Series A, Series B and Series E Preferred Units, issuing $180.0 million of new 2025 bonds in the shuttle tanker segment and refinancing the Petrojarl I FPSO unit. See Notes 10, 11 and 15 for additional information. While these measures improved the Partnership’s liquidity position, the Partnership continues to explore its liquidity management opportunities and seek to improve and extend its debt profile….it is still critical that the Partnership will need to obtain additional sources of financing…”

Goals of the Chapter 11 Filings

The Steinsland Declaration (defined below) provides: “Through these chapter 11 cases, the Debtors seek to re-profile the obligations under the Bank Facilities to better match anticipated vessel-level cash flows, achieve an overall deleveraging through the equitization of more than $1 billion in junior debt obligations (comprised of the IntermediateCo Obligations and the Altera Parent Unsecured Notes), and eliminate Altera Parent’s preferred and common equity.

…the Debtors have been proactive over the course of this year in approaching the holders of their funded debt obligations regarding a balance sheet restructuring, initiating negotiations with their secured bank lenders and Brookfield Business Partners L.P. (together with certain of its affiliates and certain of its and their respective managed funds and accounts, collectively, ‘Brookfield’) in its capacity as both secured lender and equity sponsor. After many months, these negotiations have proven successful. The Debtors have been able to achieve consensus with a diverse group of stakeholders and enter chapter 11 with the broad support necessary to efficiently implement a comprehensive balance sheet restructuring that will position them well for success in the future. While a group of unsecured noteholders does not presently support the restructuring, the Debtors intend to continue negotiations with them during chapter 11 to try to build additional consensus.”

Events Leading to the Chapter 11 Filings

In a declaration in support of first day filings (the “Steinsland Declaration), Jan Rune Steinsland, the Chief Financial Officer of Altera Infrastructure Group Ltd. (“AIGL”), a non-debtor subsidiary of Altera Infrastructure L.P. (“Altera Parent”), provides: “Altera has recently faced declining revenues as a result of market headwinds, contract expirations, and the aging of its fleet, which has necessitated the recycling or sale of certain older vessels. These challenges have been exacerbated by significant payment obligations due under various interest-rate swap arrangements. While the recent rise in energy prices has helped, Altera’s ability to capture that upside is limited by the terms of its existing contracts and the fact that re-contracting its most significant assets requires substantial lead time and investment.

This has resulted in a mismatch between operating cash flows and the cost of the Debtors’ ongoing debt service. Cash flows currently generated from the FFTA assets are not sufficient to support the funded debt obligations.”

Prepetition Indebtedness

As of the Petition date, the Debtors were liable for approximately $1.6bn in aggregate principal amount of funded debt obligations, and, through Altera Parent, had issued approximately $408.0mn of outstanding preferred equity. In addition, the entities comprising the Shuttle Tankers business, the FPSO joint ventures, and certain other non-Debtors are liable for approximately $2.1bn in additional funded debt obligations. The table below summarizes the prepetition capital structure of the Debtors and that of Altera Parent’s affiliated non-Debtor subsidiaries:

Liquidation Analysis (see Exhibit E to Disclosure Statement for notes)

About the Debtors

According to the Debtors: “Altera Infrastructure L.P. is a leading global energy infrastructure services partnership primarily focused on the ownership and operation of critical infrastructure assets in the offshore oil regions of the North Sea, Brazil and the East Coast of Canada. Altera has consolidated assets of approximately $3.8 billion comprised of 44 vessels, including floating production, storage and offloading (FPSO) units, shuttle tankers, floating storage and offtake (FSO) units, long-distance towing and offshore installation vessels and a unit for maintenance and safety (UMS). The majority of Altera’s fleet is employed on medium-term, stable contracts.”

The Declaration adds: “Altera is a leading international midstream services provider to the oil and gas industry, supplying critical infrastructure assets to its customers primarily in offshore regions of the North Sea, Brazil, and the East Coast of Canada. Altera has approximately 2,450 employees who either serve as crew or in onshore support roles for Altera’s 41 vessels around the world. 

Altera operates in five principal business segments:

  1. the processing and storage of hydrocarbons through Altera’s four wholly owned and two joint-venture floating production, storage, and offloading vessels
     (‘FPSO’), as well as the management of FPSOs owned by third parties;
  2. the provision of supplementary storage capabilities through Altera’s two floating storage and off-take vessels (‘FSO’);
  3. the deployment of eight long-distance towage vessels to assist with, among other things, the tow from yard to operating area and installation of large floating production facilities, storage units, exploration units, and other vessels (‘Towage’);
  4. the operation of one unit to provide accommodations and maintenance and safety services to projects on offshore installations (‘Accommodation’ and together with FPSO, FSO and Towage, ‘FFTA’); and 
  5. the transportation of hydrocarbons from offshore oil field installations to terminals and refineries located onshore, as well as conventional tanking operations, using Altera’s 24 shuttle tanker vessels (‘Shuttle Tankers’).

The Debtors consist only of FFTA entities. The FPSO joint ventures and the Shuttle Tankers entities are not Debtors in these chapter 11 cases.”

Capital Structure (see also Exhibit B to Docket No. 17 for the second more detailed/complete chart]

Altera’s corporate and capital structure, along with the goals of its restructuring process, are summarized in the chart below.

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