Epic Companies, LLC
CASE SUMMARY (Middle Market): Epic Companies to Run 363 Sale Process with Stalking Horse Credit Bid From Lender White Oak
Tue 08/27/2019 12:37 PM
Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
Bid Procedures Motion
First Day Hearing Notice
Epic Companies, LLC, a Houston-based provider of heavy lift, diving, marine, specialty cutting, well plugging and abandonment services for the oil and gas industry, filed for chapter 11 protection on Monday night in the Bankruptcy Court for the Southern District of Texas, setting up a 65-day going concern sale process for substantially all of their assets. The debtors have secured White Oak Global Advisors, LLC as the proposed stalking horse bidder with a credit bid of $48.9 million of its prepetition and postpetition debt and assumption of $40 million of the debt under the prior junior loan agreement. Upon the sale closing, White Oak would sell certain of the assets to Alliance Energy Services, LLC “for a cash purchase price of $40 million and an assumption of $35 million of the indebtedness evidenced by the Prior Junior Loan Agreement, among other terms, in a separate transaction financed by White Oak, and is in discussions regarding the sale of other portions of the assets to other third parties on terms to be agreed.”
The debtors request approval of up to $9.5 million of DIP financing with White Oak Global Advisors as agent.
A chapter 7 involuntary petition was filed against Epic on Aug. 2. On the voluntary petition date, Epic filed a motion to dismiss the involuntary case or transfer venue to the Bankruptcy Court for the Southern District of Texas. In a declaration in support of the motion, Kelton C. Tonn, legal officer at Epic Companies, says that Epic “comprehensively prepared a potential chapter 11 filing for several weeks” before the voluntary filing. Epic voluntarily filed “as soon as it could do so in an organized and responsible manner,” Tonn says, adding that the DIP financing negotiations were “contentious and protracted,” and that there was no certainty as to the DIP financing until the secured lenders agreed on the eve of the voluntary filing.
The first day hearing has been scheduled for today, Aug. 27, at 3 p.m. ET.
The debtors lament that, “like many in their industry,” the downturn in oil and natural gas prices and other industry-related challenges have hindered the company’s liquidity position, leading to defaults under their prior senior loan agreement and existing junior loan agreement and White Oak’s daily sweeping of the debtors’ bank accounts. After making “a number” of protective advances to fund Epic’s operations, White Oak informed the debtors that it would cease providing any further funding, and subsequently the debtors terminated approximately 400 employees.
The company reports $10 million to $50 million in assets and $100 million to $500 million in liabilities. The company’s prepetition capital structure includes:
The debtors have $200,000 in cash and cash equivalents as of the petition date. Without the proposed DIP financing, the debtors say that they will fall below minimum liquidity levels to safely operate by Aug. 28.
The debtors are represented by Porter Hedges in Houston. Jeffrey Varsalone, managing director at G2 Capital Advisors, LLC, is the CRO. Epiq Corporate Restructuring is the claims agent. The case has been assigned to Judge Marvin Isgur (19-34752).
Background
Epic, a privately held company formed in March 2018 from the divestiture of Tetra Technologies' offshore services division, is a full-service provider of support services for the global decommissioning, installation and maintenance markets. The company has limited ongoing operations.
The debtors own a 1,763-ton capacity “world-class” derrick barge, an 800-ton derrick and an exploration vessel. The company also owns unencumbered real property located at 168, 306, and 403 on Menard Road in Houma, La., which is used by Epic Recycling, and unused unencumbered real property located at 600 Thompson Road in Houma, La. The debtors also own real property located at 309 Dickson Road in Houma, La., that is subject to White Oak's liens. The Dickson Road property was utilized primarily by Epic's heavy lift and well plugging and abandonment operations personnel and for equipment storage.
Through the end of 2018, the company expanded its service lines with the acquisition of BAE Mobile, Alabama Shipyard and certain assets and capabilities of Wrights Well Control Services and Ranger Offshore. In early 2019, Epic entered the metals recycling business and formed Epic Recycling Services and Epic Alabama Recyclers.
Epic’s formation from the Tetra divestiture included the acquisition of debtor entity Epic TSB Offshore, which Epic divested in April 2019. In July 2019, White Oak foreclosed on Epic’s equity interests in Epic Alabama Holdings, Epic Maritime Asset Holdings and Navarro Capital Partners, then subsequently transferred the equity interests of Epic Alabama Holdings and Epic Maritime to Orinoco Natural Resources and the equity interests in Navarro to Oakridge Energy Partners.
