Gulfport Energy Corporation – Creditors Committee, Arguing that it Represents Plan’s Fulcrum Class, Objects to DIP Financing as Rushed and Off-Market

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December 15, 2020 – The Debtors' Official Committee of Unsecured Creditors (the “Committee”) objected to the Debtors’ proposed $262.5mn debtor-in-possession (“DIP”) financing [Docket No. 440] with multiple objections which they believe should be given added weight given that the secured Debtors are set for a full recovery; leavingg unsecured creditors "the fulcrum in these cases." 

Slow down, argues the Committee, the Debtors are not a "melting ice cube" and proposed milestones (as does a woefully inadequate investigation budget) leave the Debtors and the Committee without sufficient time to investigate $billions in possible claims. Clearly, the Committee view those rushed milestones as reflecting the intent of debtor-in-possession ("DIP') lenders and RSA signatories to pocket estate value for themselves.

Also making the Committee's long list of concerns are a number of allegedly off-market provisions in the proposed DIP, with the roll-up to new money ratio drawing particular fire as with its "unprecedented ratio of seven-and-a-half to one."

The Committee' objection (and a final DIP financing order) is set to be considered at a December 16th hearing.

The Committee’s objection reads: “The Debtors’ bankruptcy cases are readily distinguishable from several E&P cases recently filed in this District. First, as acknowledged by Debtors’ counsel, ‘unsecured creditors are the fulcrum in these cases.’ There is no dispute that the value of the company well exceeds the amount of the prepetition secured debt. Second, the company is not a ‘melting ice-cube’ and, in fact, the Debtors are anticipated to have a stronger liquidity profile at the end of the case than the beginning. Third, the Debtors’ prepetition restructuring support agreement (the ‘RSA’), entered into with its funded debt creditors, purports to resolve potential significant disputes over the transfer of a substantial portion of the company’s oil and gas assets from the parent company to its subsidiaries, effective as of June 1, 2019. These transfers, on which the RSA is largely based, shifted assets with a net book value of billions of dollars away from the Parent’s creditors (largely trade and contractual creditors who are slated to receive only 6% of the reorganized equity under the RSA) to the RSA Parties holding guarantee claims at the subsidiaries (slated to receive 94% of the same equity, $550 million of new debt, and other valuable benefits under the RSA). 

Why the Debtors made these transfers, whether they were insolvent at the time and what value, if any, was paid for these assets are questions that must be answered before the chapter 11 plan contemplated by the RSA (the ‘RSA Plan’) should be pursued by the Debtors. The DIP Facility, however, is specifically designed to allow for the expedited implementation of the RSA Plan without allowing the Committee or any other stakeholder sufficient time to conduct an investigation and consider alternatives. Moreover, if the RSA terminates, including as a result of the Debtors’ failure to achieve any of the RSA Milestones, or even if the Debtors determine it is otherwise within their fiduciary duties to pursue an alternative plan of reorganization, the DIP Facility also terminates. This effectively prevents the Debtors from pursuing alternatives to the RSA Plan. To enable the Committee to properly complete an investigation of numerous significant prepetition transactions, the Debtors’ proposed plan timeline, as well as the Milestones themselves, must be extended, and the termination of the RSA should not lead to the automatic termination of the DIP Facility.

In addition to being a mechanism designed to facilitate the confirmation of the RSA Plan, the DIP Facility contains several terms that are off-market

First, the DIP Facility severely limits the Committee’s Challenge Period and investigation budget. The Final Order would give the Committee only 30 calendar days from the Committee’s formation (i.e., a deadline of just after the Christmas holiday, December 27, 2020) and an investigation budget of only $50,000, to investigate broad stipulations, admissions, agreements and releases granted by the Debtors in favor of the prepetition lenders. Absent a timely challenge by ‘a party with standing’, these stipulations, agreements and releases become binding on the Debtors’ estates and all parties in interest. In effect, the Final Order proposes to give the Committee only 30 calendar days to both commence and complete its investigation, obtain standing, and then commence a challenge. This is not only severely off-market but highly inappropriate for a case of this size and complexity. 

