First Day Declaration
Plan of Reorganization
DIP Financing Motion
First Day Hearing Agenda
|Ion Geophysical is a global technology company servicing offshore energy and maritime markets through E&P services, software and technology that enables operational control and optimization
|Filed plan of reorganization premised on an RSA supported by holders of 100% of prepetition revolver claims and 80.4% of prepetition second lien notes claims
|Plan provides for a restructuring through either (i) a debt-for-equity swap paired with the potential sale of certain assets or (ii) a sale of substantially all of its assets
|Seeks $2.5 million in DIP financing from certain of its prepetition secured lenders
, a Houston-based global technology company focused on offshore energy and maritime markets, filed for chapter 11 protection yesterday, Tuesday, April 12, in the Bankruptcy Court for the Southern District of Texas. The petition discloses $36 million in assets and $166.9 million in liabilities as of Feb. 28.
The debtors commenced bankruptcy with a restructuring support agreement entered into with supporting creditors holding 100% of the claims under the prepetition revolving credit facility and approximately 80.4% of the claims under the prepetition second lien notes. “The proposed transaction, whether consummated through the debt-for-equity transaction or a sale transaction, will resolve these chapter 11 cases, will cut off the expense of the bankruptcy, and will permit the Debtors to distribute value to their stakeholders in a timely manner,” Ion Vice President and CFO Mike Morrison says in the first day declaration. The proposed restructuring envisions a combined plan confirmation and disclosure statement approval hearing on July 1. With respect to the sale process, the debtors are eyeing a sale hearing by June 16.
The terms of the RSA contemplate a “comprehensive restructuring” premised on a “debt-for-equity exchange paired with the potential sale of certain assets” or “a sale of substantially all of its assets,” says the company. With respect to the sale process, the company says it intends to continue solicitation of interest from potential buyers that it began prepetition.
The terms of the RSA are incorporated into a plan of reorganization, which includes a sale “toggle” feature that allows the plan to be effectuated through the debt-for-equity transaction contemplated by the plan or through the sale of one or more of Ion’s business lines, with any remaining assets reorganized pursuant to the plan. Any sale proceeds generated through sale transactions would be used to fund distributions to certain holders of allowed claims under the plan. In the event that all the debtors’ assets are sold via 363 sales, the debtors say they would not move forward with the plan “as it would no longer be necessary.” The debtors have also filed a bid procedures and sale motion in connection with the asset sale process.
Under the plan, each holder of a Class 3 RCF claim would be paid in full in cash or, to the extent such claims are not paid in full in cash, would receive either its pro rata share of an exit facility or have the the claim reinstated or modified “as agreed to by the Debtors and the lender.” Holders of Class 4 second lien notes secured claims would receive their pro rata share of 99.75% of the equity of the reorganized debtors, subject to dilution on account of the management incentive plan.
Holders of general unsecured claims would receive their pro rata share of a $125,000 GUC recovery pool. The GUC recovery pool is subject to either an increase or reduction depending on whether aggregate fees and expenses of the advisors to any official committee of unsecured creditors are less than or greater than the allocation for such expenses in the DIP budget.
Holders of common stock in debtor Ion Geophysical Corp. would receive their pro rata share of, and interests in, 0.25% of the equity of the reorganized debtors, subject to dilution on account of the MIP. All prepetition preferred stock issued by Ion Geophysical would be canceled.
The company is requesting $2.5 million of DIP financing from certain of its prepetition secured lenders, with Ankura as DIP agent, along with the use of cash collateral.
The first day hearing has been scheduled for today, Wednesday, April 13, at 2:30 p.m. ET.
The debtors’ prepetition capital structure consists of approximately $147.6 million of funded debt, including:
Interest owed on the first lien revolver, second lien notes and unsecured notes totals $30,559, $7.8 million and $902,445, respectively. The unsecured notes were originally secured by a second lien but were subsequently amended to release the security interest.
On March 7, certain members of the ad hoc group of second lien noteholders purchased all outstanding loans, advances, rights, duties, obligations and commitments under the revolving credit agreement, from PNC, as lender. In connection with the transfer, Ankura replaced PNC as agent under the revolving credit agreement.
As a result of Ion’s diminishing liquidity position, Ion did not make the principal and interest payments on the unsecured notes of approximately $7.7 million that became due when the notes matured on Dec. 15, 2021, triggering an immediate event of default under the supplemental notes indenture. Ion also elected to defer the approximately $4.6 million interest payment that came due on the second lien notes on Dec. 15, 2021, resulting in an event of default under the second lien notes indenture upon the expiration of the 30-day grace period.