The debtors are also subject to various lawsuits against their vessels, with respect to the arrest of the Epic Hedron, the Epic Arapaho, the Derrick Barge Arapaho and the Epic Explorer.
The debtors’ current corporate organizational structure is below:
Prior to the lender foreclosures in July 2019, the debtors' corporate structure was as follows:
The case representatives are listed below:
DIP Financing Motion
The debtors seek approval of a first priority priming senior secured delayed draw term loan DIP facility up to $9.5 million ($2.25 million on an interim basis) from White Oak Global Advisors as agent. The debtors say that White is “currently undersecured.” There is no proposed rollup. As outlined below, the DIP milestones include various dates tied to the sale process.
The DIP financing bears interest at 10%, with 3% added for the default rate, and matures on the earlier of Nov. 11 or sale consummation.
To secure the DIP financing, the debtors propose to grant “(i) superpriority administrative claims (the ‘DIP Superpriority Claims’); (ii) perfected senior priming liens on all assets securing the Prepetition Credit Agreement Indebtedness; (iii) perfected senior liens on all assets of the Debtors not subject to a valid, perfected, and non-avoidable lien in existence as of on the Petition Date; and (iv) perfected junior security interests on other assets of the Debtors subject to permitted liens (excluding the Prepetition Credit Agreement Liens) on the Petition Date.” The senior priming liens are on “all assets securing the Prepetition Credit Agreement Indebtedness, subject to all perfected non-avoidable senior pre-existing liens as of the Petition Date including with respect to the Hedron, a Vessel flagged under the laws of Vanuatu, any maritime lien for ‘necessaries’ within the meaning of the Commercial Instruments and Maritime Liens Act, 46 U.S.C. §§ 31301 et seq. that have attached to such Vessel and which have not been bonded in accordance with applicable law.”
The prepetition secured parties have consented to the priming liens securing the DIP facility, as well as the use of cash collateral.
The facility includes various fees, including an annual loan administration fee of $22,000 and an annual loan valuation fee of $25,000.
In support of the proposed DIP financing, the debtors filed the declaration of CRO Jeffrey Varsalone.
Adequate Protection
The company proposes the following adequate protection to its prepetition senior lenders: replacement liens, superpriority administrative expense claims, payment of accrued and unpaid interest through the petition date (including payment of all outstanding default interest) and cash payments of the regularly scheduled interest at the default rate, and payment of professional fees and fees. Prepetition, the senior agent received $649,634 in proceeds from the exercise of secured creditor remedies with respect to Epic’s deposit accounts, and as additional adequate protection, the debtors propose that the prepetition senior agent be authorized to use and/or apply such designated cash collateral to satisfy prepetition accrued and unpaid fees and/or prepetition senior credit agreement debt. The junior secured prepetition lenders would be granted replacement liens.
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 $200,000.
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:
The lien challenge deadline is 60 days after appointment for a creditors’ committee and 75 days after entry of the interim order for other parties in interest. The UCC lien investigation budget is $50,000.
Bid Procedures Motion
The stalking horse bid is for a credit bid of White Oak’s prepetition and postpetition secured debt in the amount of $48.9 million and the assumption of $40 million of the prepetition junior debt. Upon the sale closing, the stalking horse bidder would sell certain of the purchased assets to Alliance Energy Services, LLC for $40 million and assumption of $35 million of “Assumed Debt” in a separate transaction financed by White Oak. In addition, White Oak is in discussions regarding the sale of other parts of the purchased assets to third parties.
Prior to entry into the stalking horse bid, Epic, White Oak, Alliance and certain of Epic’s insiders were negotiating a potential transaction out of bankruptcy by which White Oak would acquire certain of its collateral through exercise of secured creditor remedies in exchange for a “significant reduction” in its claims against the debtors and a corresponding reduction in the guarantees of such claims by the insiders and Alliance acquiring such collateral from White Oak and assuming certain liabilities (including certain of the debtors’ obligations of White Oak’s junior debt). However, these discussions were derailed by liquidity issues, attempts by creditors to impose liens and the involuntary proceeding.
