JAB Energy Solutions II LLC
CASE SUMMARY: JAB Energy Solutions II to Conclude Wind-Down in Chapter 11, Funded by $600K in New Money DIP Financing from Senior Secured Lender GarMark
Thu 09/30/2021 15:40 PM
Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
First Day Hearing Agenda
JAB Energy Solutions II LLC, Shenandoah, Texas-based general contractor and service provider for the decommissioning, removal, abandonment, construction and installation of offshore oil and gas facilities, platforms and pipelines, filed for chapter 11 protection on Sept. 7 in the Bankruptcy Court for the District of Delaware. The debtor seeks to alleviate the pressure of litigation to allow it to collect receivables under open work orders, and then complete the orderly wind-down of operations through a plan of liquidation. The debtor’s existing senior secured lender, GarMark SBIC Fund II, L.P., would provide the funding for the wind-down efforts in the form of $600,000 in new money DIP financing, plus a rollup of GarMark’s prepetition debt.
According to the first day declaration of the debtor’s chief restructuring officer, Albert Altro, the debtor is in the process of winding down and has only two major outstanding work orders, for which it is owed more than $10 million. After defaults on its two existing secured credit facilities and discussions with the secured lenders for going forward options, the debtor proceeded with an assignment for the benefit of creditors prepetition. The assignee’s efforts, however, were impeded by pending litigation and an injunction with respect to one of the debtor’s open projects.
The first day hearing has been scheduled for tomorrow, Friday, Oct. 1, at 9 a.m. ET.
The company reports $10 million to $50 million in both assets and liabilities. The company’s prepetition capital structure includes:
The GarMark loan, which includes as borrowers certain non-debtor affiliates, and is guaranteed by parent company Allison Marine Holdings, is secured by substantially all of the debtor’s assets, including accounts receivable. The Castlegate loan is secured by a junior lien on substantially all of the debtor’s assets, including accounts receivable. According to the first day declaration, the “equity ownership of Castlegate is included amongst the equity ownership of Holdings.”
The U.S. Trustee appointed an official committee of unsecured creditors according to a notice filed on Sept. 24, with the following members:
The debtor is represented by Pachulski Stang Ziehl & Jones in Wilmington, Del. Albert Altro of Traverse is the CRO. The UCC is represented by Joyce, LLC and Lugenbuhl, Wheaton, Peck, Rankin & Hubbard. The case has been assigned to Judge Craig T. Goldblatt (case number 21-11226).
Background
The debtor was founded in 2008 by “industry veterans” in offshore construction and abandonment. Over the past 10 years, the debtor executed more than $300 million in decommissioning, removal and abandonment projects.
The debtor’s outstanding projects are as follows:
The debtor is subject to various vendor litigation proceedings pending in Louisiana and Texas. One of the cases is pending in the U.S. District Court for the Eastern District of Louisiana, commenced by Turnkey Offshore Project Services, LLC against the debtor and other defendants with respect to offshore platform removal work that Turnkey performed. Turnkey seeks more than $8 million in damages. After the assignment for the benefit of creditors, Turnkey sought and obtained an injunction providing that any funds recovered by the debtor relating to the High Island project be deposited in the Louisiana court’s registry.
The debtor is also party to litigation pending in Texas state court, in which Offshore Domestic Group has obtained an interlocutory partial summary judgment on its breach of contract action. The debtor’s motion for a new trial remains pending.
The company’s corporate organizational structure follows:
The case representatives are as follows:
DIP Financing Motion
The debtor requests approval of $600,000 in new money DIP financing ($300,000 on an interim basis) from existing senior secured lender GarMark, plus a full rollup of GarMark’s prepetition debt subject to the final order.
The DIP loan includes as a non-debtor borrower parent Allison Marine Holdings as to the new money. The parent advanced the debtor payroll “due to the delay in having the DIP approved” and the DIP budget contemplates reimbursement for these postpetition advances.
The DIP financing bears interest at 12%, with 3% added for the default rate, and matures 12 months from the petition date. The proposed interest rate is lower than the existing GarMark loan rate.
To secure the DIP financing, the debtors propose to grant priming liens on the debtor’s assets (including avoidance actions upon entry of a final order). The “only prepetition liens being primed (aside from the Prepetition Senior Indebtedness that will be rolled-up) are those held by the Prepetition Junior Lender, which has consented to such priming.” The prepetition lenders have also consented to the use of cash collateral. The DIP financing would also have superpriority administrative expense status.
The facility “has no commitment fees, prepayment fees, exit fees, administration fees, or unused line fees of any kind.”
“Prior to the Petition Date, given the assignment for the benefit of creditors, the Debtor recognized a need for further outside financing and began the process of negotiating debtor-in-possession financing initially with Castlegate and then Garmark,” the debtors say, adding that ultimately, “Castlegate deferred to Garmark to provide a DIP Facility to the Debtor.”
The company proposes the following adequate protection to its prepetition lenders: replacement liens and superiority claims, payable out of proceeds of avoidance actions upon entry of the final order. The adequate protection for junior lender Castlegate would be junior to that of GarMark.
