Diamondback Industries Inc.

April 21, 2020

Texas-based Diamondback Industries Inc. and two affiliates (the “debtors”) filed for bankruptcy in the Northern District of Texas; they are manufacturers and sellers of disposable setting tools, power charges, and igniters used in the completion of oil and gas wells. Their wares are patent and trademark protected and appear to enjoy use by oil and gas companies engaged in drilling and well services. The debtors have managed to weather the oil and gas downturn over the last several years but the recent perfect storm brought on by the calamitous drop in oil prices + COVID-19 was too much to bear. These factors alone would have been troubling but the debtors also ran into some crippling legal troubles.

On April 3, 2020, the District Court for the Western District of Texas entered a patent judgment against the debtors that instantly dumped a $39.9mm obligation on the debtors in favor of Repeat Precision LLC. Originally, Repeat Precision LLC was the defendant in a patent license agreement dispute pursuant to which the debtors claimed breach of contract, misappropriation of trade secrets and fraudulent inducement. Repeat Precision filed counterclaims for patent infringement and tortious interference. It appears the debtors weren’t prepared for the counter-punches. The judgment was the knockout punch.

And that punch created a domino effect. The judgment triggered an event of default under the debtors’ prepetition credit agreement. This was a double-whammy: just two days before, the debtors failed to make a principal payment and breached various financial covenants under the agreement. The debtors’ lender, UMB Bank NA, did enter into a forbearance agreement with the debtors but the debtors nevertheless determined that chapter 11 cases may afford them a “breathing spell” to get their business together (and perhaps pursue a sale process). The debtors secured a $5mm DIP commitment to fund their cases.

• Jurisdiction: N.D. of Texas (Judge Morris)

• Capital Structure: $20mm funded RCF (UMB Bank NA)

• Professionals:

  • Legal: Haynes and Boone LLP (Ian Peck, David Staab, Matthew Ferris)

  • Financial Advisor/CRO: CR3 Partners LLC (Greg Baracato, Cade Kennedy)

  • Claims Agent: Stretto (*click on the link above for free docket access)

• Other Parties in Interest:

  • US Bank NA

    • Legal: Bryan Cave Leighton Paisner LLP (Kyle Hirsch, Tricia Macaluso)

  • Unsecured Creditor: Repeat Precision LLC

    • Legal: Munsch Hardt Kopf & Harr PC (Davor Rukavina, Thomas Berghman)