The debtors propose a breakup fee of (a) $500,000 to the extent that net cash proceeds from consummation of the sale are $75 million or less and the stalking horse bidder does not withdraw its stalking horse bid, (b) $1 million to the extent net cash proceeds are $75 million or less and the stalking horse bidder withdraws its stalking horse bid to the extent permitted to do so under the stalking horse agreement or bid procedures or (c) $2 million to the extent net cash proceeds are more than $75 million. “Because Alliance is incurring substantial fees and expenses in connection with the Stalking Horse Agreement but has no privity of contract with a Debtor, White Oak has negotiated an agreement for it—not the Debtors—to pay Alliance a fee in similar amounts to the Breakup Fee on certain terms and conditions (including White Oak’s voluntary withdrawal of its bid),” the motion adds.
Initial overbids must exceed the stalking horse bid plus the breakup fee and $250,000. Subsequent overbids are $250,000.
The debtors also disclose that White Oak and the debtors’ ultimate shareholders - Thomas Clarke, Ana Clarke and David Wiley - have entered into an agreement for a reduction of their personal guaranties of the debtors’ obligations to White Oak to an aggregate maximum liability of $20 million.
The debtors propose the following sale timeline:
Other Motions
The debtors also filed various standard first day motions, including the following:
Voluntary Petition
First Day Declaration
DIP Financing Motion
Bid Procedures Motion
First Day Hearing Notice
| Summary |
| Epic Companies provides heavy lift, diving, marine, specialty cutting, well plugging and abandonment services for the oil and gas industry |
| Seek to run 363 sale process with White Oak Global Advisors as stalking horse with a credit bid of prepetition and postpetition debt |
| White Oak has also agreed to provide $9.5 million in DIP financing |
The debtors request approval of up to $9.5 million of DIP financing with White Oak Global Advisors as agent.
A chapter 7 involuntary petition was filed against Epic on Aug. 2. On the voluntary petition date, Epic filed a motion to dismiss the involuntary case or transfer venue to the Bankruptcy Court for the Southern District of Texas. In a declaration in support of the motion, Kelton C. Tonn, legal officer at Epic Companies, says that Epic “comprehensively prepared a potential chapter 11 filing for several weeks” before the voluntary filing. Epic voluntarily filed “as soon as it could do so in an organized and responsible manner,” Tonn says, adding that the DIP financing negotiations were “contentious and protracted,” and that there was no certainty as to the DIP financing until the secured lenders agreed on the eve of the voluntary filing.
The first day hearing has been scheduled for today, Aug. 27, at 3 p.m. ET.
The debtors lament that, “like many in their industry,” the downturn in oil and natural gas prices and other industry-related challenges have hindered the company’s liquidity position, leading to defaults under their prior senior loan agreement and existing junior loan agreement and White Oak’s daily sweeping of the debtors’ bank accounts. After making “a number” of protective advances to fund Epic’s operations, White Oak informed the debtors that it would cease providing any further funding, and subsequently the debtors terminated approximately 400 employees.
The company reports $10 million to $50 million in assets and $100 million to $500 million in liabilities. The company’s prepetition capital structure includes:
- Secured debt:
- Restated senior loans: $50.3 million
- Restated junior loans: $65.3 million
- Unsecured debt: $30 million
- Equity: Oakridge Energy Partners LLC and Orinoco Natural Resources, LLC each own 50% of Epic Companies’ membership interests.
The debtors have $200,000 in cash and cash equivalents as of the petition date. Without the proposed DIP financing, the debtors say that they will fall below minimum liquidity levels to safely operate by Aug. 28.
The debtors are represented by Porter Hedges in Houston. Jeffrey Varsalone, managing director at G2 Capital Advisors, LLC, is the CRO. Epiq Corporate Restructuring is the claims agent. The case has been assigned to Judge Marvin Isgur (19-34752).
Background
Epic, a privately held company formed in March 2018 from the divestiture of Tetra Technologies' offshore services division, is a full-service provider of support services for the global decommissioning, installation and maintenance markets. The company has limited ongoing operations.
The debtors own a 1,763-ton capacity “world-class” derrick barge, an 800-ton derrick and an exploration vessel. The company also owns unencumbered real property located at 168, 306, and 403 on Menard Road in Houma, La., which is used by Epic Recycling, and unused unencumbered real property located at 600 Thompson Road in Houma, La. The debtors also own real property located at 309 Dickson Road in Houma, La., that is subject to White Oak's liens. The Dickson Road property was utilized primarily by Epic's heavy lift and well plugging and abandonment operations personnel and for equipment storage.