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 proposed budget for the use of the DIP facility is HERE.
The lien challenge deadline is 75 days from the petition date for all parties other than an official committee of unsecured creditors, which would have 60 days from formation.
It would be an event of default if the debtor fails to collect on the Bretton Sound or High Island receivables within six months of the petition date.
Other Motions
The debtor also filed various standard first day motions, including the following:
Voluntary Petition
First Day Declaration
DIP Financing Motion
First Day Hearing Agenda
| Summary |
| JAB Energy Solutions II is a general contractor and service provider for the decommissioning, removal, abandonment, construction and installation of offshore oil and gas facilities, platforms and pipelines |
| After default under two secured credit facilities, debtor proceeded with assignment for the benefit of creditors |
| Seeks to collect $10 million in receivables on two open projects, continue wind-down and file plan of liquidation |
JAB Energy Solutions II LLC, Shenandoah, Texas-based general contractor and service provider for the decommissioning, removal, abandonment, construction and installation of offshore oil and gas facilities, platforms and pipelines, filed for chapter 11 protection on Sept. 7 in the Bankruptcy Court for the District of Delaware. The debtor seeks to alleviate the pressure of litigation to allow it to collect receivables under open work orders, and then complete the orderly wind-down of operations through a plan of liquidation. The debtor’s existing senior secured lender, GarMark SBIC Fund II, L.P., would provide the funding for the wind-down efforts in the form of $600,000 in new money DIP financing, plus a rollup of GarMark’s prepetition debt.
According to the first day declaration of the debtor’s chief restructuring officer, Albert Altro, the debtor is in the process of winding down and has only two major outstanding work orders, for which it is owed more than $10 million. After defaults on its two existing secured credit facilities and discussions with the secured lenders for going forward options, the debtor proceeded with an assignment for the benefit of creditors prepetition. The assignee’s efforts, however, were impeded by pending litigation and an injunction with respect to one of the debtor’s open projects.
The first day hearing has been scheduled for tomorrow, Friday, Oct. 1, at 9 a.m. ET.
The company reports $10 million to $50 million in both assets and liabilities. The company’s prepetition capital structure includes:
- Secured debt:
- GarMark SBIC Fund II, L.P.: $3 million in principal
- Castlegate Credit Opportunities Fund, LLC: $13.9 million in principal
- Unsecured debt: $16 million (primarily owed to vendors in connection with the debtor’s platform removal and decommissioning projects)
- Equity: Allison Marine Holdings, LLC owns the debtors, as well as several other non-debtor affiliates.
The GarMark loan, which includes as borrowers certain non-debtor affiliates, and is guaranteed by parent company Allison Marine Holdings, is secured by substantially all of the debtor’s assets, including accounts receivable. The Castlegate loan is secured by a junior lien on substantially all of the debtor’s assets, including accounts receivable. According to the first day declaration, the “equity ownership of Castlegate is included amongst the equity ownership of Holdings.”
The U.S. Trustee appointed an official committee of unsecured creditors according to a notice filed on Sept. 24, with the following members:
- Offshore Domestic Group, LLC: Holds a $3.6 million litigation claim, according to the debtor’s petition;
- HB Rentals, LC: Holds a $730,415 trade claim, according to the petition; and
- Sparrows Offshore, LLC: Holds a $416,025 trade claim, according to the petition.
The debtor is represented by Pachulski Stang Ziehl & Jones in Wilmington, Del. Albert Altro of Traverse is the CRO. The UCC is represented by Joyce, LLC and Lugenbuhl, Wheaton, Peck, Rankin & Hubbard. The case has been assigned to Judge Craig T. Goldblatt (case number 21-11226).
Background
The debtor was founded in 2008 by “industry veterans” in offshore construction and abandonment. Over the past 10 years, the debtor executed more than $300 million in decommissioning, removal and abandonment projects.
The debtor’s outstanding projects are as follows:
- High Island project: The debtor is party to a decommissioning services agreement with Black Elk Energy Offshore Operations, for which it estimates a $5.6 million receivable subject to certain payment triggers, including receipt of a completion report by the Bureau of Safety and Environmental Enforcement. Black Elk commenced its own bankruptcy case in September 2015 that is now administered by the Black Elk Litigation Trust, with which the debtor’s outstanding work order is held for offshore platform removal work in Louisiana and Texas. The debtor says it filed an $8.6 million proof of claim in the Black Elk bankruptcy with respect to decommissioning projects from 2013 and 2014.
- Breton Sound project: Energen Resources Corp engaged the debtor to decommission and remove a platform and abandon the pipeline in the Breton Sound basin located off the coast of New Orleans. The project is “largely complete,” except for the removal of a concrete barge, which has been delayed due to Hurricane Ida. The debtor expects to receive $4.4 million from Energen, who the debtor says is a “financially sound company.”
