Tue 10/13/2020 11:52 AM
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Relevant Documents:
Voluntary Petition
First Day Declaration
Plan of Reorganization
Disclosure Statement
Plan/DS Scheduling Motion
Cash Collateral Motion
First Day Hearing Agenda

MD America Energy chapter 11 filing case summary from First Day by Reorg


MD America Energy, a Fort Worth, Texas-based privately owned oil and gas exploration and production company focused on crude oil and natural gas properties in East Texas, filed for chapter 11 protection on Monday in the Bankruptcy Court for the Southern District of Texas. The company filed to restructure through a prepackaged plan of reorganization based on an Oct. 9 restructuring support agreement entered into with holders of 100% of the debtors’ prepetition term loan debt, which the debtors observe is “overwhelmingly the largest creditor group.” Continue reading for the First Day by Reorg team's comprehensive case summary for the MD America Energy chapter 11 filing, and request a trial to access our case summaries for thousands of other chapter 11 filings.

The proposed restructuring would reduce the debtors’ prepetition debt by approximately $58 million and deleverage their balance sheet, contemplating emergence from chapter 11 “as a going concern business poised for success.” The debtors were formed in 2011 through Woodbine Acquisition’s purchase of East Texas assets, followed by publicly traded Chinese conglomerate MeiDu Energy Corp. purchasing Woodbine and ultimately renaming Woodbine as MD America Energy.

The approximately $118 million in claims of the prepetition term loan lenders are impaired under the plan and would be exchanged for a pro rata share of (i) a new first lien term loan in the amount of $60 million and (ii) 100% of the new equity. The consenting term loan lenders have agreed that the plan would leave all trade claims unimpaired, but any other unsecured creditors, which includes claims arising from a transaction bonus plan and surface use agreement entered into with Wilson Family Heirs, LLC, would receive no recovery under the plan. Wilson Family Heirs is co-owned by Eric Waller, MD’s former CEO who was terminated for cause on Oct. 10 after a “comprehensive investigation” (emphasis added).

Signatories to the RSA consist of: MC Credit Fund I LP; MC Credit Fund IA (Cayman Master) LP; MC Credit Fund II LP; MC Credit Fund III (Delaware) LP; MC Credit Fund III-U (Delaware) LP; MC Credit Fund III (Cayman Master) LP; TAO Talents LLC; Sixth Street Specialty Lending Inc. (f/k/a TPG Specialty Lending Inc.); Prudential Legacy Insurance Co. of New Jersey; The Prudential Insurance Co. of America and Arena Ltd. SPV LLC.

The debtors stress that a quick resolution to these cases is “essential to the preservation of the value of the Debtors’ assets and estates and to allow the Debtors to emerge from chapter 11 as a going concern.” To that end, the debtors have agreed to certain milestones, including plan confirmation within 45 calendar days of the petition date and emergence within 60 days:

The first day hearing has been scheduled for today, Tuesday, Oct. 13, at 4 p.m. ET.

The company reports $50 million to $100 million in assets and $100 million to $500 million in liabilities. The company’s prepetition capital structure includes:

  • Secured debt:

    • Prepetition term loan: $117.8 million, plus interest and fees (debtors made a prepayment of $8 million prepetition).



  • Unsecured debt:

    • PPP loan: $1.1 million (to be reinstated under the plan).




MeiDu also owes MD $24.8 million (including $22.1 million in principal) under a subordinated promissory note, and the debtors say that no interest has been paid since the grant of the note and that they intend to “take remedial actions to collect such amounts owed” (emphasis added).

The plan’s releases exclude Eric Waller and the MeiDu parties.

“The Debtors’ cash on hand and revenue earned from operations is sufficient to fund all payments contemplated by the First Day Pleadings and fund the Debtors’ postpetition operating and restructuring-related expenses,” according to the first day declaration.

The company attributes the bankruptcy filing to the Covid-19 pandemic and “continued weakness in the commodities markets.” The company defaulted under its prepetition term loan in April, causing the term loan lenders to exercise the rights to remove the MeiDu-appointed board and appointing the current board.

On June 24, 2020, MeiDu sued the term loan lenders, MD’s board and the debtors in New York state court, asserting that the term loan lenders were not entitled to exercise rights under pledge agreements to vote the pledged shares of the debtors, including the appointment of the current board. On July 9, the court denied MeiDu’s request for a temporary restraining order and preliminary injunction that would have restricted the board from taking any actions and reinstituting the previous board. MeiDU appealed the denial of injunctive relief, and the term loan lenders have moved to dismiss the litigation.

