Gastar to File for Chapter 11 in SDTX by Oct. 31 With $384M In DIP Financing Including $100M New Money From Ares

Relevant Documents:
8-K
Release
Restructuring Support Agreement
Hedge Party RSA

Gastar this morning filed an 8-K including further details regarding its previously disclosed Oct. 26 restructuring support agreement entered into with consenting term lender Ares Management LLC, certain consenting second lien convertible noteholders affiliated with Ares and certain Ares equityholders. The 8-K attaches the restructuring term sheet with Ares and the hedge party RSA entered into with counterparties to the company’s existing hedging and swap arrangements, representing the largest creditor constituency of the company other than Ares. The milestones set out in the RSA with Ares contemplate that the company will commence chapter 11 cases in the Bankruptcy Court by no later than Wednesday, Oct. 31. The RSA also contemplates a filing in the U.S. Bankruptcy Court for the Southern District of Texas.

The company says that the restructuring will be financed by the consensual use of cash collateral and approximately $383.9 million superpriority debtor-in-possession financing. The consenting Ares parties have committed to provide the company with superpriority DIP financing in the amount of $383.9 million, consisting of $100 million in new-money loans and approximately $283.9 million of refinanced term loan obligations. An exhibit in the filings indicates that consenting Ares funds own $283.9 million in term loan claims and $162.5 million in second lien notes claims.

The plan states that approximately $283.9 million in outstanding term loan obligations consisting of principal and accrued and unpaid interest under the term loan will be repaid from the loans funded under the DIP facility that do not constitute new-money loans. The RSAs contemplate a $15 million interim DIP tranche - upon bankruptcy court approval - that may be drawn upon three business days’ notice in one or more draws in an amount that is not less than $2.5 million for the initial draw and not less than $500,000 for each subsequent draw (or, if less, the entire amount of the unused balance of the interim DIP tranche). The RSAs contemplate a chapter 11 plan of reorganization, and the company commenced solicitation of the plan consistent with section 1126(b) of the Bankruptcy Code and anticipates that such solicitation will conclude on or about Oct. 30. After the conclusion of such solicitation, the company says, it intends to commence the chapter 11 cases to implement the transactions contemplated by the RSA and the plan.

The consenting parties also agreed to provide an exit financing term loan facility that provides for a $100 million secured delayed-draw term loan facility composed of term loans consisting of new-money loans funded under the DIP facility and deemed funded under the first lien exit facility on the effective date of the plan as well as term loan commitments consisting of an amount equal to any undrawn commitment under the DIP facility, and a secured second lien term loan exit facility composed of up to $200 million (as may be reduced by the exit lenders in their sole discretion on or prior to the effective date of the plan. The exit loans may not be re-borrowed once repaid, the RSA states.

Holders of claims under the DIP facility, other than claims arising on account of the new-money loans, will receive (a) pro rata participation in the second lien exit facility up to an aggregate amount of $200 million and (b) to the extent any such claims exceed $200 million, such excess will receive a pro rata share of 100% of the common equity in the reorganized company. Holders of claims under the DIP facility arising on account of the new-money loans will receive pro rata participation in the first lien exit facility in an amount equal to such claims arising on account of new-money loans, the plan states.

In addition to the above, treatment under the plan of reorganization, as contemplated in the RSAs, is as follows:
 

• Holders of claims under the term credit agreement will receive (a) to the extent there is remaining availability under the second lien exit facility, pro rata participation in the second lien exit facility in an equal face amount not to exceed $200 million, and (b) to the extent any such claims remain outstanding, their pro rata share of 100% of the new common equity, subject to dilution upon the issuance of common stock upon exercise of the new warrants described below and pursuant to a new management incentive plan to be entered into at the discretion of the board of the reorganized company after emergence from bankruptcy.
   
• Holders of claims under the second lien indenture will receive their pro rata share of 100% of the new common equity, subject to dilution upon the issuance of common stock upon exercise of the new warrants described below and pursuant to the management incentive plan.
   
