⛽️New Chapter 11 Bankruptcy Filing - Whiting Petroleum Corporation ($WLL)⛽️

Whiting Petroleum Corporation

April 1, 2020

Denver-based Whiting Petroleum Corporation ($WLL) and four affiliates (the “debtors”), independent oil-focused upstream exploration and production companies focused primarily on the North Dakota and Rocky Mountain regions, filed for bankruptcy in the Southern District of Texas. This is a story that requires an understanding of the debtors’ impressively-levered capital structure to understand what’s going on:

• $1.072b ‘23 RBL Facility (JPMorgan Chase Bank NA)(springing maturity to 12/20 if the ‘21 notes below are not paid in full by 12/20)

• $189.1mm ‘20 1.25% convertible senior unsecured notes due 2020 (Bank of New York Mellon Trust Company, N.A.)

• $773.6mm ‘21 5.75% senior unsecured notes

• $408.3mm ‘23 6.25% senior unsecured notes

• $1b ‘26 6.625% senior unsecured notes

You’ve heard us talk about the capital intensive nature of E&P companies so … yeah … the above $3.443b of debt shouldn’t come as much of a surprise to you. The company is also publicly-traded. The stock performance over the years has been far from stellar:

What’s interesting here is that EVERYONE knows that oil and gas has been a value-destructive sh*t show for years. There’s absolutely ZERO need to belabor the point. Yet. That doesn’t stop the debtors’ CRO from doing precisely that. Here, embedded in the First Day Declaration, is a chart juxtaposing a $100 investment in WLL versus a $100 investment in an S&P 500 index and a Dow Jones U.S. E&P Index:

We should also add that the spike reflected in the above chart in the 2017 timeframe isn’t on account of some stellar improvement of operating performance; rather, it reflects a November 2017 1-to-4 reverse stock split which inflated the reflected price of the shares. Just to be clear.

Notwithstanding the hellacious performance since 2014, the debtors take pains to paint a positive picture that was thrown into disarray by “drastic and unprecedented global events, including a ‘price war’ between OPEC and Russia and the macroeconomic effects of the COVID-19 pandemic….” In fact, the debtors come in HOT in the introduction to the First Day Declaration:

The Debtors ended 2019 standing on solid ground. While the Debtors had more than $1 billion in unsecured bond debt set to mature prior to December 2020, the Debtors had significant financial flexibility to restructure their capital structure. Most importantly, the Debtors began 2020 with a committed revolving credit facility that provided them with committed financing of up to $1.75 billion—more than enough liquidity to service the Debtors’ 2020 maturities and fund anticipated capital expenditure needs throughout the year. For these reasons, the Debtors secured a “clean” audit report as recently as February 27, 2020.

And to be fair, the debt was doing just fine until the middle of February. Indeed, the unsecured notes didn’t hit distressed levels until right after Valentine’s Day. Check out this freefall:

Who needs open amusement parks when you can just follow that price action?

Already focused on “liability management” (take a drink!) given the looming ‘21 notes maturity and the corresponding RBL springing maturity, the debtors’ retained professionals shifted over to restructuring talks with an ad hoc committee of noteholders. The debtors also drew down $650mm on their revolver to ensure adequate go-forward liquidity (and, cough, avoid the need for a relatively more expensive DIP credit facility). After what sounds like serious deliberation (and opposition from the ad hoc committee), the debtors also opted to forgo the $190mm maturity payment on the convertible notes due April 1.

The debtors filed the case with the framework of a restructuring support agreement (aka a term sheet). That framework would equitize the converts and the unsecured notes, giving them 97% of the equity (for now … debt is also still under consideration). Unsecured claims will be paid in full. Existing equity would receive 3% of post-reorg equity and warrants. Post-reorg management will get 8% of the post-reorg equity. In total, this would amount to the evisceration of over $2b worth of debt. 😬

Speaking of management, a lot of people were up in arms over this bit in the debtors’ Form 8-K filed to announce the bankruptcy filing and term sheet:

That’s right. A nice immediately-payable bonus to management.

Remember that story of Lehman Brothers CEO Dick Fuld getting punched the day after Lehman’s bankruptcy on a treadmill in the corporate gym?

Fees like something like that may be coming soon to $WLL headquarters... 👀

— EnergyCynic (@EnergyCynic) April 1, 2020

We’d love to hear how this ISN’T a subversion of code provisions regarding KEIPS/KERPS. Seriously, write us: petition@petition11.com. Ensure stability huh? Tell us: WHERE THE F*CK ARE THESE GUYS GOING TO GO IN THIS ENVIRONMENT? But at least they’re passing up their (WILDLY WORTHLESS) equity awards and bonus payments. FFS.

Ok, fine. Maybe there were contractual provisions that needed to be taken into account. And maybe the alternative — sh*tcanning management and rejecting the employment contracts — doesn’t fit the construct of leaving an umimpaired class of unsecured creditors. Equity is wildly out-of-the-money and getting a tip here anyway. This, therefore, is just a transfer of value from the noteholders to the management. We have to assume that the noteholders, then, were aware of this before it happened. If not, they should be pissed. And the Directors — who make between $180,000 and $305,000 a year — ought to be questioned by said noteholders about potential breaches of duties.

