EdgeMarc Energy Holdings, LLC
CASE SUMMARY (Middle Market): EdgeMarc Seeks to Sell Assets Following Pipeline System Explosion; Prepetition Lender KeyBank to Provide $108M in DIP Financing
Wed 05/15/2019 14:51 PM
Relevant Documents:
Voluntary Petition
Press Release
First Day Declaration
DIP Financing Motion
Bid Procedures Motion
EdgeMarc Energy Holdings, a Canonsburg, Pa.-based natural gas exploration and production company focused on clean-burning natural gas from the Appalachian Basin, filed for chapter 11 protection today in the Bankruptcy Court for the District of Delaware, along with several affiliates. The debtors seek to sell substantially all of their assets through a 363 sale, proposing an auction by Aug 14 and a sale closing by Sept. 17. The company does not currently have a stalking horse bidder, but reserves the right to select one at a later date.
EdgeMarc has received a commitment from its prepetition secured lender, KeyBank for $107.79 million in DIP financing, including $30 million in new money and $77.79 million as a rollup of all of KeyBank’s outstanding debt.
The bankruptcy filing follows an explosion along a pipeline and gathering system - known as Revolution - being built by third party, ETC Northeast Pipeline. The explosion occurred approximately four months before the system was scheduled to go live. The incident, the debtors say, occurred “due to factors entirely outside of” EdgeMarc’s control but nevertheless curbed EdgeMarc’s ability to sell gas from their Pennsylvania properties, hampering liquidity and capacity to satisfy funded debt and other obligations. ETC sued EdgeMarc in February in Pennsylvania state court alleging failure to pay and seeking a declaration that the termination of certain individual transaction confirmations part of the gathering agreement was invalid, after which the debtors counterclaimed asserting, among other things, that ETC breached the agreement by failing to put the Revolution system in commercial service by Jan. 1, 2019.
The company issued a press release that includes a quote from Callum Streeter, EdgeMarc’s CEO: “Since the explosion of the Revolution pipeline in 2018, EdgeMarc’s production has been significantly curtailed and the Company has been unable to satisfy its long-haul firm transportation contracts. Following a comprehensive review of all possible alternatives to ensure the Company’s long-term ability to develop our natural gas and NGL rich assets, the EdgeMarc Board and management team have determined that a sale is the best path forward for all stakeholders. This process will provide the necessary resources and flexibility to resume normal upstream operating activities at our well sites in Pennsylvania and Ohio.”
The first day hearing has yet to be scheduled.
The company reports $100 million to $500 million in both assets and liabilities. The company’s prepetition capital structure includes:
The debtors also had hedging agreements with KeyBank, which are secured under the prepetition credit facility. As of May 8, the debtors have approximately $791,000 in outstanding obligations under the hedging agreements.
KeyBank reduced the debtors’ borrowing base in March from $80 million to $40 million, and at the end of April, agreed to a forbearance that was ultimately extended until the petition date, May 15.
The debtors have approximately $6 million of unrestricted cash on hand.
The debtors seek to reject transportation service agreements with Rover Pipeline and Rockies Express Pipeline and Texas Gas Transmission, stressing that the agreements have become “economically burdensome” because of the gathering and pipeline system explosion, which has led to the suspension of production that has precluded gas shipments.
The debtors are represented by Landis Rath & Cobb and Davis Polk & Wardwell as counsel, Evercore as investment banker and Opportune and Dacarba as financial advisors. Prime Clerk is the claims agent. The case has been assigned to Judge Brendan Linehan Shannon (case number 19-11104).
Background
EdgeMarc, formed in fall 2011, is a natural gas exploration and production company operating in the Appalachian Basin with a focus on the “‘stacked’ liquid-rich” Marcellus shale in Pennsylvania and dry gas Utica shale in Ohio, where the company controls approximately 45,000 net acres and has drilled and developed a total of 60 producing wells. The debtors have entered into approximately 1,862 leases and own a working interest in approximately 60 producing wells. The debtors have 42 active employees in full-time and part-time positions.
For the 12 months ended Dec. 31, 2018, EdgeMarc recorded net revenue of approximately $116.9 million, primarily derived from the sale of natural gas, natural gas liquids, or NGLs, and condensate. Approximately $54.2 million (or 46%) of 2018 revenue was originated from the debtors’ Pennsylvania operations, while $62.7 million (or 54%) came from production in Ohio.
