DS Approval Motion / Confirmation Timeline
The debtors’ disclosure statement approval motion proposes the following confirmation-related timeline:
Plan of Reorganization / Disclosure Statement
Below is a chart of the plan’s classes, along with their impairment status and voting rights.
Treatment of Claims and Interests
The debtors’ plan sets forth the following classification of and proposed distributions to holders of allowed claims and interests:
Management Incentive Plan
On or before the 60th day following the plan effective date or as soon as reasonably practicable thereafter, the reorganized parent would enter into a management incentive plan which would reserve 8% of the new equity interests on a fully diluted basis to certain members of senior management to be determined by the new board and otherwise contain terms and conditions to be determined by the new board.
The initial directors of the board or other governing body of the reorganized parent would be selected by the ad hoc noteholder group and would include the CEO of the organized parent.
On the effective date, the existing credit agreement would be amended to provide for a first-out senior secured revolving credit facility in an amount equal to 80% of the aggregate outstanding principal amount of loans and LC exposure under the existing credit agreement on the closing date of the consenting RBL lenders and any other lender under the existing credit agreement that votes to accept the plan of reorganization, provided that, on the closing date, the aggregate principal amount of the revolving credit facility shall not be less than $152 million. The amended credit agreement will also provide for a second-out senior secured term loan facility in an amount equal to 20% of the aggregate outstanding principal amount of loans and LC exposure under the existing credit agreement on the closing date and, if necessary, a last-out senior secured term loan facility in an amount equal to 100% of the aggregate outstanding principal amount of loans and LC exposure on the closing date of any RBL lenders under the existing credit agreement that are not consenting RBL lenders or accepting lenders.
The revolving credit facility and the second-out term loan facility would mature on the date falling 36 months after the closing date. The second-out term loan facility will amortize with quarterly installments in an amount equal to $5 million, commencing on Dec. 31. Any amounts applied as a prepayment of the second-out term loans would be applied as a credit against the immediately succeeding amortization installment or installments. The last-out term loan facility would mature on the date falling 42 months after the closing date. The revolving credit facility and the last-out term loan facility would not be subject to amortization.
A portion of the revolving credit facility not in excess of $2.5 million would be available for the issuance of letters of credit by Citibank. Letters of credit issued under the existing credit agreement which remain undrawn on the closing date would be “rolled” into and automatically be deemed to be issued and outstanding under the revolving credit facility.
The loans under the revolving credit facility and the term loans would accrue interest at a rate per annum equal to LIBOR, subject to a 1% floor, plus 4.5% or, at the option of the borrower, ABR plus 3.5%. The facilities would include customary provisions relating to a replacement rate for LIBOR.
The borrowing base would be substantially consistent with the existing credit agreement giving due regard to the documentation principles, provided that the first scheduled borrowing base redetermination would occur on Feb. 1, 2021, and that there would be no scheduled or interim redeterminations prior to such date. The redetermination of the borrowing base on Feb. 1, 2021, may be based on a reserve report prepared by the chief engineer of the borrower. On the closing date, the initial borrowing base would be set at the amount of the revolving credit facility. In addition to any other rights of the borrower to request an interim borrowing base redetermination, if the second-out term loan facility is repaid in full in cash on or prior to the date falling 12 months after the closing date, the borrower would have the right to elect an additional interim borrowing base redetermination within 30 days of the full cash repayment of the second-out term loan facility.
Subject to the senior ranking of secured swap agreements, the revolving credit facility will be the most senior ranking credit facility in right of payment under the amended and restated senior secured credit agreement. The second-out term loan facility will be subordinate in right of payment to the obligations under the revolving credit facility and senior in right of payment to the last-out term loan facility. The last-out term loan facility will be subordinate in right of payment to the revolving credit facility and the second-out term loan facility. The revolving credit facility, second-out term loan facility and last-out term loan facility will be guaranteed and secured by a common first priority lien on the collateral on a pari passu
The secured swap agreements would rank senior in right of payment to the principal and interest under the revolving credit facility pursuant to the application of proceeds waterfall and would rank second behind only payment of fees, expenses and indemnities to the administrative agent, provided that upon satisfaction of the release condition, all secured swap agreements would automatically rank pari
in right of payment with principal under the revolving credit facility, and if any lender assigns all of its rights and obligations under the amended and restated senior secured credit agreement and terminates its secured swap agreement pursuant to an additional termination event arising due to such assignment, such secured swap agreements would automatically rank pari
in right of payment with principal under the revolving credit facility.
Financial covenants will apply only to the revolver and be tested on the last day of each fiscal quarter. The covenants include a 3.5x total debt to EBITDAX ratio, with a minimum for the ratio of 0.95x for the fiscal quarter ending Dec. 31 and 1x for any fiscal quarter thereafter. All other financial definitions and calculations are substantially consistent with the existing credit agreement. Negative covenants are substantially consistent with the existing credit agreement.
