Gulfport Energy Corporation – Oklahoma City-Based Independent E&P Files Chapter 11 with $2.5bn of Liabilities After Missing Bond Payments and with Revolving Credit Facility Forbearance Period Ending; Agrees RSA and Lines Up DIP Financing Commitments

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November 13, 2020 – Gulfport Energy Corporation and ten affiliated Debtors (NASDAQ: GPOR; “Gulfport” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-35562 (Judge Jones). The Debtors, an independent Oklahoma City-based E&P with major positions in the Utica Shale of Eastern Ohio and the SCOOP Woodford and SCOOP Springer plays in Oklahoma, are represented by Matthew D. Cavenaugh of Jackson Walker LLP. Further board-authorized engagements include (i) Kirkland & Ellis LLP as general bankruptcy counsel, (ii) Alvarez & Marsal North America,  LLC (“A&M”) as restructuring advisors, (iii) Perella Weinberg Partners L.P. as financial advisors, (iv) Tudor, Pickering, Holt & Co. as financial advisors and (v) Epiq Corporate Restructuring as claims agent. 

Also appointed to advise a "Special Committee" are: (i) Wachtell, Lipton, Rosen & Katz, as counsel, (ii) Chilmark Partners as financial advisor, (iii) Katten Muchin Rosenman LLP, as counsel and (iv) M-III Partners, LP as financial advisor.

The Debtors’ lead petition notes between 10,000 and 25,000 creditors; estimated assets of $2,375,559,000 and estimated liabilities of $2,520,336,000 (assets and liabilities are as at September 30, 2020). Documents filed with the Court list the Debtors’ five largest unsecured creditors as (i) UMB Bank, N.A. (as trustee for $597.0mn 6.000% Senior Notes due 2024), (ii) UMB Bank, N.A. (as trustee for $507.9mn 6.375% Senior Notes due 2025), (iii) UMB Bank, N.A. (as trustee for $374.6mn 6.375% Senior Notes due 2026), (iv) UMB Bank, N.A. (as trustee for $335.3mn 6.625% Senior Notes due 2023) and (v) Universal Pressure Pumping ($5.2mn trade claim).

in a press release announcing the filing: the Debtors note that they have: "entered into a Restructuring Support Agreement (the 'RSA') with over 95% of its revolving credit facility lenders and certain noteholders holding over two-thirds of the outstanding aggregate principal amount of its senior unsecured notes.  Attached to the RSA is a 'pre-negotiated' restructuring plan (the 'Plan') that will strengthen Gulfport’s balance sheet, significantly reduce its funded debt, and lower ongoing operational costs.  Pursuant to the RSA and the Plan, Gulfport expects to eliminate approximately $1.25 billion in funded debt and significantly reduce annual cash interest expense going forward. Gulfport will also issue $550 million of new senior unsecured notes under the Plan to existing unsecured creditors of certain Gulfport subsidiaries. Certain of Gulfport’s noteholders have committed to backstop a minimum new money investment of $50 million in the form of convertible preferred stock. The RSA is designed to allow Gulfport to move through the restructuring process as expeditiously as possible."

David M. Wood, the Debtors' President and Chief Executive Officer of Gulfport Energy, added, “…our large legacy debt burden in addition to significant legacy firm transportation commitments created a balance sheet and cost structure that was unsustainable in the current market environment. After working diligently to explore all strategic and financial options available, Gulfport’s Board of Directors determined that commencing a chapter 11 process is in the best interest of the Company and its stakeholders. We expect to exit the chapter 11 process with leverage below two times and rapidly delever thereafter due to a much-improved cost structure driven by reduced legacy firm transport commitments and costs. These improvements will significantly improve our ability to generate cash flow and value for our stakeholders going forward.”

According to the Debtors' most recently filed 8-K, on November 2nd the Debtors elected to enter into a 30-day grace period in respect of an interest payment then due on its 6.625% senior unsecured notes due 2023 (the “2023 Notes”). The Debtors, who needed the time to "continue ongoing constructive discussions with its lenders and certain other stakeholders regarding a potential comprehensive financial restructuring" have not used all of that 30 day period, largely because the clock was otherwise ticking on a similar 30-day grace period requested on October 15th in respect of a missed interest payment on its 6.000% senior unsecured notes due 2024 (the "2024 Notes").

The expiration of the grace periods trigger defaults on those notes and cross defaults across the Debtors' capital structure; including into the Debtors' senior revolving credit facility ($279.9mn outstanding as at September 30th) which has been subject to a pair of forbearance agreements…the latter of which expires on November 13th.

Plan Overview

The principal terms of the Plan, as agreed under the RSA, include:

  • DIP and Exit Financing. The RBL Lenders, with the Bank of Nova Scotia as administrative agent (the “DIP Agent”), will provide a $262.5 million DIP financing facility (the “DIP Facility”), that will “roll up” a portion of the existing RBL Credit Facility and provide sufficient liquidity for the Debtors to operate while in chapter 11. The RBL Lenders have agreed that the RBL Credit Facility and DIP Facility will convert into an exit financing facility (the “Exit Facility”) upon the effective date of the Plan subject to the terms and conditions set forth in the Exit Facility Term Sheet (as defined in the RSA).
  • New Money Equity Rights Offering. The Ad Hoc Group has agreed to backstop a new money rights offering of at least $50 million (the “Rights Offering”), in exchange for New Preferred Stock (as defined in the RSA).
  • Treatment of Unsecured Claims. The holders of unsecured claims against the Debtors (including bondholder claims, rejection damages claims, and litigation claims) will receive 100% of the equity of the Reorganized Debtors (prior to the Rights Offering) and $550 million of new Unsecured Notes. The precise recovery for each claim will depend on whether the applicable holder’s claim is against GPOR or one of its subsidiaries, as described further below.
  • Treatment of Existing Equity Interests. The existing equity interests in GPOR will be canceled without any distribution.