A map of the Marcellus and Utica shales, along with their overlap, and the debtors’ acreages is shown below:
In May 2015, the EdgeMarc began volume production of natural gas and NGLs, drilling and developing a total of 60 producing wells by 2018, when the debtors drilled and brought online 14 new wells in the Marcellus shale and six new horizontal wells in the Utica shale. By September 2018, the debtors had over 175 MMcfd of production capacity with the potential to expand exploration and production into the Upper Devonian shale.
In response to the “uncertainty” surrounding the explosion of the pipeline and gathering system, the debtors cut back on drilling and capital expenditures in Pennsylvania to preserve liquidity. Due to ETC’s refusal to allow EdgeMarc to flow gas through ETC’s gathering system on an on-demand basis, the debtors say that they were then “forced” to cease operations at all of their wells in Butler County, Pa. Since then, production has fallen by over one-third. Today, the debtors have 12 producing wells in Ohio with 3 additional wells in progress that if completed could come online by late 2019, and approximately 48 producing wells located in Pennsylvania that remain shut in due to the explosion.
The company attempted to reach settlement prepetition with pipeline operations and ETC on “needed” contract modifications for lower rates and quantities, but failing that it began to explore a sale. On March 27, EdgeMarc formed a restructuring committee comprised of independent board member Patrick Bartels, Jr., and this month the company launched a “broader marketing process” to be implemented through a bankruptcy proceeding.
The company’s corporate organizational structure is below:
The debtors’ largest unsecured creditors are listed below:
The case representatives are as follows:
DIP Financing Motion
The debtors request up to $107.79 million in DIP financing, consisting of $30 million in new money and $77.79 million of rollup loans, to refinance dollar-for-dollar the prepetition secured debt. On an interim basis, the debtors would be authorized to make a $15 million draw, and the debtors propose approval of the rollup loans (which would be secured on a junior basis to the DIP term loans) upon entry of the final order. All prepetition letters of credit issued and outstanding under the prepetition credit agreement would be canceled and reissued under the DIP credit agreement.
The DIP financing bears interest at the “Alternative Base Rate” plus (a) 5.75% prior to the availability period (subject to an 11% floor) (with 3% added for the default rate) and (b) 5.25% during the availability period (subject to a 10.5% floor) (with 2.5% added for the default rate). The DIP financing matures 180 days after entry of a final DIP order or other customary events.
To secure the DIP financing, the debtors propose to grant first priority liens on substantially all of their assets subject only to the “Permitted Prior Liens” and the carveout. The debtors propose a lien on avoidance action proceed subject to the final order. The DIP financing would also have superpriority administrative expense status with recourse to avoidance action proceeds subject to the final order. According to the declaration of Elliot Ross of Evercore in support of the DIP financing, the prepetition secured parties have consented to the priming of their liens.
The facility includes various fees, including an unused fee of 3% prior to the availability period and 2.5% during the availability period, 0.125% letter of credit fronting fees, 3% upfront fee and an exit fee of 3% prior to the availability period and 2.5% during the availability period.
Adequate Protection
The company proposes the following adequate protection to its prepetition lenders: replacement liens, allowed superpriority administrative expense claims, current monthly cash payments of postpetition interest and fees at the default rate and current reimbursement of fees and expenses, including professional fees, of the prepetition agent (Huron Consulting Group, Hunton Andrews Kurth and Connolly Gallagher).
In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).
The carveout for professional fees is $1 million, plus any “completion or sales fee and any divestiture fee (including, in each case, pursuant to a credit bid)” earned and payable by the debtors to Evercore.
DIP Budget
The proposed budget for the use of the DIP facility is HERE.
DIP Milestones
The DIP financing is subject to the following milestones:
Bid Procedures Motion
The debtors seek approval of a sale process for substantially all of their assets and authority to select a stalking horse bidder. The bid procedures allow for multiple stalking horse bids to the extent of multiple bids for non-overlapping lots of assets. If a stalking horse bidder is selected, the debtors propose objections to designation of the stalking horse would be due within 7 days after notice of the bidder, and if objections are filed, the debtors would seek approval of the stalking horse bid by Aug. 8. The debtors propose a 3% breakup fee and expense reimbursement up to 1% of the cash purchase price, to the extent a stalking horse bidder is selected.
Bids may be structured as an offer to purchase all of the assets, or a bid on either of the following packages of assets: (a) the debtors’ assets in Butler County, Pa. or (b) the debtors’ assets in Monroe and Washington counties in Ohio.