The tranche 1 warrants will be exercisable at $0.001 any time after the equity value of the parent is first equal to or greater than the minimum equity value, or $100 million. The tranche 2 warrants will be exercisable at $0.001 on or after the first anniversary of the plan effective date, (i) any time after the equity value of the parent is first equal to or greater than the minimum equity value, and (ii) in the event the second out term loan facility remains outstanding as of the first anniversary of the plan effective date.
Lonestar in the 8-K provided a presentation dated Aug. 26 including confidential financial projections. The company is projecting revenue of $42 million in the third quarter and $30 million in the fourth quarter and $125 million in 2021. EBITDAX is projected to be $30 million in the third quarter and $18 million in the fourth quarter and $80 million in 2021. The company says it expects to generate negative $25 million of unlevered free cash flow in the third quarter and positive $33 million of unlevered free cash flow in the fourth quarter, and positive $25 million of unlevered free cash flow in 2021.
The DS includes a hypothetical liquidation analysis
, as follows:
The debtors provide the following financial projections
The DS includes a valuation analysis
prepared by Intrepid Partners, the debtors’ financial advisor, providing for a total enterprise value of approximately $290 million to $415 million with a midpoint of $353 million, as of an assumed effective date of Nov. 1. Based on estimated pro forma net debt of $264 million as of the effective date, the estimated total enterprise value of the reorganized debtors results in a plan equity value of approximately $26 million to $151 million, with a midpoint of $89 million.
Cash Collateral Motion
The debtors seek the authority to use the cash collateral of Citibank, the prepetition administrative agent, and the prepetition lenders. The debtors explain that their operations are “largely dependent upon their ability to regularly convert the Prepetition Collateral into Cash Collateral” and without that authorization, the debtors would not be able to fund payments to vendors and employees.
Pursuant to the budget, the proposed use of the cash collateral is for operating and non-operating costs and disbursements as well as for working capital to invest and maintain the proved developed producing reserves, maintenance of proved undeveloped reserves in the oil and gas properties and chapter 11 related costs.
The company proposes the following adequate protection to its prepetition lenders: (i) adequate protection liens; (ii) allowed superpriority administrative claims; (iii) monthly adequate protection payments in the amount equal to all accrued and unpaid prepetition and postpetition interest, fees and costs; (iv) payment of reasonable professional fees and expenses incurred by the prepetition agent arising prepetition; (v) payment of reasonable professional fees and expenses incurred by the prepetition agent arising subsequent to the petition date; and (vi) reporting.
The adequate protection liens include first priority senior priming security interests and liens. Subject to the entry of a final order, the adequate protection liens would attach to proceeds or property recovered in respect of any avoidance actions.
Additionally, the adequate protection package includes the assurance by the debtors that any disposition of collateral will be in exchange for all cash consideration that would constitute cash collateral that would be used in accordance with the interim cash collateral order.
In addition, 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), subject to entry of a final order.
The interim order does not include budgeted fees for advisors to official committees. The carve-out for professional fees of the debtors is $1.25 million.
The proposed budget for the use of cash collateral is HERE
The proposed interim use of cash collateral does not contain any sale or confirmation milestones.
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. 20-34805.
- Motion to establish trading procedures
- The debtors seek to establish trading procedures for its common stock, to be able to object to and prevent transfers if necessary to preserve net operating losses. The debtors have about $134 million in NOLs.
- Motion to pay employee wages and benefits
- The debtors seek to pay approximately $212,400 in employee wages, benefits and reimbursements. The debtors estimate that approximately $2 million has accrued prepetition on account of the annual bonus program, including approximately $755,000 for insiders, but say that they are not seeking authority to make payments during the chapter 11 case without further order of the court.
- Motion to pay royalties, working interests and lease obligations
- The debtors estimate they owe approximately $15.4 million in royalty payments, of which $3.3 million may become due and payable within 21 days of the petition date. The debtors also estimate they owe approximately $3.6 million on account of working interest disbursements, of which $1 million may become due and payable within 21 days after the petition date.
- Motion to pay trade claims in the ordinary course of business
- The debtors’ seek to pay prepetition trade claims to Drilling Service Suppliers,Transportation Providers and other prepetition trade creditors. The debtors’ estimate that prepetition trade claims of Drilling Service Suppliers total approximately $7.4 million, prepetition trade claims of Transportation Providers total approximately $300,000 and prepetition trade claims of other prepetition trade creditors total approximately $200,000.
- Motion to use cash management system
- The company has bank accounts with Citibank and Prosperity Bancshares, Inc.
- Motion to enter into and perform under postpetition hedging agreements
- Motion to maintain insurance programs
- Motion to pay taxes and fees
- The debtors’ estimate that they owe approximately $4.25 million in taxes and fees.
- Motion to provide utilities with adequate assurance
- Motion to file consolidated creditors lists
- Application to appoint Prime Clerk as claims agent