Through the end of 2018, the company expanded its service lines with the acquisition of BAE Mobile, Alabama Shipyard and certain assets and capabilities of Wrights Well Control Services and Ranger Offshore. In early 2019, Epic entered the metals recycling business and formed Epic Recycling Services and Epic Alabama Recyclers.
Epic’s formation from the Tetra divestiture included the acquisition of debtor entity Epic TSB Offshore, which Epic divested in April 2019. In July 2019, White Oak foreclosed on Epic’s equity interests in Epic Alabama Holdings, Epic Maritime Asset Holdings and Navarro Capital Partners, then subsequently transferred the equity interests of Epic Alabama Holdings and Epic Maritime to Orinoco Natural Resources and the equity interests in Navarro to Oakridge Energy Partners.
The debtors are also subject to various lawsuits against their vessels, with respect to the arrest of the Epic Hedron, the Epic Arapaho, the Derrick Barge Arapaho and the Epic Explorer.
The debtors’ current corporate organizational structure is below:
Prior to the lender foreclosures in July 2019, the debtors' corporate structure was as follows:
The debtors' largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| Dan Bunkering | Houston | Trade | $ 2,231,958 |
| McGriff, Seibels & Williams of Texas, Inc. |
Birmingham, Ala. | Trade | 1,163,809 |
| Goliath Offshore Holdings Pte Ltd. |
New Orleans | Trade | 1,141,349 |
| Taylors International Services, Inc. |
Lafayette, La. | Trade | 913,179 |
| Fugro USA Marine, Inc. | Dallas | Trade | 695,872 |
| Health Care Services Corporation dba Blue Cross Blue Shield of TX |
Chicago | Trade | 491,649 |
| Ernst & Young, LLP | Chicago | Trade | 401,029 |
| New Industries LLC | Morgan City, La. | Trade | 353,454 |
| Crozby Tugs, Inc. | Golden Meadow, La. | Trade | 328,798 |
| Central Boat Rentals, Inc. | Dallas | Trade | 321,113 |
The case representatives are listed below:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Counsel | John F. Higgins | Porter Hedges |
Houston |
| Eric M. English | |||
| M. Shane Johnson | |||
| Genevieve M. Graham | |||
| Debtors' CRO | Jeffrey Varsalone | G2 Capital Advisors |
Boston |
| Counsel to White Oak Global Advisors |
Peter Burke | Paul Hastings |
Los Angeles |
| Andrew Tenzer | New York | ||
| U.S. Trustee | Hector Duran, Jr. | Office of the U.S. Trustee |
Houston |
| Stephen Douglas Statham | |||
| Debtors' Claims Agent | Emily Young | Epiq Corporate Restructuring |
New York |
DIP Financing Motion
The debtors seek approval of a first priority priming senior secured delayed draw term loan DIP facility up to $9.5 million ($2.25 million on an interim basis) from White Oak Global Advisors as agent. The debtors say that White is “currently undersecured.” There is no proposed rollup. As outlined below, the DIP milestones include various dates tied to the sale process.
The DIP financing bears interest at 10%, with 3% added for the default rate, and matures on the earlier of Nov. 11 or sale consummation.
To secure the DIP financing, the debtors propose to grant “(i) superpriority administrative claims (the ‘DIP Superpriority Claims’); (ii) perfected senior priming liens on all assets securing the Prepetition Credit Agreement Indebtedness; (iii) perfected senior liens on all assets of the Debtors not subject to a valid, perfected, and non-avoidable lien in existence as of on the Petition Date; and (iv) perfected junior security interests on other assets of the Debtors subject to permitted liens (excluding the Prepetition Credit Agreement Liens) on the Petition Date.” The senior priming liens are on “all assets securing the Prepetition Credit Agreement Indebtedness, subject to all perfected non-avoidable senior pre-existing liens as of the Petition Date including with respect to the Hedron, a Vessel flagged under the laws of Vanuatu, any maritime lien for ‘necessaries’ within the meaning of the Commercial Instruments and Maritime Liens Act, 46 U.S.C. §§ 31301 et seq. that have attached to such Vessel and which have not been bonded in accordance with applicable law.”
The prepetition secured parties have consented to the priming liens securing the DIP facility, as well as the use of cash collateral.
The facility includes various fees, including an annual loan administration fee of $22,000 and an annual loan valuation fee of $25,000.
