December 18, 2020 – The Debtors notified the Court that their Second Amended Chapter 11 Plan of Reorganization had become effective as of December 18, 2020 [Docket No. 375]. The Court had previously confirmed the Debtors’ Plan on December 10, 2020 [Docket No. 360]. 

As discussed further below, on December 17th the Debtors consented to a judgment in respect of an SEC investigation into an alleged $100.0mn accounting fraud. That settlement will see the Debtors enjoined from violating US securities laws. For the former executives accused of perpetrating the fraud, the ramifications are likely to be greater than having to commit to not break the law, with the SEC continuing to pursue litigation against those executives. Plan releases will not cover claims or actions against the former executives that are "the result of…gross negligence, actual fraud, or willful misconduct."

On August 27, 2020, SAExploration Holdings, Inc. and four affiliated Debtors (OTC Pink: SAEX; “SAE” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-34306 (Judge Isgur). At filing, the Debtors, a Houston-based oilfield services company, noted estimated assets between $1.0mn and $10.0mn; and estimated liabilities between $100.0mn and $500.0mn. The Debtors’ Q2 2020 8-K noted assets of $100.0mn and liabilities of $133.3mn.

The Debtors were represented by (i) Porter Hedges LLP as counsel, (ii) Imperial Capital, LLC as financial advisors, (iii) Winter Harbor LLC as investment banker and (iv) Epiq Corporate Restructuring, LLC as claims agent.

A deadline in respect of Professional Fee Claims has been set for February 1, 2021.

Plan Overview

As discussed in "Prepetition Indebtedness" below, the Debtors have three types of funded debt which fell into three separate classes and treatment is broadly as follows: (i) Prepetition Credit Agreement Lenders will exchange their $20.5mn (principal) of prepetition debt for $20.5mn of new debt (interest to be paid in cash), (ii) Prepetition Term Loan Lenders will exchange $29.0mn (plus interest) of prepetition term loans for 100% of the emerged Debtors' equity and (iii) holders of $60.0mn of prepetition convertible notes will get nothing.

The Debtors' memorandum in support of Plan confirmation (the "Memorandum") [Docket No. 353] noted, “The Debtors commenced the chapter 11 cases (the ‘Chapter 11 Cases’) to implement a restructuring through their pre-negotiated Plan. The Plan reduces the Debtors’ prepetition debt by approximately $74 million and deleverages their balance sheet. The Debtors began the case with the support of almost all of the holders of the Debtors’ secured debt under the Prepetition Credit Agreement, the Prepetition Term Loan Agreement and the Prepetition Convertible Notes, who have documented their support for the restructuring and the Chapter 11 Cases through a restructuring support agreement (‘Restructuring Support Agreement’).

Pursuant to the Plan negotiated with the Consenting Creditors, the Debtors’ reorganization includes: (i) entry into a first lien exit term loan facility (‘First Lien Exit Facility’) in an aggregate principal amount of $15 million; (ii) conducting a rights offering (‘Rights Offering’) pursuant to which all eligible Prepetition Credit Agreement Lenders and Prepetition Term Loan Lenders were offered the opportunity to purchase loans to be advanced under the First Lien Exit Facility and equity in reorganized SAE, in each case in the amounts in accordance with the Rights Offering Procedures and the Plan, with the Rights Offering backstopped by certain of the Consenting Credit Agreement Lenders and the Consenting Term Loan Lenders, pursuant to the Backstop Commitment Agreement (as amended, the ‘Backstop Agreement’); (iii) the entry into a Second Lien Exit Facility (the ‘Second Lien Exit Facility’) in an aggregate amount of $20.5 million; (iv) the conversion of Prepetition Term Loan Claims to new equity in a reorganized SAE; and (v) the grant of a new Management Incentive Plan (the ‘Management Incentive Plan’).

The Classes entitled to vote on the Plan (Classes 4 and 5) voted overwhelmingly to accept the Plan, with 100% in amount and number of the Holders of Class 4 Claims voting to accept the Plan, and 100% in amount and number of the Holders of Class 5 Claims voting to accept the Plan.”

The amended Disclosure Statement [Docket No. 274] provides: “The key elements of the Plan include: 

• Prepetition Credit Agreement Lenders, Prepetition Term Loan Lenders and Prepetition Convertible Noteholders receive the New Equity, First Lien Exit Facility and Second Lien Exit Facility. 

