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November 9, 2020 – Further to the Court's August 21st bidding procedure order [Docket No. 259] and an oft-delayed auction process completed on November 8th, the Debtors have selected Ameredev Texas, LLC as the "Successful Bidder" (with a $46.6mn bid) for substantially all of their assets and designated Tap Rock Resources II, LLC ($15.1mn purchase price) as the backup bidder [Docket No. 591]. The APAs of each of the successful and back-up bidders are attached to the notice as Exhibits A and B, respectively) and a sale hearing remains scheduled for November 13th.
The Debtors' October 13th Disclosure Statement suggests that the winning bid comes in at the low end of the range of projected sale proceeds, with the Debtors anticipating proceeds of $40.0mn to $130.0mn (see the recovery analysis below). The actual proceeds would appear to cover (but only just) DIP financing (including a $15.0mn roll-up) and administrative claims.
The Successful Bidder is an affiliate of Ameredev II, LLC, an Austin, Texas-based, independent E&P.
In mid-October, the Debtors toggled from a reorganization-centered Plan to an asset sale Plan after presumptive Plan sponsor Värde Partners, Inc. ("Värde") withdrew its support (and a $55.0mn equity commitment) for a plan of reorganization (the "Värde Sponsored Plan") leaving the Debtors with Plan B of their dual track process, a sale of substantially all of their assets (the "Sales Process"). Further to that toggle, the Debtors needed to resolve numerous possible obstacles, a result achieved on October 12th when a global settlement (the "Global Settlement") was reached amongst the Debtors, the DIP Facility Lenders, the Non-Affiliated RBL Lenders, Värde, and the Debtors official committee of unsecured creditors (the "Committee").
Key Terms of the Successful Bidder APA:
- Sellers: Lilis Energy, Inc., Brushy Resources, Inc., Impetro Resources, LLC, Impetro Operating LLC, Lilis Operating Company, LLC, and Hurricane Resources, LLC
- Purchaser: Ameredev Texas, LLC
- Purchase Price: The purchase price for the Assets shall be $46.6mn (the “Unadjusted Purchase Price”), adjusted as provided in Section 2.4 (as adjusted, the “Adjusted Purchase Price”).
- Bidder Protections: None. The bidding procedures order gives the go ahead for bidder protections including a 3% break-up fee and a $200k expense reimbursement for a selected stalking horse. The Successful Bidder had not been designated as a stalking horse.
The Amended Disclosure Statement provides: "Immediately prior to filing for chapter 11, on June 28, 2020, the Debtors, certain private funds affiliated with Värde Partners, Inc. (together with its affiliates, ‘Värde’), and the Non-Affiliated RBL Lenders entered into the Restructuring Support Agreement, which contemplated a dual-track process whereby the Debtors would either pursue a plan of reorganization funded, in part, by a $55 million new money equity commitment from Värde (the ‘Värde Sponsored Plan’) or the Debtors would pursue a process to sell substantially all of their assets through these chapter 11 cases (the ‘Sales Process’). On August 17, 2020, after Värde declined to go forward with the Värde Sponsored Plan, the Debtors immediately pivoted to the Sales Process.
On October 12, 2020, after extensive, arms’ length, and good faith negotiations, the Debtors, the DIP Facility Lenders, the Non-Affiliated RBL Lenders, the Värde Parties, and the Committee (collectively, the ‘Settlement Parties’) reached an agreement on a global settlement (the ‘Global Settlement’) as set forth in the Global Settlement Agreement, which resolves various complex and contentious actual and potential disputes between the Settlement Parties. While certain aspects of the Global Settlement are being effectuated through the Settlement Motion, certain other aspects of the Global Settlement are being implemented through the Debtors’ First Amended Joint Liquidating Chapter 11 Plan (the ‘Plan’), dated October 13, 2020.
Under the terms of the Debtors’ debtor-in-possession financing facility (the ‘DIP Facility’), any sale must close no later than November 2, 2020 [this deadline shifted by no fewer than 7 subsequent stipulations]. Assuming the Debtors are able to attract one or more acceptable cash bidders for substantially all of their assets, the Plan sets forth the manner in which the Asset Sale Proceeds will be distributed.
Before any Asset Sale Proceeds are available for distribution to other stakeholders under a chapter 11 plan, the following Claims must be paid in full, in Cash, or appropriate reserves must be set aside for such Claims:
- the WLWI Fixed Settlement Amount, consisting of the first $3,750,000, plus, to the extent applicable, the WLWI Variable Settlement Amount, consisting of the first 5% of the amount of the Cash Purchase Price that exceeds $45 million, in each case payable in Cash from the Cash Purchase Price at the closing of the Asset Sale;
- approximately $30 million of DIP Facility Claims;
- all Administrative Claims, including Professional Claims, which currently are estimated to total approximately $18 million to $22 million; and
- any Priority Tax Claims, Other Priority Claims and Senior Priority Lien Claims.
As summarized in the two tables below, after such payments, Asset Sale Proceeds will next be distributed to the Prepetition RBL Agent for distribution to Holders of Class 3A – Non-Affiliated RBL Claims and Class 3B – Affiliated RBL Claims pursuant to the terms of the RBL Credit Agreement. RBL Claims total approximately $75.5 million, which includes an approximate $49.2 million senior tranche held by the Non-Affiliated RBL Lenders and an approximate $26.3 million junior tranche held by the Affiliated RBL Lenders. The RBL Facility is secured by first priority Liens on substantially all of the Debtors’ Assets.
As the Waterfall Analysis Summary above demonstrates, if the Sales Process does not yield a price in excess of $120.5 million (in a low Claim scenario) to $127.2 million (in a high Claim scenario), then Holders of Unsecured Claims would not be entitled to receive any proceeds from the sale and instead would be entitled to receive nothing under a chapter 11 plan.
Due to the Global Settlement, Holders of Unsecured Claims will now receive a distribution from the Unsecured Claim Pool even in scenarios where the senior secured claims are not being paid in full. Therefore, the Global Settlement and the Plan provide substantial benefits to the Estates and their creditors by paying administrative and priority creditors, some or all of the Debtors’ secured debt while also providing for a distribution to Holders of Unsecured Claims, and avoiding a value destructive chapter 7 liquidation.
About the Debtors
The Debtors are a Fort Worth-based independent oil and gas exploration and production company that operates in the Permian’s Delaware Basin, considered amongst the leading resource plays in North America. Lilis Energy’s primary business objective is to increase its Delaware Basin leasehold position, reserves, production and cash flows at attractive rates of return on invested capital in order to enhance shareholder value.
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