The debtors propose the following sale timeline:
Motions to Reject Agreements
The debtors seek to reject transportation service agreements entered into with Rover Pipeline and Rockies Express Pipeline and Texas Gas Transmission, providing the debtors with transportation of fixed quantities of natural gas. Due to the gathering and pipeline system explosion, the debtors say, the agreements have become “economically burdensome,” as the suspension of production has precluded the shipment of gas. The debtors say that, absent the rejection of the Texas Gas Transmission agreement, EdgeMarc would have to pay more than $4 million through the end of 2019 for unused contractual quantities. Absent the rejection of the Rover and Rockies Express agreements, the debtors follow, the debtors expect to pay more than $19 million through the end of 2019 for unused contractual quantities.
The debtors say that they have identified alternative providers of transportation services with which the debtors entered into agreements prior to the commencement of the chapter 11 cases. The net revenue from transporting under those agreements is expected to be favorable compared to the agreements they are seeking to reject, the debtors say.
Other Motions
The debtors also filed various standard first day motions, including the following:
Voluntary Petition
Press Release
First Day Declaration
DIP Financing Motion
Bid Procedures Motion
| Summary |
| EdgeMarc is a natural gas exploration and production company operating in the Marcellus shale in Pennsylvania and the Utica shale in Ohio |
| Attributes filing primarily to an explosion along a pipeline and gathering system being built by a third party that hindered sales and liquidity |
| Seeks $108 million in DIP financing, including $30 million in new money and a full rollup of the outstanding prepetition secured debt of KeyBank, which would serve as DIP agent |
| Proposes to run a sale process for substantially all assets, with authority to select one or more stalking horse bidders |
EdgeMarc has received a commitment from its prepetition secured lender, KeyBank for $107.79 million in DIP financing, including $30 million in new money and $77.79 million as a rollup of all of KeyBank’s outstanding debt.
The bankruptcy filing follows an explosion along a pipeline and gathering system - known as Revolution - being built by third party, ETC Northeast Pipeline. The explosion occurred approximately four months before the system was scheduled to go live. The incident, the debtors say, occurred “due to factors entirely outside of” EdgeMarc’s control but nevertheless curbed EdgeMarc’s ability to sell gas from their Pennsylvania properties, hampering liquidity and capacity to satisfy funded debt and other obligations. ETC sued EdgeMarc in February in Pennsylvania state court alleging failure to pay and seeking a declaration that the termination of certain individual transaction confirmations part of the gathering agreement was invalid, after which the debtors counterclaimed asserting, among other things, that ETC breached the agreement by failing to put the Revolution system in commercial service by Jan. 1, 2019.
The company issued a press release that includes a quote from Callum Streeter, EdgeMarc’s CEO: “Since the explosion of the Revolution pipeline in 2018, EdgeMarc’s production has been significantly curtailed and the Company has been unable to satisfy its long-haul firm transportation contracts. Following a comprehensive review of all possible alternatives to ensure the Company’s long-term ability to develop our natural gas and NGL rich assets, the EdgeMarc Board and management team have determined that a sale is the best path forward for all stakeholders. This process will provide the necessary resources and flexibility to resume normal upstream operating activities at our well sites in Pennsylvania and Ohio.”
The first day hearing has yet to be scheduled.
The company reports $100 million to $500 million in both assets and liabilities. The company’s prepetition capital structure includes:
- Secured debt:
- Credit facility (KeyBank as agent and sole lender): $77.79 million ($47 million in drawn revolving credit obligations and $30.8 million in issued and outstanding letters of credit)
- Credit facility (KeyBank as agent and sole lender): $77.79 million ($47 million in drawn revolving credit obligations and $30.8 million in issued and outstanding letters of credit)
- Unsecured debt: The debtors’ largest unsecured creditor is BP Energy Company, which holds a trade claim in the approximate amount of $41.4 million, followed by Rover Pipeline with a $3.8 million trade claim.
- Equity: A list of EdgeMarc Energy Holdings’ equityholders follows:
The debtors also had hedging agreements with KeyBank, which are secured under the prepetition credit facility. As of May 8, the debtors have approximately $791,000 in outstanding obligations under the hedging agreements.
KeyBank reduced the debtors’ borrowing base in March from $80 million to $40 million, and at the end of April, agreed to a forbearance that was ultimately extended until the petition date, May 15.
The debtors have approximately $6 million of unrestricted cash on hand.
The debtors seek to reject transportation service agreements with Rover Pipeline and Rockies Express Pipeline and Texas Gas Transmission, stressing that the agreements have become “economically burdensome” because of the gathering and pipeline system explosion, which has led to the suspension of production that has precluded gas shipments.