1. The Prepetition Credit Agreement Lenders will exchange their debt for $20.5 million for (i) their Pro Rata share (measured by reference to the aggregate amount of Allowed Credit Agreement Claims) of participation in the Second Lien Exit Facility in an amount equal to such Allowed Credit Agreement Claim; (ii) the right to purchase pursuant to the Rights Offering up to their Pro Rata share (measured by reference to the aggregate amount of Allowed Credit Agreement Claims and the aggregate amount of Allowed Term Loan Claims) of (A) the term loans under the First Lien Exit Facility and (B) the New First Lien Exit Facility Equity; and (iii) the payment in full in Cash on the Effective Date of all Accrued Interest as of the Effective Date. 
2. The Prepetition Term Loan Lenders will exchange their debt for (i) their Pro Rata share (measured by reference to the aggregate amount of Allowed Term Loan Claims) of 100% of the New Equity under the Plan, subject to dilution by the (a) New First Lien Exit Facility Equity, (b) New Equity issued pursuant to the First Lien Exit Facility Put Option Premium, and (c) awards related to the New Equity issued under the Management Incentive Plan, and (ii) the right to purchase pursuant to the Rights Offering up to their Pro Rata share (measured by reference to the aggregate amount of Allowed Term Loan Claims and the aggregate amount of Allowed Credit Agreement Claims) of (A) the term loans under the First Lien Exit Facility and (B) the New First Lien Exit Facility Equity.
3. The Prepetition Convertible Noteholders Claims shall be discharged, canceled, and released, and extinguished as of the Effective Date and shall be of no further force or effect, and Holders of Convertible Notes Claims shall not receive any distribution on account of such Convertible Notes Claims. If approved by this Court, the Debtors’ restructuring will significantly reduce the Debtors’ debt load and associated cash interest expense, and provide them with additional liquidity to fund the Debtors’ continued operations. 

• Releases and Exculpation. The Plan includes mutual releases in favor of (a) the Debtors and certain of their related persons, professionals, and entities, and (b) the Consenting Creditors and their related persons, professionals, and entities. The Plan will also provide for the exculpation of the Debtors and certain of their related persons, professionals, and entities.”

In a press release announcing the filing, SAE advised that it had: “entered into a Restructuring Support Agreement (the 'RSA') with holders of 100% of the advances under its credit facility, holders of approximately 82.4% of the advances under its senior loan facility and holders of 100% of its outstanding 6.0% Senior Secured Convertible Notes due 2023 (the “Convertible Notes”). The parties to the RSA also hold in the aggregate approximately 67.4% of the outstanding equity interests of the Company (including outstanding warrants, but excluding outstanding the Convertible Notes) on a fully diluted basis….[SAE] has proposed to consummate the Plan and emerge from chapter 11 before the end of November 2020."

Mike Faust, SAE’s CEO, commented further: “After several months of careful consideration of how best to navigate the uncertainty of the global economy due to the coronavirus pandemic, along with the decreased demand for oil, our debt levels, and the difficulties associated with monetizing Alaskan tax credits, SAE’s Board of Directors and management, along with our advisors, concluded that the best path forward for SAE and its stakeholders is to seek Chapter 11 protection. Our industry has been hit hard.”

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; see also the Liquidation Analysis below):

• Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%
• Class 3 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%
• Class 4 (“Credit Agreement Claims”) is impaired and entitled to vote on the Plan. The Credit Agreement Claims shall be Allowed in the aggregate principal amount of $20,500,000.00 (the “Allowed Credit Agreement Claims”), plus any accrued and unpaid prepetition and postpetition interest thereon (the “Accrued Interest”). Each Holder shall receive (i) its Pro Rata share (measured by reference to the aggregate amount of Credit Agreement Claims) of participation in the Second Lien Exit Facility in an amount equal to such Credit Agreement Claim; (ii) the right to purchase pursuant to the Rights Offering up to its Pro Rata share (measured by reference to the aggregate amount of Credit Agreement Claims and aggregate amount of Term Loan Claims) of the New First Lien Exit Facility Equity; and (iii) the payment in full in Cash on the Effective Date of all Accrued Interest as of the Effective Date.
• Class 5 (“Term Loan Claims”) is impaired and entitled to vote on the Plan. The Term Loan Claims shall be Allowed in the aggregate principal amount of $29,000,000.00 plus any accrued and unpaid interest thereon, fees, expenses and all other obligations arising under the Prepetition Term Loan Documents payable through the Petition Date. Each Holder shall receive (i) its Pro Rata share (measured by reference to the aggregate amount of Term Loan Claims) of 100% of the New Equity under the Plan, subject to dilution by the (a) New First Lien Exit Facility Equity, (b) New Equity issued pursuant to the First Lien Exit Facility Put Option Premium and (c) awards related to the New Equity issued under the Management Incentive Plan and (ii) the right to purchase pursuant to the Rights Offering up to its Pro Rata share (measured by reference to the aggregate amount of Term Loan Claims and the aggregate amount of Credit Agreement Claims) of (A) the term loans under the First Lien Exit Facility and (B) the New First Lien Exit Facility Equity.
• Class 6 (“Convertible Notes Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%.
• Class 7 (“PPP Loan Claim”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Will be reinstated on Effective Date.
• Class 8 (“General Unsecured Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%.
• Class 9 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 10 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
• Class 11 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
• Class 12 (“SAE Holdings Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.