In support of the proposed DIP financing, the debtors filed the declaration of CRO Jeffrey Varsalone.
Adequate Protection
The company proposes the following adequate protection to its prepetition senior lenders: replacement liens, superpriority administrative expense claims, payment of accrued and unpaid interest through the petition date (including payment of all outstanding default interest) and cash payments of the regularly scheduled interest at the default rate, and payment of professional fees and fees. Prepetition, the senior agent received $649,634 in proceeds from the exercise of secured creditor remedies with respect to Epic’s deposit accounts, and as additional adequate protection, the debtors propose that the prepetition senior agent be authorized to use and/or apply such designated cash collateral to satisfy prepetition accrued and unpaid fees and/or prepetition senior credit agreement debt. The junior secured prepetition lenders would be granted replacement liens.
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 $200,000.
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:
- Interim DIP order: entered within three days of the petition date
- Conversion date: within 20 days after the petition date
- Final DIP order: entered within 35 days of petition date
- Bid procedures order: entered within 35 days of petition date
- Sale order: Entered within 65 days of petition date
- Sale consummation: within 75 days of petition date
The lien challenge deadline is 60 days after appointment for a creditors’ committee and 75 days after entry of the interim order for other parties in interest. The UCC lien investigation budget is $50,000.
Bid Procedures Motion
The stalking horse bid is for a credit bid of White Oak’s prepetition and postpetition secured debt in the amount of $48.9 million and the assumption of $40 million of the prepetition junior debt. Upon the sale closing, the stalking horse bidder would sell certain of the purchased assets to Alliance Energy Services, LLC for $40 million and assumption of $35 million of “Assumed Debt” in a separate transaction financed by White Oak. In addition, White Oak is in discussions regarding the sale of other parts of the purchased assets to third parties.
Prior to entry into the stalking horse bid, Epic, White Oak, Alliance and certain of Epic’s insiders were negotiating a potential transaction out of bankruptcy by which White Oak would acquire certain of its collateral through exercise of secured creditor remedies in exchange for a “significant reduction” in its claims against the debtors and a corresponding reduction in the guarantees of such claims by the insiders and Alliance acquiring such collateral from White Oak and assuming certain liabilities (including certain of the debtors’ obligations of White Oak’s junior debt). However, these discussions were derailed by liquidity issues, attempts by creditors to impose liens and the involuntary proceeding.
The debtors propose a breakup fee of (a) $500,000 to the extent that net cash proceeds from consummation of the sale are $75 million or less and the stalking horse bidder does not withdraw its stalking horse bid, (b) $1 million to the extent net cash proceeds are $75 million or less and the stalking horse bidder withdraws its stalking horse bid to the extent permitted to do so under the stalking horse agreement or bid procedures or (c) $2 million to the extent net cash proceeds are more than $75 million. “Because Alliance is incurring substantial fees and expenses in connection with the Stalking Horse Agreement but has no privity of contract with a Debtor, White Oak has negotiated an agreement for it—not the Debtors—to pay Alliance a fee in similar amounts to the Breakup Fee on certain terms and conditions (including White Oak’s voluntary withdrawal of its bid),” the motion adds.
Initial overbids must exceed the stalking horse bid plus the breakup fee and $250,000. Subsequent overbids are $250,000.
The debtors also disclose that White Oak and the debtors’ ultimate shareholders - Thomas Clarke, Ana Clarke and David Wiley - have entered into an agreement for a reduction of their personal guaranties of the debtors’ obligations to White Oak to an aggregate maximum liability of $20 million.
The debtors propose the following sale timeline:
- Sept. 25 at 6 p.m. ET: NDA deadline
- Oct. 18 at 6 p.m. ET: Bid deadline
- Oct. 22 at 11 a.m. ET: Auction
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. 19-34752 (DRJ).
- Notice of Designation as Complex Chapter 11 Case
- Motion to Use Cash Management System
- The company has bank accounts with Bank of America. Epic requests authority to afford administrative claim status to any intercompany transactions and all bank account claims arising after the petition date under section 503(b)(1).
- Motion to Maintain Insurance Programs
- Motion to Pay Taxes and Fees
- The debtors estimate that they owe approximately $17,392 in payroll taxes.
- Motion to Provide Utilities with Adequate Assurance
- Motion to Extend Time to File Schedules and Statements to Sept. 16
- Application to Appoint Epiq Corporate Restructuring as Claims Agent
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