The debtors are represented by Landis Rath & Cobb and Davis Polk & Wardwell as counsel, Evercore as investment banker and Opportune and Dacarba as financial advisors. Prime Clerk is the claims agent. The case has been assigned to Judge Brendan Linehan Shannon (case number 19-11104).
Background
EdgeMarc, formed in fall 2011, is a natural gas exploration and production company operating in the Appalachian Basin with a focus on the “‘stacked’ liquid-rich” Marcellus shale in Pennsylvania and dry gas Utica shale in Ohio, where the company controls approximately 45,000 net acres and has drilled and developed a total of 60 producing wells. The debtors have entered into approximately 1,862 leases and own a working interest in approximately 60 producing wells. The debtors have 42 active employees in full-time and part-time positions.
For the 12 months ended Dec. 31, 2018, EdgeMarc recorded net revenue of approximately $116.9 million, primarily derived from the sale of natural gas, natural gas liquids, or NGLs, and condensate. Approximately $54.2 million (or 46%) of 2018 revenue was originated from the debtors’ Pennsylvania operations, while $62.7 million (or 54%) came from production in Ohio.
A map of the Marcellus and Utica shales, along with their overlap, and the debtors’ acreages is shown below:
In May 2015, the EdgeMarc began volume production of natural gas and NGLs, drilling and developing a total of 60 producing wells by 2018, when the debtors drilled and brought online 14 new wells in the Marcellus shale and six new horizontal wells in the Utica shale. By September 2018, the debtors had over 175 MMcfd of production capacity with the potential to expand exploration and production into the Upper Devonian shale.
In response to the “uncertainty” surrounding the explosion of the pipeline and gathering system, the debtors cut back on drilling and capital expenditures in Pennsylvania to preserve liquidity. Due to ETC’s refusal to allow EdgeMarc to flow gas through ETC’s gathering system on an on-demand basis, the debtors say that they were then “forced” to cease operations at all of their wells in Butler County, Pa. Since then, production has fallen by over one-third. Today, the debtors have 12 producing wells in Ohio with 3 additional wells in progress that if completed could come online by late 2019, and approximately 48 producing wells located in Pennsylvania that remain shut in due to the explosion.
The company attempted to reach settlement prepetition with pipeline operations and ETC on “needed” contract modifications for lower rates and quantities, but failing that it began to explore a sale. On March 27, EdgeMarc formed a restructuring committee comprised of independent board member Patrick Bartels, Jr., and this month the company launched a “broader marketing process” to be implemented through a bankruptcy proceeding.
The company’s corporate organizational structure is below:
(Click HERE to enlarge)
The debtors’ largest unsecured creditors are listed below:
The case representatives are as follows:
DIP Financing Motion
The debtors request up to $107.79 million in DIP financing, consisting of $30 million in new money and $77.79 million of rollup loans, to refinance dollar-for-dollar the prepetition secured debt. On an interim basis, the debtors would be authorized to make a $15 million draw, and the debtors propose approval of the rollup loans (which would be secured on a junior basis to the DIP term loans) upon entry of the final order. All prepetition letters of credit issued and outstanding under the prepetition credit agreement would be canceled and reissued under the DIP credit agreement.
The DIP financing bears interest at the “Alternative Base Rate” plus (a) 5.75% prior to the availability period (subject to an 11% floor) (with 3% added for the default rate) and (b) 5.25% during the availability period (subject to a 10.5% floor) (with 2.5% added for the default rate). The DIP financing matures 180 days after entry of a final DIP order or other customary events.
To secure the DIP financing, the debtors propose to grant first priority liens on substantially all of their assets subject only to the “Permitted Prior Liens” and the carveout. The debtors propose a lien on avoidance action proceed subject to the final order. The DIP financing would also have superpriority administrative expense status with recourse to avoidance action proceeds subject to the final order. According to the declaration of Elliot Ross of Evercore in support of the DIP financing, the prepetition secured parties have consented to the priming of their liens.
The facility includes various fees, including an unused fee of 3% prior to the availability period and 2.5% during the availability period, 0.125% letter of credit fronting fees, 3% upfront fee and an exit fee of 3% prior to the availability period and 2.5% during the availability period.