The debtor is subject to various vendor litigation proceedings pending in Louisiana and Texas. One of the cases is pending in the U.S. District Court for the Eastern District of Louisiana, commenced by Turnkey Offshore Project Services, LLC against the debtor and other defendants with respect to offshore platform removal work that Turnkey performed. Turnkey seeks more than $8 million in damages. After the assignment for the benefit of creditors, Turnkey sought and obtained an injunction providing that any funds recovered by the debtor relating to the High Island project be deposited in the Louisiana court’s registry.
The debtor is also party to litigation pending in Texas state court, in which Offshore Domestic Group has obtained an interlocutory partial summary judgment on its breach of contract action. The debtor’s motion for a new trial remains pending.
The company’s corporate organizational structure follows:
The debtor's largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| Turnkey Offshore Project Services, LLC | Houma, La. | Judgment | $ 8,279,542 |
| Offshore Domestic Group | New Orleans | Litigation | 3,558,481 |
| Texas Parks and Wildlife Department
Artificial Reef Program |
Austin, Texas | Trade | 878,243 |
| HB Rentals, LC | Dallas | Trade | 730,415 |
| Crosby Tugs, LLC | Golden Meadow, La. | Trade | 553,330 |
| Offshore Technical Compliance, LLC | Covington, La. | Litigation | 534,479 |
| Sparrows Offshore LLC | Dallas | Trade | 416,025 |
| C-Dive, LLC | Houma, La. | Litigation | 352,838 |
| US Dept. of Commerce - NOAA | Galveston, Texas | Trade | 240,739 |
| Demex International Inc. | Picayune, Miss. | Trade | 219,698 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtor's Counsel | Laura Davis Jones | Pachulski Stang
Ziehl & Jones |
Wilmington, Del. |
| Colin R. Robinson | |||
| Mary F. Caloway | |||
| Maxim B. Litvak | |||
| Debtor's CRO | Albert Altro | Traverse | N/A |
| Debtor's Claims Agent | Sheryl Betance | Stretto | Irvine, Calif. |
| Co-Counsel to
Castlegate |
Neil B. Glassman | Bayard | Wilmington, Del. |
| Erin R. Fay | |||
| Gregory J. Flasser | |||
| Co-Counsel to
Castlegate |
Joseph T. Moldovan | Morrison Cohen | New York |
| David J. Kozlowski | |||
| Co-Counsel to GarMark | Jeffrey M. Reisner | Steptoe & Johnson | Los Angeles |
| Co-Counsel to GarMark | N/A | Finn Dixon & Herling | N/A |
| Co-Counsel to the UCC | Michael J. Joyce | Joyce | Wilmington, Del. |
| Co-Counsel to the UCC | Benjamin W. Kadden | Lugenbuhl, Wheaton,
Peck, Rankin & Hubbard |
New Orleans |
| Stewart F. Peck | |||
| Alicia M. Bendana | |||
| Coleman L. Torrans | |||
| United States Trustee | Timothy Jay Fox, Jr. | Office of the
U.S. Trustee |
Wilmington, Del. |
DIP Financing Motion
The debtor requests approval of $600,000 in new money DIP financing ($300,000 on an interim basis) from existing senior secured lender GarMark, plus a full rollup of GarMark’s prepetition debt subject to the final order.
The DIP loan includes as a non-debtor borrower parent Allison Marine Holdings as to the new money. The parent advanced the debtor payroll “due to the delay in having the DIP approved” and the DIP budget contemplates reimbursement for these postpetition advances.
The DIP financing bears interest at 12%, with 3% added for the default rate, and matures 12 months from the petition date. The proposed interest rate is lower than the existing GarMark loan rate.
To secure the DIP financing, the debtors propose to grant priming liens on the debtor’s assets (including avoidance actions upon entry of a final order). The “only prepetition liens being primed (aside from the Prepetition Senior Indebtedness that will be rolled-up) are those held by the Prepetition Junior Lender, which has consented to such priming.” The prepetition lenders have also consented to the use of cash collateral. The DIP financing would also have superpriority administrative expense status.
The facility “has no commitment fees, prepayment fees, exit fees, administration fees, or unused line fees of any kind.”
“Prior to the Petition Date, given the assignment for the benefit of creditors, the Debtor recognized a need for further outside financing and began the process of negotiating debtor-in-possession financing initially with Castlegate and then Garmark,” the debtors say, adding that ultimately, “Castlegate deferred to Garmark to provide a DIP Facility to the Debtor.”
The company proposes the following adequate protection to its prepetition lenders: replacement liens and superiority claims, payable out of proceeds of avoidance actions upon entry of the final order. The adequate protection for junior lender Castlegate would be junior to that of GarMark.
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 proposed budget for the use of the DIP facility is HERE.
The lien challenge deadline is 75 days from the petition date for all parties other than an official committee of unsecured creditors, which would have 60 days from formation.
It would be an event of default if the debtor fails to collect on the Bretton Sound or High Island receivables within six months of the petition date.
Other Motions
The debtor also filed various standard first day motions, including the following:
- Motion to pay employee wages and benefits
- The debtor has six employees.
- The debtor seeks authority to continue to pay amounts pursuant to the following programs:
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