• Holders of claims arising out of any termination of the company’s hedging or swap arrangements with Cargill Inc. and NextEra Energy Marketing LLC will receive payment in full in cash in monthly installments through December 2019 pursuant to new secured notes.
   
• Holders of claims arising pursuant to statutory liens will receive payment in full in cash in two equal installments on the effective date of the chapter 11 cases and six months following such date.
   
• Holders of claims arising from general unsecured obligations will receive payment in full in cash as set forth in the plan.
   
• Holders of Gastar’s 8.625% Series A cumulative preferred stock and 10.75% Series B cumulative preferred stock, subject to certain conditions, including that such holders not seek official committee status or the appointment of a trustee or examiner, or object to or otherwise oppose the consummation of the plan, will receive their pro rata share of warrants to purchase 2.5% of the new common equity.
   
• Holders of the existing common equity, subject to certain conditions, including that such holders not seek official committee status or the appointment of a trustee or examiner, or object to or otherwise oppose the consummation of the plan, will receive their pro rata share of warrants to purchase 2.5% of the new common equity.

The hedge party RSA contains certain covenants on the part of each of the company and the hedge parties, including commitments by the hedge parties to vote in favor of the plan and commitments of the company and the hedge parties to negotiate in good faith to finalize certain documents and agreements. The hedge party RSA “also provides for certain conditions to the obligations of the parties and for termination upon the occurrence of certain events, including without limitation, the failure to achieve certain milestones and certain breaches by the parties under the Hedge Party RSA.” The hedge party milestones contemplate Gastar commencing the chapter 11 cases by no later than Nov. 20 and securing confirmation of the plan and the plan having gone effective by no later than 180 days after the petition date.

The RSA with the consenting Ares parties contemplates the following milestones:
 

• Oct. 26: The company shall have commenced the solicitation of the plan.
   
• Oct. 31: The company shall have concluded the solicitation of the plan.
   
• Petition date: The company shall have filed (i) the plan, (ii) the disclosure statement, and (iii) a motion for approval of the disclosure statement and solicitation procedures and to set a hearing to consider confirmation of the plan.
   
• Within five days following the petition date: The bankruptcy court shall have entered the interim order approving the DIP facility.
   
• Within 30 days following the petition date: The bankruptcy court shall have entered the final order approving the DIP facility.
   
• Within 60 days following the petition date: The bankruptcy court shall have entered an order approving the disclosure statement and confirming the plan.
   
• Within 20 days following the entry of the confirmation order: The plan shall have been consummated.

In addition, the plan includes a management incentive plan that would reserve shares, units or equity interests of new common equity to be available for grant from time to time to employees of the reorganized business of the company in an aggregate amount equal to 10% on a fully diluted, fully distributed basis.

Finally, subject to certain rights the RSA provides for consideration of potential alternative superior plans, stating: “Immediately upon the Petition Date and thereafter, the Company shall be entitled to engage in any discussions or negotiations with, including providing data site access and due diligence information concerning the Company to, any party from which the Company receives a proposal, offer or expression of interest with respect to an Alternative Transaction after the Petition Date, only if the Company reasonably believes it is reasonably likely that (A) such party will make an unconditional proposal (other than any required regulatory and/or court approvals) that is of higher value from the perspective of the Company’s stakeholders than the Restructuring Transaction (a ‘Potentially Superior Proposal’) and (B) failure to further engage with such party in respect of such proposal, offer, or expression of interest would be inconsistent with the fiduciary duties of the directors then serving on the Board or applicable law (the foregoing parties, the ‘Qualifying Prospective Bidders’).”

The company says it has retained Kirkland & Ellis as legal counsel, Opportune LLP as restructuring advisor, Perella Weinberg Partners LP as financial advisor and BMC Group, Inc. as claims and noticing agent. The Ares consenting parties are represented by Milbank.