Adequate Protection
The company proposes the following adequate protection to its prepetition lenders: replacement liens, allowed superpriority administrative expense claims, current monthly cash payments of postpetition interest and fees at the default rate and current reimbursement of fees and expenses, including professional fees, of the prepetition agent (Huron Consulting Group, Hunton Andrews Kurth and Connolly Gallagher).
In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).
The carveout for professional fees is $1 million, plus any “completion or sales fee and any divestiture fee (including, in each case, pursuant to a credit bid)” earned and payable by the debtors to Evercore.
DIP Budget
The proposed budget for the use of the DIP facility is HERE.
DIP Milestones
The DIP financing is subject to the following milestones:
- Bid procedures motion: filed within 15 days of petition date
- Interim DIP order: entered within 15 days of petition date
- Final DIP order: entered within 30 days of petition date
- Bid procedures order: entered within 45 days of petition date
- Stalking horse LOI: executed within 55 days of petition date
- Asset purchase agreement: executed within 70 days of petition date
- Stalking horse bidder order: entered within 85 days of petition date
- Auction: within 100 days of petition date
- Sale order: entered within 110 days of petition date
- Sale closing: within 15 days of entry of sale order
Bid Procedures Motion
The debtors seek approval of a sale process for substantially all of their assets and authority to select a stalking horse bidder. The bid procedures allow for multiple stalking horse bids to the extent of multiple bids for non-overlapping lots of assets. If a stalking horse bidder is selected, the debtors propose objections to designation of the stalking horse would be due within 7 days after notice of the bidder, and if objections are filed, the debtors would seek approval of the stalking horse bid by Aug. 8. The debtors propose a 3% breakup fee and expense reimbursement up to 1% of the cash purchase price, to the extent a stalking horse bidder is selected.
Bids may be structured as an offer to purchase all of the assets, or a bid on either of the following packages of assets: (a) the debtors’ assets in Butler County, Pa. or (b) the debtors’ assets in Monroe and Washington counties in Ohio.
The debtors propose the following sale timeline:
- Bid procedures hearing: June 13
- Bid deadline: June 24
- Notice of qualified bidder status: Aug. 12
- Auction: by Aug. 14
- Sale objection deadline/assumption and assignment deadline: seven days before sale hearing
- Sale hearing: Aug. 16
Motions to Reject Agreements
The debtors seek to reject transportation service agreements entered into with Rover Pipeline and Rockies Express Pipeline and Texas Gas Transmission, providing the debtors with transportation of fixed quantities of natural gas. Due to the gathering and pipeline system explosion, the debtors say, the agreements have become “economically burdensome,” as the suspension of production has precluded the shipment of gas. The debtors say that, absent the rejection of the Texas Gas Transmission agreement, EdgeMarc would have to pay more than $4 million through the end of 2019 for unused contractual quantities. Absent the rejection of the Rover and Rockies Express agreements, the debtors follow, the debtors expect to pay more than $19 million through the end of 2019 for unused contractual quantities.
The debtors say that they have identified alternative providers of transportation services with which the debtors entered into agreements prior to the commencement of the chapter 11 cases. The net revenue from transporting under those agreements is expected to be favorable compared to the agreements they are seeking to reject, the debtors say.
Other Motions
The debtors also filed various standard first day motions, including the following:
- Motion for Joint Administration
- The cases will be jointly administered under case no. 19-11104 (BLS).
- Motion to Pay Certain Lien Claimants
- On a final basis, debtors seek approval to pay up to $3.9 million in marketing claims, up to $2.2 million in shipping and warehousing claims and up to $10 million in lien claims.
- Motion to Pay Royalties, Working Interests and Other Obligations
- On an interim basis, the company requests authority to pay up to $1 million on account of mineral interests and up to $50,000 on account of operating expenses. On a final basis, the corresponding amounts are $2.1 million and $50,000, respectively.
- Motion to Pay Employee Wages and Benefits
- The debtors seek to pay up to $555,400 in employee obligations on an interim basis, with up to approximately $2.1 million sought in total relief on a final basis. The difference between the interim and final amounts is almost entirely made up of non-insider retention plan obligations totaling approximately $1.55 million sought on a final basis.
- Motion to Use Cash Management System
- The company has bank accounts with KeyBank and Royal Bank of Canada.
- Motion to Maintain Insurance Programs
- Motion to Pay Taxes and Fees
- EdgeMarc requests approval to pay up to $1.805 million in taxes and fees on an interim basis and up to $4.265 million in taxes and fees on a final basis.
- Motion to Provide Utilities with Adequate Assurance
- Application to Appoint Prime Clerk as Claims Agent
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