DIP and Exit Financing

The Debtors' press release also notes that they have received commitments for $262.5mn of debtor-in-possession (“DIP”) financing from lenders under their prepetition revolving credit facility, including $105.0mn in new money that will be available upon Court approval. The financing is structured to fund Gulfport’s ordinary course operations during the chapter 11 proceedings, including employee wages and benefits and payments to suppliers and vendors. Gulfport has also received a commitment from its existing lenders to provide $580.0mn in exit financing upon emergence from chapter 11.

Events Leading to the Chapter 11 Filing

The Debtors' September 30, 2020 10-Q foreshadows the current Chapter 11 filings and provides the following on (i) the operational impact of COVID-19 on already depressed commodity prices and "continued macro headwinds," (ii) borrowing base reductions, (iii) missed interest payments that result in defaults and cross defaults in respect of outstanding bonds and the Debtors' senior credit facility and (iv) a looming December 2021 maturity for the Debtors' revolving credit facility.

The 10-Q: "Decreased demand for oil and natural gas as a result of the COVID-19 pandemic has put further downward pressure on commodity pricing…the Company's liquidity and leverage profile, continued macro headwinds including the depressed state of energy capital markets and the extraordinarily low commodity price environments present significant risks to the Company's ability to fund its operations going forward. 

Additionally, subsequent to September 30, 2020, on October 8, 2020, the Company's borrowing base under its revolving credit facility was reduced for the second time during 2020. The October redetermination reduced the Company's borrowing base from $700 million to $580 million, thereby significantly reducing available liquidity. 

Considering the factors above, there is substantial doubt about the Company’s ability to maintain, repay, refinance or restructure its $2.1 billion of long-term debt. The Company elected not to make an interest payment of $17.4 million due October 15, 2020 on its 6.000% senior unsecured notes maturing 2024 (the '2024 Notes'). The Company elected not to make an interest payment of $10.8 million due November 2, 2020 on its 6.625% senior unsecured notes maturing 2023 (the '2023 Notes'). The elections to defer the interest payments do not constitute an 'Event of Default' as defined under the indentures governing the 2024 Notes and 2023 Notes (the 'Indentures') if the interest payments are made within 30 days of the due date. If the Company does not make such interest payments within such 30-day period, there will be an event of default under the Indentures upon expiration of the grace period and there can be no assurance that it will have sufficient funds to pay such interest payments prior to such time.

Additionally, on October 15, 2020, the Company entered into the First Forbearance Agreement and Amendment to the Amended and Restated Credit Agreement (the 'First Forbearance Agreement'). Pursuant to the First Forbearance Agreement, the lender parties have agreed to (i) temporarily waive any default in connection with the non-payment of interest on the 2024 Notes within 30 days of becoming due (the 'Specified Default') prior to its occurrence without any further action and (ii) forbear from exercising certain of their default-related rights and remedies against the Company and the other loan parties with respect to any default in connection with the Specified Default, in each case, until the earlier of October 29, 2020 or another event that would trigger the end of the forbearance period. On October 26, 2020, the Company entered into the Second Forbearance Agreement and Amendment to Amended and Restated Credit Agreement (the 'Second Forbearance Agreement'), which extends the First Forbearance Agreement. Pursuant to the Second Forbearance Agreement, the lender parties have agreed to (i) temporarily waive any default in connection with the Specified Default prior to its occurrence without any further action, (ii) expand the definition of 'Specified Default' to include the failure to make the interest payment on the 2023 Notes within 30 days of becoming due and (iii) extend the agreement to forbear from exercising certain of their default-related rights and remedies against the Company and the other loan parties with respect to any default in connection with the Specified Default, in each case, until the earlier of November 13, 2020 or another event that would trigger the end of the forbearance period.

Moreover, the Company's existing revolving credit facility matures in December 2021 and therefore will become a current liability at year end 2020 unless the Company is able to refinance the credit facility with a new credit facility or other financing. Considering the current state of the first lien market and the Company's elevated leverage profile, there is substantial risk that a refinancing will not be available to the Company on reasonable terms. A current liability under the revolving credit facility at year end 2020 may result in a qualified audit opinion which could result in a default under the terms of the current revolving credit facility."

Prepetition Indebtedness

The September 30, 2020 10-Q provides the following:

Significant Shareholders

The Debtors' lead Petition notes the following as to 5% or above shareholders:

  • BlackRock Institutional Trust Company, N.A.: 12.90% 
  • Vitruvian II Woodford, L.L.C.: 8.56%  

There has been significant shareholder movement out of the Debtors' equity in recent months with the Debtors noting the following positions as at May 21, 2020

  • BlackRock, Inc.: 14.8% 
  • Firefly Value Partners: 13.1% (latest filing 1.2%)
  • The Vanguard Group: 10.0% (latest filing 4.88%)
  • Vitruvian II: 8.6% 
  • Dimensional Fund Advisors 8.0% 
  • Shah Capital Management: 7.3% (latest filing 0.0%)
  • State Street Global Advisors: 7.2% 
  • LSV Asset Management: 5.0%

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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