2020’s Billion-Dollar Bankruptcy Total Reaches 36 as Oil & Gas, Retail Continue to Dominate Filings

This week saw energy sector chapter 11 filings from two E&P companies - California Resources and Bruin E&P Partners - as well as service companies Hi-Crush and the chapter 15 case of Calfrac Well Services. In 2020’s other major sector in distress - retail - chapter 11 filings this week include specialty women’s fashion retailer RTW Retailwinds and specialty gift retailer The Paper Store. Also this week, flooring manufacturer Congoleum Corporation made another appearance in chapter 11 after its 2003 filing which was designed to shed asbestos liabilities, this time seeking to sell assets with a stalking horse bid from noteholders.

Year-to-date, the energy and consumer discretionary sectors make up approximately 42% of all chapter 11 filings in the First Day Database. Since May, the two sectors make up just over half of filings across all sectors. The chart below compares the sector share breakdown of 2020 chapter 11 filings split between the Jan. 1 - April 30 and May 1 - July 17 periods, with energy and consumer discretionary making up 35% of the earlier period’s cases and 50.8% of the later period’s cases:
 
For filings across all sectors and liability ranges in the First Day Database, 2020 continues to steepen its departure from each of the prior years with respect to year-over-year filing frequency:
 
California Resources, a Los Angeles-based oil and natural gas exploration and production company, was the largest case of the week with more than $6 billion in debt. It filed in the Southern District of Texas with a restructuring support agreement in hand with “holders of approximately 84% of the Company’s 2017 term loans, 51% of the Company’s 2016 term loans and its Elk Hills midstream joint venture partner, Ares Management L.P.” Under the RSA, the debtors’ 2017 first lien, first out term loan would be split into a secured claim and a deficiency claim, with the secured portion receiving 91% of pre-dilution reorganized equity and 91% of subscription rights for a $450 million rights offering. The RSA also contemplates a settlement with Elk Hill plant JV partner Ares in which Ares could receive $300 million of new debt and 21% of reorganized equity in exchange for its JV interests. Along with issues stemming from the Covid-19 pandemic, the debtors blame its $6 billion in funded debt from a 2014 spinoff from Occidental Petroleum, along with commodity price deterioration since the spinoff. The debtors request DIP financing of $1.1 billion, that is contested by an ad hoc crossover group of the company’s 2016 FLLO term loans, second lien notes and unsecured notes.

Hi-Crush, a proppant and logistics services company for hydraulic fracturing industry, also filed with an RSA, with holders of approximately 94% of outstanding 9.5% senior unsecured notes due 2026. The company seeks a balance sheet restructuring, including a $43.3 million rights offering to eligible holders of senior notes claims and general unsecured claims. The debtors would shed approximately $450 million of unsecured note debt and provide for an ongoing reduction in annual interest expense of greater than $43 million. The case would be funded with $65 million in DIP financing consisting of a $25 million ABL and $40 million new money term loan. Hi-Crush pointed to the familiar problems of falling demand for northern white frac sand, the Covid-19 pandemic and the Saudi-Russian oil price war as reasons for the filing. In addition, the debtors noted the “dual stresses” of depressed earnings and increased costs as well as an oversupply of leased railcars.

The week’s other oil and gas exploration and production company, Bakken-focused Bruin E&P Partners, filed with a prepackaged plan that would eliminate more than $840 million of funded debt, supported by more than two-thirds of all of Bruin’s funded debt creditors and the debtors’ current equityholders. The company expects to seek confirmation within 45 days. Bruin also blames its filing on the price war between Saudi Arabia and Russia, the Covid-19 pandemic and crude oil prices dropping, saying that the “market turmoil in March and April took, and continues to take, a toll on both energy markets and the financial system as a whole, as institutions grapple with significant levels of economic uncertainty.”

California Resources and Bruin E&P Partners are the year’s 35th and 36th chapter 11 filings to report more than $1 billion in debt on their voluntary petitions, as well as the 10th and 11th energy sector billion-dollar chapter 11s. The energy sector leads chapter 11s of this size for the year, representing 31% of the whole, followed by consumer discretionary with 25%, as shown below:
 
The Paper Store, which has 86 specialty gift stores in seven states, pins its chapter 11 filing on the Covid-19 pandemic, before which the company had overcome rising labor costs, changing vendors and an expansion effort. The debtors say that they were “on the precipice of reaping the fruits of those efforts,” before the pandemic, which only exacerbated challenges related to substantial funded debt obligations and significant lease obligations. The Paper Store says that most of their landlords were “not interested” in renegotiating lease terms, and the debtors have not paid most rent obligations for April, May and June. The company is seeking to sell its assets quickly because the company lacks sufficient liquidity to stock its stores for the upcoming holiday season. The debtors have requested approval of bid procedures without a current stalking horse, and continues to negotiate with an “investor group” that includes the debtors’ founders, the Anderson family, who are current officers, directors and majority equityholders.

New York-based RTW Retailwinds, which has a portfolio including branded merchandise from New York & Co., Fashion to Figure and Happy x Nature, filed in New Jersey on Tuesday, as “the latest victims of the retail apocalypse that was first created by a customer migration away from brick-and-mortar stores and most recently, the COVID-19 pandemic.” Eschewing the viability of a brick-and-mortar sale based on market feedback, the debtors seek to sell their e-commerce business, which they assert “has and continues to represent an attractive asset for buyers.” At the same time, the company seeks to run going out of business sales through Great American Group and Tiger Capital Group for all of their 387 stores.

RTW and The Paper Store are the 22nd and 23rd retail chain chapter 11s of 2020.
 
Congoleum Corporation, a residential and commercial flooring products manufacturer filed a chapter 22 this week, also in New Jersey, following its 2003 case that resulted in the formation of a trust to address asbestos liabilities. As part of a 2014 out-of-court restructuring, the trust sold the majority of its stock in the debtor to certain current shareholders. Facing issues stemming from an unfavorable distribution contract, the effects of the Covid-19 pandemic on consumer spending, Chinese tariffs and $24 million in pension underfunding, the company is looking to sell its assets. The company has secured a stalking horse bid from an entity created by holders of the company’s 9% senior secured notes due 2020, including a $28 million credit bid and satisfaction of a prepetition ABL loan. The prepetition ABL lender, Wells Fargo Bank, which is owed $14.7 million, has agreed to provide approximately $18.5 million in DIP financing that includes a “creeping” rollup. 

Below is a recap of the sale-related events for the week’s cases:
Below is a recap of filing alerts and case summaries from the past week, all of which can also be found on the First Day website:
Case data, such as advisors and DIP financing terms, including for filings discussed above, can be found in the First Day Database, which includes all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities.