The Chesapeake Energy debtors today, at the first day hearing in their
chapter 11 cases, obtained all of their requested first day relief on an uncontested basis. Among other standard first day motions, Judge David Jones granted the debtors interim DIP approval, freeing up access to $325 million of interim DIP RBL availability and a $325 million rollup of prepetition RBL claims. Alexandra Schwarzman of Kirkland & Ellis, counsel to the debtors told the court the debtors were unable to amass “a war chest” of cash and run the cases on cash collateral because of anti-hoarding provisions in the prepetition RBL.
The court scheduled a second day hearing for July 20 at 12:30 p.m. ET, with an objection deadline of July 15 at 6 p.m. ET.
Patrick Nash of Kirkland & Ellis recounted the debtors’ prepetition negotiations with various stakeholders and told the court that the debtors decided to work on achieving greater consensus prior to filing, which eventually manifested itself in the transactions and financing commitments contemplated by the RSA signed by the debtors and 100% of revolving lenders, holders of approximately 87% of the obligations under its term loan agreement, approximately 60% of its senior secured second lien notes due 2025 and approximately 27% of its senior unsecured notes. Negotiations this spring were impacted by the alternative potential for the debtors to file a freefall case and pursue litigation to avoid liens granted in connection with the company’s
December 2019 refinancing transactions. Nash informed the court that the debtors’ board of directors determined that commencing chapter 11 cases after reaching higher relative levels of consensus with a more definitive deal in hand would be more value-maximizing than beginning the cases in a freefall posture with the overhang of potentially complex avoidance litigation.
Turning to “what the debtors don’t have,” Nash noted that the RSA is currently only supported by 27% of unsecured noteholders and that any future UCC would likely review the debtors’ decision to reach a more consensual deal rather than pursue lien avoidance litigation. Various constituencies may “pressure-test” the terms and conditions of the proposed new money exit financing, he continued. Darren Klein of Davis Polk, counsel to the ad hoc group of first lien last out lenders, told the court “I don’t think this is going to be an ‘easy-in,’ ‘easy-out’” case, noting that the company has a number of operational, midstream and corporate, cost structure issues to address while in chapter 11. Klein also said that although RSAs have become commonplace, “this one should not be taken for granted” and is the result of serious, difficult negotiations.
Dustin McFaul and Jennifer Hagle of Sidley Austin appeared for MUFG in its capacities as RBL and DIP agent. McFaul reiterated that all of the RBL lenders support the debtors’ proposed restructuring construct and Hagle made a statement in support of the DIP motion. The DIP “should be viewed as the first step” of the transactions in the RSA, all of which are interdependent, Hagle said.
After discussion with the court, the debtors decided to confer with the Federal Energy Regulatory Commission before scheduling a status conference in their adversary proceeding against FERC. The debtors are seeking injunctive and declaratory relief that the Bankruptcy Court has exclusive jurisdiction over certain midstream contract rejection matters. “[O]ur hope is to work this out consensually,” debtors’ counsel represented to the court.
Reorg’s live coverage of today’s hearing can be found
HERE.