The debtors are represented by Porter Hedges in Houston as counsel and are also working with FTI Consulting as financial advisor. Scott Avila of Paladin Management Group is the chief restructuring officer. The case has been assigned to Judge David R. Jones (case No. 20-34966).

Background

MD America Energy is a private oil and gas E&P company with acreage in the East Texas Eagle Ford Extension and Woodbine Formations that produced about 4,486 barrels of oil equivalent per day in the first half of 2020. The debtors have 22 employees.

In 2013, MeiDu Energy Corp. purchased Woodbine Acquisition LLC and its related affiliates for a purchase price, implying a total enterprise value of $535 million, and then in 2014, Woodbine Acquisition LLC was renamed MD America Energy LLC. In 2014, MD America bought additional assets from Devon Energy Production Co. in one purchase, and made another purchase from Manti and WM Operating LLC for properties that were adjacent to properties that MD America already owned. In 2015, “in the midst of sub $40 oil,” MD America was able to voluntarily pay down $100 million of principal on an outstanding $525 million facility unrelated to the prepetition term loan, leaving $425 million due to the lender group. In 2016, MD America completed two purchases of assets in East Texas from undisclosed sellers and paid off the rest of the $425 million with funds provided by its parent, Meiu. The purchases added approximately 130 operated and non-operated wells within about 18,400 net acres.

As of June 30, MD had 23 wells from the Eagle Ford shale producing roughly 1,840 barrels of oil equivalent per day and 233 wells from other formations producing about 1,167 barrels of oil equivalent per day, with an aggregate production mix that is about 67% oil, 20% natural gas liquids and 3% gas. In total, MD America has an interest in more than 325 wells that as of December 2019 held about 88% of its 64,683 net acres (about 71,209 gross acres) in Madison, Brazos, Grimes and Leon Counties, Texas. As of June 30, 2020, MD America had approximately 24.4 million barrels of oil equivalent of proven reserves, consisting of 81% oil, 7% gas and 12% natural gas liquids.

Since Jan. 1, 2018, MD America has focused the majority of its capital in the Eagle Ford shale, drilling 19 wells with an average drilling and completion cost of $7.7 million, which the debtors say is “steadily decreasing.”

MD’s corporate organizational structure is shown below (with nondebtor entities in red):
MD America Energy chapter 11 filing organization structure from First Day by Reorg

The debtors' largest unsecured creditors are listed below:


MD America Energy chapter 11 filing unsecured creditors from First Day by Reorg

The case representatives are as follows:



MD America Energy chapter 11 filing case representatives from First Day by Reorg


DS Approval Motion / Confirmation Timeline

The debtors’ disclosure statement approval motion proposes the following confirmation-related timeline:
MD America Energy chapter 11 filing confirmation timeline from First Day by Reorg

Plan of Reorganization / Disclosure Statement

Below is a chart of the plan’s classes, along with their impairment status and voting rights.
MD America Energy chapter 11 filing plan classes from First Day by Reorg

The debtors filed a voting tabulation, providing for the only class entitled to vote on the plan - Class 4 prepetition term loan claims - unanimously voting to accept the plan, as follows:
MD America Energy chapter 11 filing voting tabulation from First Day by Reorg

Treatment of Claims and Interests

The debtors’ plan sets forth the following classification of and proposed distributions to holders of allowed claims and interests:
MD America Energy chapter 11 filing proposed distributions from First Day by Reorg

MD America Energy chapter 11 filing proposed distributions from First Day by Reorg


MD America Energy chapter 11 filing proposed distributions from First Day by Reorg


MD America Energy chapter 11 filing proposed distributions from First Day by Reorg








Plan Milestones

The restructuring milestones contemplated under the RSA are as follows:

  • Petition date: Oct. 13;

  • Interim cash collateral order: Entered within two days of petition date;

  • Interim hedging order: Entered within two days of petition date;

  • Final cash collateral order: Entered within 30 days after entry of the interim cash collateral order;

  • Final hedging order: Entered within 30 days after entry of the interim cash collateral order;

  • DS order: Entered within 30 days of petition date;

  • Confirmation order: Entered within 45 days after petition date; and

  • Plan effective date: 15 days after confirmation order.


New First Lien Term Loan

The RSA term sheet provides for a $60 million first lien term loan facility, with the lenders to be the same entities (or affiliates) as the existing term lenders on a pro rata basis, with Loan Admin Co LLC as administrative agent. The loan would bear interest L+7.75% (subject to a 1.5% floor), with 2% added for the default rate, and matures four years after the plan effective date. In addition, 0.625% of the aggregate outstanding principal amount of the new first lien term loan will be payable on a quarterly basis.