Voting Results

On December 7, 2020, the claims agent notified the Court of the voting results [Docket No. 347], which were as follows.

• Class 4 (“Credit Agreement Claims”): 12 claim holders, representing $19,748,333.33 (100%) in amount and 100% in number, voted in favor of the Plan.
• Class 5 (“Term Loan Claims”): 12 claim holders, representing $27,503,190.69 (100%) in amount and 100% in number, voted in favor of the Plan.

Plan Changes

The Memorandum outlines last minute modifications [Docket No. 361] made to the Plan that reflect an agreement reached with an Ad Hoc Committee of Term Lenders. Specifically, the Memorandum states, "The Confirmation Order includes certain modifications to the Plan to address formal and informal objections raised by various parties. The Debtors submit that none of the Plan modifications, including a payment by the Debtors of $625,000 to the Ad Hoc Committee of Term Lenders on the Effective Date, will adversely affect the treatment of those Classes of Claims that voted to accept the Plan."

Specifically, according to the motion requesting approval to modify the Plan, "The Debtors have been engaged in settlement discussions concerning potential objections to the Plan raised by Nebari Holdings LLC, Tegean Capital Management LLC and Morgan Stanley Investment Management Inc. (collectively, the 'Ad Hoc Committee of Term Lenders') and recently agreed to terms on a settlement to resolve their objections (the 'Settlement') [Docket No. 334], which was filed and noticed prior to the Voting Deadline….

Accordingly, the Debtors propose to modify the Plan to reflect the Settlement by adding the following language to Article IV.Q of the Plan (the 'Plan Modification'): Pursuant to Bankruptcy Rule 9019, to resolve the Ad Hoc Committee of Term Lenders’ potential objections to the Plan, on the Effective Date the Ad Hoc Committee of Term Lenders shall receive a payment in the amount of $625,000.00."

SEC Settlement

On December 17, 2020, the U.S. District Court for the Southern District of New York entered a final consent judgment against the Debtors in connection with SAE's involvement in an accounting fraud that falsely inflated the company's revenue by approximately $100 million.

In its October 8, 2020 complaint, the alleged that beginning in 2015, four former SAE executives engaged in conduct that led SAE to report artificially and materially inflated revenue in connection with a purportedly unrelated customer that was in fact controlled by two of the former executives. The complaint further alleges that the former executives misappropriated millions of dollars from SAE. 

The Debtors have now ("without admitting or denying the allegations") consented to the entry of final judgment "enjoining it from violating" various securities law antifraud and reporting provisions. The litigation against the former executives is ongoing.

In a statement, the SEC “acknowledges remedial acts undertaken by SAE and cooperation afforded the SEC from August 2019 to the present after a special committee of SAE's Board of Directors conducted an independent investigation. SAE's remediation and cooperation included removing the former executives engaged in the misconduct at issue, implementing enhancements to its internal policies and procedures, and timely providing SEC staff with facts developed during the internal investigation."

According to an SEC press release announcing the filing of the complaint, “The Securities and Exchange Commission today charged Houston-based seismic data company, SAExploration Holdings Inc. (SAE), and four former executives for a multi-year accounting fraud that falsely inflated the company’s revenue by approximately $100 million and concealed the theft of millions of dollars by the executives. SAE issued restated financial statements in February and declared bankruptcy in August."