Second, the roll-up contemplated by the DIP Facility is unreasonably high. The Debtors have contended that the DIP Facility represents a ratio of rolled-up obligations to new money of approximately 1.5:1. This is vastly understated – a proper calculation yields an apparently unprecedented ratio of seven-and-a-half to one. Through the DIP Facility, the DIP Lenders, who are substantially the same parties as the Prepetition First Lien Lenders, are seeking to roll-up $157.5 million of the outstanding principal amount under the RBL Credit Facility and $123 million (on a prepetition mark-to-market basis) of the Debtors’ obligations on certain prepetition derivatives contracts, and proposing to lend $105 million of new money. Even the ‘new money’ figure is misleading, as the Debtors have already used $60 million of it to pay the Prepetition First Lien Lenders amounts owing on account of prepetition ‘sold call’ obligations that the Debtors terminated in the days before their bankruptcy filing in accordance with the RSA. Thus, in reality, the amount of new liquidity is $45 million, and the roll-up is approximately $340 million – or seven and a half times (7.5:1) the amount of new liquidity. And while only providing the Debtors with minimal incremental liquidity, the Final Order proposes to encumber previously unencumbered assets that would otherwise be available for unsecured creditors’ recoveries. The DIP Facility, in short, appears more driven by the interests of the Prepetition First Lien lenders than the needs of the estates as a whole. 

Third, as part of the extensive adequate protection package included in the Final Order, the Debtors are seeking authority to pay the Ad Hoc Noteholder Group’s professional fees notwithstanding the fact that the Ad Hoc Noteholder Group represents unsecured claims and is not providing any DIP Financing. Not only is there no authority in the Bankruptcy Code for the payment of unsecured creditors’ fees as adequate protection, but it also is directly contradictory to the guidance recently set forth by this Court.

Finally, the Final Order suffers from a number of additional flaws. As discussed in detail below, the proposed Final Order should not eliminate potential sources of recovery for unsecured creditors (including proceeds of Avoidance Actions and commercial tort claims) nor should it grant prospective waivers of important unsecured creditor protections. The Final Order also contains a number of more technical flaws that must be revised. Absent these critical changes, the provisions contained in the Final Order exceed what is required (and, in some cases, authorized) by the Bankruptcy Code, precluding entry of the Final Order. The DIP Facility improperly forecloses potential sources for unsecured creditor recoveries, provides the DIP Lenders/Prepetition First Lien Lenders with excessive and unnecessary protections, and effectively dictates the disposition of these Chapter 11 Cases on terms that the Committee has not yet had an opportunity to even analyze – let alone agree to. The Debtors should not be permitted to enter into an order that imposes the terms of a chapter 11 plan outside of the plan confirmation process.”

Further Background

On November 15, the Debtors had requested Court authority to (i) access $262.5mn of debtor-in-possession (“DIP”) financing and (ii) use cash collateral [Docket No. 29]. The DIP financing, which is to be provided by certain prepetition lenders, consists of (a) $105.0mn of new money term loans, with $90.0mn to be made available on an interim basis, and (b) a roll-up of $157.5mn of the Debtors’ prepetition RBL Credit Facility (to occur upon issuance of a final DIP order).

On November 16, the court had issued an order authorizing the Debtors to (i) access $90.0mn of debtor-in-possession (“DIP”) financing on an interim basis and (ii) use cash collateral [Docket No. 114]. The $15.0mn balance, of what is in total $105.0mn of DIP financing being provided by certain prepetition lenders, is to be made available upon the issuance of a final DIP order. Also to be greenlighted with that final DIP order which will be considered at a December 11th hearing, is a roll-up of $157.5mn of the Debtors’ prepetition RBL Credit facility.

For the Debtors, who faced the crystallization of over $180.0mn of hedging arrangements, the DIP facility critically permits “the Debtors [to] use approximately $60 million of the DIP financing proceeds to pay down these consensually-terminated hedges.”

Prepetition Indebtedness

As of the Petition Date, the Debtors have approximately $2.41 billion in total funded debt obligations as summarized below:


Principal Amount Outstanding

Prepetition First Lien Credit Facility


Headquarters Mortgage


6.625% Senior Notes due 2023


6.000% Senior Notes due 2024


6.375% Senior Notes due 2025


6.375% Senior Notes due 2026


Total Unsecured Notes


Total Funded Debt Obligations


About the Debtors

According to the Debtors: “Gulfport Energy Corporation (NASDAQ: GPOR) is an independent natural gas and oil company focused on the exploration and development of natural gas and oil properties in North America and is one of the largest producers of natural gas in the contiguous United States. Headquartered in Oklahoma City, Gulfport holds significant acreage positions in the Utica Shale of Eastern Ohio and the SCOOP Woodford and SCOOP Springer plays in Oklahoma. In addition, Gulfport holds non-core assets that include an approximately 22% equity interest in Mammoth Energy Services, Inc. (NASDAQ: TUSK) and has a position in the Alberta Oil Sands in Canada through its 25% interest in Grizzly Oil Sands ULC.”

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