The new first lien term loan would be a “renewal, restructuring and continuation of a portion of the Allowed Prepetition Term Loan Claims.”

Other Plan Provisions

The plan’s releases exclude Eric Waller and the MeiDu parties.

“The intention is for existing hedging to be terminated in advance of the entry into the Restructuring Support Agreement,” according to the RSA, which provides that the “Consenting Term Lenders shall work with the Debtors to implement a comprehensive hedging program during the bankruptcy for a minimum of 75% PDP oil hedged until the Plan Effective Date.”

The debtors say that a valuation analysis will be included in a plan supplement.

Liquidation Analysis

The DS includes a liquidation analysis, that includes the following summary:
MD America Energy chapter 11 filing liquidation analysis summary from First Day by Reorg

Financial Projections

The DS also includes financial projections, including the reorganized debtors’ projected cash flow as follows:
MD America Energy chapter 11 filing financial projections from First Day by Reorg

Cash Collateral Motion

The debtors request the use of cash collateral of the prepetition secured lenders. The consenting term lenders have consented to the debtors’ use of cash collateral and the debtors say that they anticipate that the prepetition term loan agent will not object to the use of cash collateral. The use of cash collateral on an interim basis would expire 30 days from the petition date if a final order has yet to be entered.

The debtors propose as adequate protection replacement liens (including avoidance action proceeds subject to the final order), a superpriority administrative expense claim and payment of professional fees of DLA Piper as counsel to the agent and Vinson & Elkins as counsel to the ad hoc group and any other legal counsel to a prepetition lender to the extent consistent with the definition of “Consenting Term Lender Fees and Expenses” in the RSA. 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 carve-out for professional fees is $200,000.

The debtors include a list of assets that they say they believe are unencumbered and not included in the prepetition term loan collateral, but the term loan agent and lenders dispute that these assets are encumbered. “In any event,” the motion says, “substantially all of the Debtors’ assets by value are encumbered by the Term Loan Agent’s first priority lien.”

The proposed budget for the use of cash collateral is HERE.

The lien challenge deadline is (a) the earlier of 10 business days before the confirmation hearing and 75 days after entry of the interim order, and (b) with respect to any official committee of unsecured creditors, 60 days after appointment (but in any event no later than 10 business days before the confirmation hearing). The UCC lien investigation budget is $25,000.

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. 20-34966.



  • Designation of complex chapter 11 bankruptcy case

  • Motion to establish trading procedures

    • The company seeks to establish trading procedures for the equity interests in MD America Energy Holdings Inc. and its direct parent, MeiDu America Inc., to be able to object to and prevent transfers if necessary to preserve net operating losses. The debtors have about $428.5 million in federal NOLs and approximately $651 million of tax basis.



  • Motion to pay employee wages and benefits

    • The debtors seek authority to pay approximately $75,500 in unpaid prepetition wages to both employees and independent contractors and approximately $62,000 with respect to employee withholdings. The debtors’ prepetition workforce obligations also include $455,000 of vacation awards, which they say they are not seeking to pay in connection with this motion. Additionally, the debtors say that they believe they owe approximately $1,000 to employees for HRA reimbursement, approximately $8,000 on account of matching 401(k) contributions and $250 for the services of Orchestrate HR.



  • Motion to use cash management system

    • The company has bank accounts with Texas Capital Bank.



  • Motion to enter into and perform under postpetition hedging arrangements

    • The debtors seek authority to enter into postpetition hedging agreements and grant superpriority claims and “first-priority valid and perfected, priming security interests and liens in and to substantially all of the assets of the Debtors” to secure the hedging obligations. The company’s prepetition hedging agreement have typically been for at least 65% of projected crude oil, natural gas and natural gas liquids production for not less than 36 months into the future, and were secured on a first lien basis under the prepetition credit agreement. The debtors “do not currently have any active hedge positions” as of the petition date.



  • Motion to pay ordinary course claims

    • The debtors’ plan provides for the satisfaction of all ordinary course claims in full - to a “variety” of creditors - ordinary course goods and services providers, shippers, lien claimants, working interest holders, royalty holders and other vendors and creditors. The debtors estimate that they owe approximately $7.5 million for mineral claims, of which $3.5 million will become due within the first 30 days of the chapter 11 cases. The following is a summary of the debtors’ estimate of trade claims:




MD America Energy chapter 11 filing trade claims from First Day by Reorg

 



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