Extraction Oil & Gas, Inc. – Court Approves Disclosure Statement, Schedules December 21st Confirmation Hearing

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November 6, 2020 – The Court hearing the Extraction Oil & Gas cases issued an order approving (i) the Debtors’ Disclosure Statement, (ii) proposed Plan solicitation and voting procedures and (iii) a proposed timetable culminating in a December 21st Plan confirmation hearing [Docket No. 1022]. Also on November 6th, the Debtors filed solicitation versions of their Third Amended Plan of Reorganization and Disclosure Statement [Docket Nos. 1009 and 1019, respectively]; and separately filed blacklines of each showing changes to the versions filed on November 4th [Docket Nos. 1010 and 1020, respectively]. 

Overview of the Plan

The Disclosure Statement [Docket No. 1019] notes, “The Plan provides for the restructuring of the Debtors through a Stand-Alone Restructuring. The Debtors contemplated a dual-track process that included a Combination Transaction, but ultimately determined the Stand-Alone Restructuring was the superior path forward. 

On the Effective Date, (i) Reorganized XOG shall issue the New Common Shares and the New Warrants to fund distributions to certain Holders of Claims and Interests in accordance with Article III of the Plan, (ii) Reorganized XOG shall enter into the Exit Facility, which shall be a new credit facility and/or term loan in an amount sufficient to pay on the Effective Date certain Holders of Claims as set forth in Article III of the Plan, and to provide incremental liquidity and (iii) the New Board shall be authorized to implement the Management Incentive Plan.

The Reorganized Debtors will fund distributions under the Plan with Cash on hand on the Effective Date, the revenues and proceeds of all assets of the Debtors, including proceeds from all Causes of Action not settled, released, discharged, enjoined or exculpated under the Plan or otherwise on or prior to the Effective Date, the Exit Facility, the Equity Rights Offering, the New Common Shares and the New Warrants.”

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are 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. The projected amount of claims is $31,577,000 and the Debtors’ estimated recovery with and without the GUC Equity Rights Offering is 100%.
  • Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected amount of claims is N/A and the Debtors’ estimated recovery with and without the GUC Equity Rights Offering is 100%.
  • Class 3 (“Revolving Credit Agreement Claims”) is impaired and entitled to vote on the Plan. The projected amount of claims is $465,143,000 and the Debtors’ estimated recovery with and without the GUC Equity Rights Offering is 100%.  Each Holder of a Revolving Credit Agreement Claim shall receive either: (i) if such Holder elects to participate in the Exit RBL Facility on a pro rata basis, determined on a ratable basis with respect to its percentage of the Obligations (as defined in the Revolving Credit Agreement) under the Revolving Credit Agreement, such Holder of a Revolving Credit Agreement Claim shall become an Exit RBL Facility Lender in accordance with the terms of the Exit RBL Facility Documents; or (ii) if such Holder does not elect to participate in the Exit RBL Facility as provided above (including by not making any election with respect to the Exit RBL Facility on the ballot), its Pro Rata Share of the Exit Term Loans.
  • Class 4 (“Senior Notes Claims”) is impaired and entitled to vote on the Plan. The projected amount of claims is $1,131,866,000 and the Debtors’ estimated recovery with the GUC Equity Rights Offering is 25.9% and without is 24.4%. Each Holder of a Senior Notes Claim shall receive its Pro Rata share of (A) the Claims Equity Allocation and (B) the Senior Noteholder Subscription Rights.
  • Class 5 (“Trade Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected amount of claims is $8,423,000 and estimated recovery with and without the  GUC Equity Rights Offering is 100%.
  • Class 6 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The projected amount of claims is $626,702,000 and the Debtors’ estimated recovery with the GUC Equity Rights Offering is 16.7% and without is 19.5%. Each Holder will receive its Pro Rata share of: (i) the Claims Equity Allocation; and (ii) the GUC Subscription Rights, subject to Article IV.E.4 of the Plan; provided that each GUC Cash Out Holder will receive, in lieu of the GUC Subscription Rights, Cash in an amount equal to 40% of the value of such Holder’s GUC Subscription Rights.
  • Class 7 (“Existing Preferred Interests”) is impaired and entitled to vote on the Plan. The projected amount of claims is $198,660,000 and the Debtors’ estimated recovery with the GUC Equity Rights Offering is 6% and without is 3.3%. Each Holder of an Allowed Existing Preferred Interest shall receive its Pro Rata share of (A) 50% of the Existing Interests Equity Allocation, (B) the Existing Preferred Interest Subscription Rights, (C) 50% of the Tranche A Warrants, and (D) 50% of the Tranche B Warrants; provided that if Class 3, 4, 6, or 8 votes to reject the Plan, Holders of Allowed Existing Preferred Interests shall receive no distribution and any Existing Preferred Interest Subscription Right shall be canceled.
  • Class 8 (“Existing Common Interests”) is impaired and entitled to vote on the plan. The Debtors’ estimated recovery with GUC Equity Rights Offering and without the GUC Equity Rights Offering is N/A. Each Holder of an Existing Common Interest shall receive its Pro Rata share of (A) 50% of the Existing Interests Equity Allocation, (B) the Existing Common Interest Subscription Rights, (C) 50% of the Tranche A Warrants and (D) 50% of the Tranche B Warrants; provided that if Class 3, 4, 6, or 7 votes to reject the Plan, Holders of Allowed Existing Common Interests shall receive no distribution and any Existing Common Interest Subscription Right shall be canceled.
  • Class 9 (“Other Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The Debtors’ estimated recovery with GUC Equity Rights Offering and without GUC Equity Rights Offering is 0.00%.
  • Class 10 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Expected recovery is 0%/100%.
  • Class 11 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Expected recovery is 0%/100%.
  • Class 12 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the plan. Estimated recovery is N/A.