On Jan. 14, Ion and PNC, as agent and lender to the prepetition revolver, entered into forbearance and amendment agreement pursuant to which PNC agreed to forbear, through and including Feb. 15, from enforcing or exercising its rights and remedies upon a cross-default that would have otherwise occurred under the revolving credit agreement. In addition, Ion and PNC agreed that (i) Ion would pay down the outstanding balance under the revolving credit agreement by $2.5 million, reducing the total commitment to approximately $16.85 million, (ii) the interest rate under the revolving credit agreement would shift to the base rate beginning in February 2022 at an effective rate of 6.25% per annum, (iii) the cash dominion and covenant testing trigger would be set at below $5 million for U.S. nonrestricted cash for five consecutive business days, and (iv) the royalty payable reserve would be removed from the borrowing base calculation.
The debtors also entered into a forbearance agreement with holders of more than 79% of the outstanding second lien notes, pursuant to which such noteholders agreed to forbear, through and including Feb. 15, from enforcing, or taking any action to direct the second lien notes trustee to enforce their rights and remedies arising as a result of Ion’s failure to make the Dec. 15, 2021, interest payment. Subsequently, the debtors entered into a series of additional forbearance agreements with the prepetition revolver and second lien parties, ultimately forbearing the agreements until the April 12 petition date. In connection with the second forbearance, before Ankura replaced PNC as revolving agent, Ion and PNC agreed, among other things, that (i) Ion would pay down the outstanding balance under the revolving credit agreement by an additional $1.25 million, reducing the total commitment to approximately $15.6 million, and (ii) the cash dominion and covenant testing trigger would be set at below $3.75 million for U.S. nonrestricted cash for five consecutive business days.
On April 20, 2021, Ion completed (i) an offer to exchange a majority of its existing 9.125% senior secured second priority notes due 2021 for the newly issued second lien notes and other consideration in the form of cash and common stock of Ion Geophysical and (b) a rights offering to the holders of common stock in Ion Geophysical. The exchange offer and rights offerings contributed to Ion’s prepetition capital structure.
The debtors are advised by Winston & Strawn as bankruptcy counsel, Perella Weinberg as investment banker and FTI Consulting. Epiq is the noticing and claims agent. The case has been assigned to Judge Marvin Isgur (case No. 22-30987).
Events Leading to Bankruptcy / Prepetition Restructuring Efforts
The company attributes the bankruptcy filing to the deterioration of energy demand and the oversupply from increased production, causing oil and natural gas prices to decline significantly in 2020. The decline in commodity prices triggered budget reductions of about 25% by E&P companies, who had less cash to invest and allocate capital to their highest return assets. As “exploration offerings and data purchases are often discretionary,” the debtors say, services such as Ion’s receive disproportionately higher budget reduction rates than overall budget cuts.
The debtors note that Brent crude prices rebounded above pre-pandemic levels. “While this reflected a continued expectation of rising oil demand as both global economic activity and COVID-19 vaccination rates increased,” the debtors say, “combined with ongoing crude oil production limits from members of OPEC and partner countries, energy companies’ capital discipline persisted.” As a result, the offshore seismic market remained challenging through 2021. Despite “signs of gradual market improvement,” Ion’s 2021 revenue was lower than expected, causing increased liquidity constraints.
Ion also faced significant near-term obligations coming due in the fourth quarter of 2021, including principal and interest in the amount of approximately $7.7 million on the unsecured notes and interest in the amount of approximately $4.6 million on the second lien notes. In need of sufficient liquidity to maintain ongoing operations, including paying its seismic acquisition partners and royalty obligations, “it became apparent that without an additional cash infusion or relief from its existing debt obligations, ION would likely not be able to continue to operate as a going concern through the first quarter of 2022,” the company says.
To mitigate the impact of Covid-19 and oil price volatility, Ion implemented a series of initiatives to preserve cash and manage liquidity, which resulted in cost-savings of approximately $40 million. The company scaled down personnel costs and operating expenses through furlough programs, reduced compensation and a reduction in workforce, reduced capital expenditures to reflect both seismic demand and travel/border restrictions that would affect new data acquisition offshore, obtained PPP loan funding in the amount of $6.9 million, renegotiated lease agreements and extended payment terms to key vendors in an effort to judiciously manage liquidity. In 2021, the company implemented further cost-reduction programs, identified through a combination of both short-term and long-term reductions in an effort to right-size its business.