Prepetition Indebtedness 

• Prepetition Credit Agreement: The Debtors are party to a September 2018 credit agreement (as amended, the “Prepetition Credit Agreement”) with Cantor Fitzgerald Securities as the administrative agent and the collateral agent. The Prepetition Credit Agreement has a maturity date of August 1, 2021 and as of the Petition date there was $20.5mn in principal is outstanding under this agreement.
• Prepetition Term Loan: The Debtors are party to a June 2016 term loan agreement Credit and Security Agreement (as amended, the “Term Loan Agreement”) with Delaware Trust Company as the collateral agent and as the administrative agent. The Prepetition Term Loan Agreement matures in January 2021 and as of the Petition date there was $29.0mn in principal is outstanding under this agreement.
• Prepetition Convertible Notes: In September 2018, SAE Holdings issued $60.0mn in aggregate principal amount of 6.00% Senior Secured Convertible Notes due 2023 (the “Prepetition Convertible Notes”) with Wilmington Savings Funds Society, FSB, as Trustee and Collateral Trustee. As of the Petition date, the outstanding principal on the Prepetition Convertible Notes was $60.0mn. 
• PPP Loan: The Debtors have a $6.8mn Paycheck Protection Program (the “PPP”) loan which the Debtors intend to reinstate.
• Trade Creditors: As of the claims bar date, claimants had filed unsecured claims in the total amount of approximately $2.2mn.

Key Documents

The Third Amended Disclosure Statement [Docket No. 274] attached the following:

• Exhibit A: Plan of Reorganization
• Exhibit B: Restructuring Support Agreement
• Exhibit C: Liquidation Analysis
• Exhibit D: Financial Projections
• Exhibit E: Valuation Analysis
• Exhibit F: Rights Offering Procedures

The Debtors filed Plan Supplements at Docket Nos. 336 and 356 which attached following:

• Exhibit A: Form of New Organizational Documents Supplement [Docket No. 336 as amended by No. 356] 
• Exhibit B: Term Loan and Security Agreement Supplement [Docket No. 336 as amended by No. 356]
• Exhibit C: Schedule of Rejected Executory Contracts and Unexpired Leases [Docket No. 336]
• Exhibit D: Schedule of Assumed Executory Contracts and Unexpired Leases [Docket No. 336]
• Exhibit E: List of Retained Causes of Action [Docket No. 336]
• Exhibit F: Form of Management Incentive Plan Supplement [Docket No. 336 as amended by No. 356]
• Exhibit G: Identity of New Boards and Senior Management Supplement [Docket No. 336 as amended by No. 356]
• Exhibit H: Schedule of Non-Released Entities [Docket No. 336]
• Exhibit I: Employment Agreements Supplement [Docket No. 336 as amended by No. 356]

Liquidation Analysis (see Exhibit C to Disclosure Statement [Docket No. 274] for notes)

About the Debtors

According to the Debtors: "SAE is an international oilfield services company offering a full range of vertically-integrated seismic data acquisition, data processing and interpretation, and logistical support services throughout North America, South America, Asia Pacific, Africa and the Middle East. In addition to the acquisition of 2D, 3D, time-lapse 4D and multi-component seismic data on land, in transition zones and offshore in depths reaching 3,000 meters, SAE offers a full suite of data processing and interpretation services utilizing its proprietary, patent-protected software, and also provides in-house logistical support services, such as program design, planning and permitting, camp services and infrastructure, surveying, drilling, environmental assessment and reclamation, and community relations. SAE operates crews around the world, performing major projects for its blue-chip customer base, which includes major integrated oil companies, national oil companies and large independent oil and gas exploration companies. With its global headquarters in Houston, Texas, SAE supports its operations through a multi-national presence in the United States, United Kingdom, Canada, Peru, Colombia, Bolivia, Malaysia, and Singapore."

The Disclosure Statement adds: "While the results of the seismic surveys the Debtors conduct generally belong to their customers and are proprietary in nature, Alaskan Seismic Ventures, LLC (“ASV”), a related party variable interest entity, currently maintains a multiclient seismic data library of approximately 440 square kilometers in certain basins in Alaska which is available for future sale or license. Combined the Debtors and their non-debtor affiliates currently employ 132 full-time employees. The Debtors and their non-debtor affiliates also employ hourly and day-rate employees, but that number can fluctuate depending on: the time of year and the size and number of projects at the time."

Corporate Structure

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