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• Jurisdiction: S.D. of TX (Judge Jones)

• Capital Structure:

• Professionals:

  • Legal: Kirkland & Ellis LLP (Stephen Hessler, Brian Schartz, Gregory Pesce, Anna Rotman) & Jackson Walker LLP (Matthew Cavenaugh, Jennifer Wertz, Veronica Polnick)

  • CRO: Stein Advisors LLC (Jeffrey Stein)

  • Financial Advisor: Alvarez & Marsal LLC (Julie Hertzberg)

  • Investment Banker: Moelis & Company

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

• Other Parties in Interest:

  • RBL Agent: JPMorgan Chase Bank NA

  • Ad Hoc Committee of Noteholders

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Andrew Rosenberg, Alice Beslisle Eaton, Michael Turkel, Omid Rahnama) & Porter Hedges LLP (John Higgins, Eric English, Genevieve Graham)

    • Financial Advisor: PJT Partners LP

  • Creditor: Caliber North Dakota LLC

    • Legal: Weil Gotshal & Manges LLP (Alfredo Perez, Brenda Funk)

⛽️New Chapter 22 Bankruptcy Filing - PES Holdings LLC⛽️

PES Holdings LLC

July 21, 2019

Picture the private equity associate. He’s sitting at his desk, twiddling his thumbs, looking for something to do. All is good in the world: the portfolio is humming along, he hasn’t gotten roped into a lose/lose golf tournament with the senior partners in a while, and he just wants to lay low and ride out the summer if he can. Then, suddenly, on one fateful summer day in June, one of his portfolio companies just up -and-decides to randomly explode — or, as the company puts it, suffer a “historic, large-scale, catastrophic accident.” Suddenly he’s mopping the floor with his jaw.

This sudden turn of events is particularly stupefying when you consider that the portfolio company — PES Holdings LLC, aka Philadelphia Energy Solutions — happens to be a 150 year-old oil refining complex that also happens to be (i) the largest on the United States Eastern seaboard (representing approximately 28% of the crude oil refining capacity on the east coast), and (ii) an employer of 950 employees. What are the possible knee-jerk reactions here? Are they:

1. “Oh sh*t, there goes our portfolio for the year!”

2. “F******ck, did our investment literally just go up in smoke?”

3. “Am I going to have a job tomorrow?”

Then there are likely the secondary considerations:

1. “How will the Commonwealth of Pennsylvania and the City of Philadelphia fulfill their energy needs?”

2. “Oh no! Did anyone die??!?”

That’s right: we’re cynical AF. After those two waves of initial thoughts and after a deep breath, we bet these were the next questions:

1. “Do we have to file this thing for ANOTHER bankruptcy now?”

2. “How robust is our insurance coverage? What are our insurance premiums and can we keep paying them to ensure coverage?”

3. “Is this an opportunity? How do we transfer all of the risk and best position ourselves to drive equity value here?”

The latter two considerations — as heartless and lacking in empathy as they may be — are highly realistic. And highly relevant, considering the explosion and attendant fire on June 21 forced the company to shut down its plant. The timing couldn’t have been worse: the explosion took place mere days after the company finalized the implementation of a new intermediation facility. Now, though, all “momentum” is lost: the company is currently inoperable and will require an extensive rebuild: at limited capacity and with massive fixed operational costs, the company would have burned (pun most definitely intended) through $100mm in liquidity within a few weeks. Cue the chapter 22 bankruptcy filing.*

Of course, prior to the filing, the company engaged in dialogue with its insurers:

The Debtors also immediately began a process to engage with their insurers—as it relates to property and business interruption insurance claims for the losses caused by the Girard Point Incident—to advance a dialogue toward an immediate advance and a global resolution that will allow the Debtors to restore their operations. The Debtors have yet to obtain such an advance.

Show us an insurer who is ready and willing to fork over proceeds on a moments notice and we’ll show you a bridge we’re selling.

The Debtors’ goal in the near term remains continuing to preserve the safe operation of the Refining Complex while they seek to recover as quickly as possible on their property and business interruption insurance claims and pursue various transactions to preserve their operations and maximize value.

We’re not talking about peanuts here, folks:

The Debtors have $1.25 billion in property and business interruption insurance coverage to protect against these kinds of losses (in addition to other insurance policies that cover other aspects of the Girard Point Incident). The Debtors are working with the insurers under that program to make the Debtors whole for the physical loss of the refinery and the resulting interruption of the Debtors’ business. These insurance proceeds are the very heart of these chapter 11 cases: the sooner the Debtors can recover, the sooner the business can complete its recovery.

While the company waits for the insurers to cough up some cash, it, obviously, needs to focus on safety issues and fire-related cleanup. To that end, it secured a $100mm DIP commitment from certain of its term loan lenders and continues to engage in discussions with ICBC Standard Bank PLC about a dual-DIP structure that would avail the company of even more liquidity. Ultimately, the company hopes to reorganize as a going concern. The extent to which the insurers play ball will dictate whether that’s possible. Something tells us there are some risk analysts combing through those policies with a fine tooth looking for any and all exemptions that they can pull out of their a$$es.

*According to the company, the first chapter 11 filing: “(i) secured a capital infusion of approximately $260 million; (ii) extended the Debtors’ debt maturities through 2022; (iii) reduced the Debtors’ anticipated debt service obligations by approximately $35 million per year; (iv) provided the Debtors with access to a new intermediation facility; and (v) provided the Debtors with relief from certain regulatory obligations.”

• Jurisdiction: D. of Delaware (Judge Gross)

• Capital Structure: see below

• Professionals:

  • Legal: Kirkland & Ellis LLP (Edward Sassower, Steven Serajeddini, Matthew Fagen, Michael Slade, Allyson Smith Weinhouse, Patrick Venter, Nacif Taousse, Whitney Becker) & Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, James O’Neill, Peter Keane)

  • CRO: Stein Advisors LLC (Jeffrey Stein)

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: PJT Partners LP

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

• Other Parties in Interest: