Fri 07/17/2020 19:54 PM
Relevant Documents:
Agenda
Scheduling Order
Interim DIP Order


At a hearing today, Judge Marvin Isgur approved all of the Bruin E&P Partners LLC requested first day relief, subject to a variety of comments from the judge. The prepackaged plan has broad creditor support but two issues arose today that could impact the cases going forward: (i) the debtors are planning to reject or renegotiate two midstream contracts at their Bruin Williston debtor entity and (ii) Battalion Oil (the former Halcon which sold Bruin various Williston Basin assets for $1.4 billion in 2017) noted that it has recently lodged litigation asserting a constructive trust against the debtors. Judge Isgur addressed both of these issues via reservation of rights language in the now-approved interim DIP order.

In approving the interim DIP, Judge Isgur offered a general defense of DIP rollups. He noted that rollups are “heavily disfavored” and he “hates” to see them, but opinions saying they are prohibited as a matter of law are wrong. According to Judge Isgur, the code contemplated DIP financing and requires bankruptcy judges to approve such financing where appropriate. He said rollups are just another “economic accomodation to get the financing done” that - like excessive fees or other incentives required when lending is tight - need to be evaluated as such. In the current market, Judge Isgur observed that few DIPs are done without a rollup and “the record says that the capital markets aren’t there without this accommodation.”


Steven Serajeddini of Kirkland & Ellis, counsel to the debtors, introduced the case, emphasizing as causes for the cases cratering oil prices generally and that “single wild day” in April when oil futures went negative. He presented the following timeline of the lead up to the chapter 11 filing:

 




Serajeddini reviewed the terms of the RSA and prepackaged plan and noted that while creditor support under the RSA includes only 68% of noteholders, the plan provides “pari” treatment for all notes and doesn’t include provisions disfavoring non-RSA parties, as in some other cases.

 




Judge Isgur quickly honed in on the differing treatment for GUCs at Bruin Williston, with Serajeddini indicating that the RBL debt is “effectively the fulcrum” but prepetition negotiations over “unencumbered assets” led to the negotiated recovery for notes claims (which along with the RBL have claims at every debtor box). The GUC recovery at Williston reflects the two midstream agreements at that entity, which will be “liquidated or settled,” Serajeddini said. Serajeddini later added that Bruin Williston is generally a “cost center” and midstream claims will be “fairly small versus the pot, even if they vote no.” Judge Isgur noted that he wanted to make sure that the interim DIP rollup does not prejudice Williston claimants who are not parties to the RSA, and as noted below, such language was added to the interim DIP order.


Also related to Bruin Williston, when discussing the debtors’ proposed case noticing, Judge Isgur observed that the DS does not have a deconsolidated liquidation analysis and that the inclusion of such analysis may be wise to address notice and disclosure arguments at confirmation. The debtors agreed, adding that the debtors are “confident” in the conclusion that the plan as structured will satisfy the best interests of creditors test.


Benjamin Winger and AnnElyse Gains, also of Kirkland, presented the balance of the requested relief.


With respect to the interim DIP order, Judge Isgur added the following provisions to address Williston and Battalion concerns:


 




The DIP includes a 1-to-1 rollup, with new money funded $50 million upon interim approval, $25 million upon final approval and $40 million upon confirmation. Serajeddini noted in his opening that a 1-to-1 rollup is “unfortunately” not that out of the norm in that “capital is harder to find,” prompting the judge’s comments noted above.


A second day hearing on various interim orders will be held on Aug. 4 at 5 p.m. ET. The combined plan and disclosure statement hearing has been scheduled for Aug. 26 at 2:30 p.m. ET.
 
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