To address the impending maturity of the second lien notes, the debtors completed the April 2021 exchange offer and rights offerings, extending the maturity of the second lien notes by four years to 2025 by exchanging such notes for the second lien notes with a lower interest of 8% and a combination of cash and common stock of Ion Geophysical. Given the dilutive effect the exchange transaction would have on the outstanding common stock of Ion Geophysical, shareholders had the opportunity to participate in the concurrent rights offering. As part of the exchange offer and rights offering, Ion received approximately $14 million in net proceeds, after deducting noteholder obligations, estimated transaction fees, and accrued and unpaid interest. “While the Company completed the Exchange Offer and Rights Offering and revenues improved, the timing of the market recovery remains uncertain, and overall revenues were lower than expected,” the debtors say.
Recognizing the need to address Ion’s ongoing liquidity challenges, the debtors engaged Perella Weinberg Partners, which conducted a comprehensive prepetition marketing process, targeting a broad range of potential counterparties, with a focus on strategic bidders interested in either bidding on Ion as a whole or pursuing a transaction for an individual operating segment. In parallel, Ion and its advisors began preparing for a potential bankruptcy filing and commenced discussions with key stakeholders. Based on the outcomes of the prepetition marketing process, discussion with key stakeholders, real-time business results and available liquidity, the debtors, with guidance from the board of directors, ultimately concluded that filing these chapter 11 cases “was the optimal course to strengthen ION’s financial position and maximize stakeholder value.”
Ion, originally founded in 1968 as a provider of highly specialized, seismic source synchronization equipment, now focuses on diversifying its business into new markets such as energy logistics, port management and maritime monitoring. The company’s offerings aim to improve subsurface knowledge for the purpose of enhancing E&P decision-making and improving situational awareness to optimize offshore operations.
Ion provides its services and products through two business segments: (i) exploration and production technology and services, through which the company creates digital data assets on a proprietary and multiclient basis and delivers services to help E&P companies improve decision-making, reduce risk and maximize value, and (ii) operations optimization, through which the company develops “mission-critical” software and technology to enable operational control and optimization offshore.
Ion retains a 49% ownership interest in Inova, a joint venture with BGP, a subsidiary of China National Petroleum Corp.
Ion became publicly traded on the Nasdaq in 1991 and was listed on the New York Stock Exchange in November 1994.
Ion has made a series of strategic acquisitions to further advance its technology and service offerings, including the 2004 acquisition of GX Technology Inc., a leading provider of advanced seismic data processing and subsurface imaging solutions, and Concept Systems Ltd., a leading supplier of real-time navigation and data integration software and services.
In 2018, the company launched an enterprise version of its proprietary Marlin software to more broadly optimize offshore operations and continue advancing maritime digitization. In 2020, the company commercialized its proprietary Gemini extended frequency source technology following a successful survey deployment in the Gulf of Mexico. This new source technology addresses industry demand for increased geophysical fidelity in complex geologies while satisfying improved operational and environmental performance.
The debtors' largest unsecured creditors are listed below:
|10 Largest Unsecured Creditors
|Cobra Acquisition Services SA
|Shearwater Geoservices LTD
||Tunbridge Wells, U.K.
|Wilmington Savings Fund
|National Oil Corporation
|Sociedade Nacional de
Combusiveis de Angola
|PGS Geophysical AS
|BGP Inc., China National
|PKY-2101 Citywest 3&4 LP
|Directorate General of
The case representatives are as follows:
Bid Procedures and Sale Motion
||Katherine A. Preston
||Winston & Strawn
|Timothy W. Walsh
|Daniel J. McGuire
|Debtors' Financial Advisor
|Debtors' Investment Banker
|Debtors' Claims Agent
|Counsel to the Prepetition
RCF Agent, DIP Agent
and DIP Lenders &
Legal Advisor to the
|Ryan Preston Dahl
||Ropes & Gray
|United States Trustee
||Hector Duran, Jr.
||Office of the U.S.
|Ha Minh Nguyen
The debtors explain that prior to filing their chapter 11 cases, Perella Weinberg Partners conducted a prepetition marketing process focused on strategic bidders interested in either the debtors’ business enterprise “as a whole” or individual operating segments. The prepetition sale process yielded one formal bid for the debtors’ software business segment, one informal bid for the marine data assets and one informal bid for the devices business segment.
Through the proposed bid procedures, the debtors are seeking to sell all their assets - which consist of their three primary business lines (software, marine data assets and devices) - either as a whole or separately.
The debtors seek authority to select one or more stalking horse bidders and enter into stalking horse asset purchase agreements, pursuant to which the debtors would grant bid protections such as breakup fees, minimum overbids and bid increments, subject to notice and opportunity for objection by parties in interest.