The Equity Rights Offering

The Disclosure Statement provides: "In accordance with the Stand-Alone Restructuring, the Equity Rights Offering will allow the Debtors to raise necessary capital pursuant to the terms of the Plan. The Debtors and Reorganized Debtors, as applicable, will implement the Equity Rights Offering in accordance with the Equity Rights Offering Procedures. The Backstopped Equity Rights Offering Amount is $200 million and shall be fully backstopped by the Backstop Parties pursuant to the terms and conditions in the Backstop Commitment Agreement and the Backstop Order. The GUC Equity Rights Offering Amount is $50 million and is currently not backstopped.

Pursuant to the Backstop Commitment Agreement, the Equity Rights Offering Procedures, the Plan, and the other Equity Rights Offering Documents, the Equity Rights Offering shall be open to all Equity Rights Offering Participants. In advance of Confirmation, the Debtors shall file a motion seeking the Court’s determination with respect to the amount of certain General Unsecured Claims, including certain asserted rejection damages as a result of the Court’s November 2, 2020 bench ruling. Prior to or simultaneous with Confirmation, the Court shall have entered the GUC Estimation Order, which form order shall be reasonably acceptable to the Required Consenting Senior Noteholders and the Creditors’ Committee, determining the aggregate amount of Allowed General Unsecured Claims, which amount shall constitute a maximum limitation on such Allowed General Unsecured Claims for all purposes under the Plan, including for purposes of distributions, discharge, and GUC Subscription Rights. The Backstopped Equity Rights Offering Shares will be solicited simultaneously with Solicitation. Solicitation of the GUC Equity Rights Offering Shares will commence immediately following entry of the GUC Estimation Order. Holders of General Unsecured Claims shall have three (3) Business Days between commencement of the GUC Equity Rights Offering and the GUC Equity Rights Offering Subscription Deadline to exercise the GUC Subscription Rights; provided that no Holder of a General Unsecured Claim shall be permitted to exercise more than its Pro Rata share of the GUC Subscription Rights. The GUC Subscription Rights are not transferrable. The value ascribed to the GUC Subscription Rights is $26.9 million. Upon exercise of the Subscription Rights by the Equity Rights Offering Participants pursuant to the terms of the Backstop Commitment Agreement, the Equity Rights Offering Procedures, the Plan, and the other Equity Rights Offering Documents, the Reorganized Debtors shall be authorized to issue the Equity Rights Offering Shares in accordance with the Plan, the Backstop Commitment Agreement, the Equity Rights Offering Procedures, and the other Equity Rights Offering Documents. 

On the Effective Date, Reorganized XOG, subject to the terms of Article IV.E.4 and Article VII.C.1 of the Plan, shall issue (a) the Equity Rights Offering Shares pursuant to the Equity Rights Offering and (b) the New Common Shares to the Backstop Parties on account of the Backstop Obligations and the Backstop Commitment Premium pursuant to the terms of the Backstop Commitment Agreement. On the Effective Date, the rights and obligations of the Debtors under the Backstop Commitment Agreement shall vest in the Reorganized Debtors. Notwithstanding anything to the contrary in the Plan or the Confirmation Order, (a) the Debtors’ obligations under the Backstop Commitment Agreement shall remain unaffected and shall survive following the Effective Date in accordance with the terms thereof, (b) any such obligations shall not be discharged under the Plan, and (c) none of the Reorganized Debtors shall terminate any such obligations."

Key Dates

  • Plan Supplement Deadline: December 4, 2020
  • Voting Deadline: December 11, 2020
  • Plan Objection Deadline: December 11, 2020
  • Confirmation Hearing: December 21, 2020

Prepetition Indebtedness

Funded Debt

Maturity

Outstanding Principal

Interest

Secured Debt

Prepetition RBL Facility

August 2022

$650.0mn

L + 0.5% – 2.5%

 Total Secured Debt

$650.0mn

As of the Petition date, the Debtors’ capital structure included outstanding funded-debt obligations in the aggregate principal amount of approximately $1.75bn, comprised of: (i) $650.0mn of outstanding loans under the Prepetition RBL Facility with a $650.0mn borrowing base, (ii) $400.0m in outstanding principal amount of its 2024 Senior Notes, and (iii) $700.2mn in outstanding principal amount of its 2026 Senior Notes.

Unsecured Debt

2024 Senior Notes

May 2024

$400.0mn

7.375%

2026 Senior Notes

February 2026

$700.2mn

5.625%

 Total Funded Debt

$1,750.2mn

 

Outstanding Debt Obligations

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Liquidation Analysis (See Exhibit C to Disclosure Statement [Docket No. 1019] for notes)

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