The debtors propose the following sale timeline:
DS Approval Motion / Confirmation Timeline
The debtors’ disclosure statement approval motion proposes the following confirmation-related timeline:
Plan / Disclosure Statement
The debtors say the toggle plan process will allow them to “market test” the transaction contemplated by the RSA and plan and run a comprehensive marketing process to ensure the debtors obtain the “highest or otherwise best offer, or combination of offers” for their assets.
The debtors add that “in light of” the RSA, they expect that Class 3 RCF Claims and Class 4 second lien notes secured claims will vote to accept the plan.
Below are charts of the plan’s classes, along with their impairment status, voting rights, plan treatment and projected recoveries:
Other Plan Provisions
The plan provides for releases of the (a) the debtors, (b) the reorganized debtors, (c) the RCF agent, (d) the DIP agent, (e) the RCF lenders, (f) the DIP lenders, (g) the second lien notes trustee, (h) the second lien noteholders, (i) the RCF lenders and the second lien noteholders party to the RSA, (j) the exit facility lenders and (k) and the current and former affiliates and related parties of the released parties.
Parties releasing their claims under the plan would include: (i) all holders of claims or interests that vote to accept the plan, (ii) all holders of claims or interests that are deemed to accept the plan who do not affirmatively opt out of the releases, (iii) all holders of claims or interests that abstain from voting on the plan and who do not affirmatively opt out of the releases and (iv) all holders of claims or interests that vote to reject the plan or are deemed to reject the plan and who do not affirmatively opt out of the releases.
The plan also provides for an exculpation provision in favor of (a) the debtors, (b) the reorganized debtors, (c) any official committees appointed in the chapter 11 cases and each of their respective members and (d) the current and former affiliates and certain related parties of the exculpated parties.
In addition, the plan contemplates a management incentive plan to be adopted by the reorganized debtors. Under the MIP, up to 10% of the new common stock, determined on a fully diluted basis as of the plan effective date (subject to dilution on account of future issuances of securities, as applicable), would be issued to officers, management, key employees and directors of reorganized Ion Geophysical on or after the effective date, “solely at the discretion of the New Board.”
The liquidation analysis has not been provided and remains bracketed in the combined plan/DS on file.
DIP Financing Motion
The debtors request immediate use of DIP financing in the form of a $2.5 million term loan, with Ankura Trust serving as DIP agent, as well as the immediate use of cash collateral “to, among other things, administer their estates during these chapter 11 cases, honor employee wages and benefits, procure goods and services integral to the Debtors’ ongoing business operations, fund operational expenses and maintain favorable relationships with their vendors, suppliers, employees, and customers.”
The DIP motion says that the facility would be provided “by financing sources within the Debtors’ existing capital structure - specifically an ad hoc group of certain cross-holders of the Debtors first lien and second lien debt.” The filing also states that the DIP lenders include “100% of the lenders under the Debtors’ prepetition revolving credit facility.”
The DIP financing bears interest at 6%, with an additional 2% for the default interest rate, and matures on the earliest of (i) Oct. 11, (ii) the effective date and (iii) the closing of a sale of all or substantially all of the debtors’ assets.
To secure the DIP financing, the debtors propose to grant priming liens on all of the DIP collateral, which would be “senior in all respects” to the prepetition liens, as well as superpriority claims. Upon entry of the final order, the DIP liens would attach to the proceeds of avoidance actions.
The company provides the following expanded summary of lien priorities with respect to the debtors’ encumbered and unencumbered property:
The only fee disclosed in the DIP documents is an agent fee “as agreed with the DIP Agent.”
The company proposes the following adequate protection to its prepetition secured parties: (i) replacement liens granted upon all DIP collateral, including the proceeds of avoidance actions upon entry of the final order, (ii) superpriority claims, (iii) with respect to the prepetition first lien parties only, accrual of interest at the default rate under the prepetition credit agreement, (iv) reporting requirements and (v) payment of professional fees.
In addition, the debtors propose a waiver of the estates’ right to seek to surcharge their collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b), in either instance subject to entry of the final order.
The carve-out for professional fees is $450,000.
The proposed budget for the use of the DIP facility is HERE
According to the DIP motion, the DIP financing is subject to the following milestones:
- April 18: Entry of interim DIP order;
- May 3: Entry of disclosure statement approval order and bid procedures order;
- May 10: Commencement of vote solicitation;
- May 17: Entry of final DIP order;
- June 13: Auction;
- July 8: Entry of confirmation order and sale order; and
- July 22: Sale closing.
The lien challenge deadline is 60 days after UCC formation for any UCC and 75 days after entry of the interim order if no UCC is appointed. The UCC lien investigation budget is $50,000.
The debtors also filed various standard first day motions, including the following: