Tilden Marcellus Chapter 11:
First Day Declaration
DIP Financing Motion
Motion to Approve UGI Term Sheet
First Day Hearing Notice
|Debtor is a Canonsburg, Pa.-based natural gas exploration and production company
|Seeks to pursue sale process for substantially all assets or reorganize through a plan of reorganization
|Entered into a term sheet with UGI Texas Creek modifying the terms of the parties’ long-term gas gathering agreement
|Prepetition term lenders consisting of White Oak Global Advisors and its affiliates have agreed to provide $13.2 million in DIP financing (including $4.4 million of new money and an $8.8 million partial rollup) in support of the sale or restructuring process
Tilden Marcellus LLC, a Canonsburg, Pa.-based natural gas exploration and production company, filed for chapter 11 protection on Friday, Feb. 4, in the Bankruptcy Court for the Western District of Pennsylvania.
The debtor entered into two “key arrangements” prepetition that provide a “roadmap” for the chapter 11 case. First, the debtor seeks to pursue a sale process for substantially all of its assets or reorganize through a plan of reorganization, with the process to be funded by the prepetition secured term lenders through a $13.2 million DIP loan (including $4.4 million of new money and an $8.8 million partial rollup). Second, the debtor has entered into a term sheet with UGI Texas Creek, modifying the terms of the parties’ long-term gas gathering agreement through the closing of a sale or restructuring transaction on a temporary basis to allow the debtor to restart operations and provide “much-needed cash flow” during the bankruptcy case. The first day declaration of CRO Jeffrey Varsalone, managing director at G2 Capital Advisors, adds that to modify the UGI agreement after closing, UGI “will negotiate material amendments” to its agreement with the debtor and/or potential bidders in formulating their bids, and that the agreement may be amended and assumed and assigned.
The UGI term sheet provides that UGI asserts that the contract includes a restrictive covenant that runs with the land, but the debtor reserves the right to dispute this.
There was a similar contract dispute with UGI for Tilden’s “sister entity” Rockdale Marcellus, which filed its own chapter 11 case
in September 2021. Tilden outsources all functions of asset management to, and leases employees from, Energy Operating Corp., which also manages the assets of Rockdale Marcellus. Rockdale and Tilden allocate amongst each other certain costs and expenses and share in common some employees and management provided by Energy Opco. A footnote on the Tilden first day declaration states that given the shared management and employees, certain vendors of Rockdale and Tilden have treated them as a single business enterprise.
Rockdale Marcellus’ case similarly features a “costly” midstream contract with UGI. Rockdale Marcellus was able to come to a global resolution with UGI on a framework to resolve its disputes over rejection of the contract and the sale of substantially all of the debtors’ assets to Repsol Oil & Gas USA LLC for $222 million in cash and the assumption of approximately $2 million of trade obligations. Rockdale is facing a motion to convert the cases to chapter 7 by creditors Regency Marcellus Gas Gathering LLC and ETC Aqua, and at a hearing
last week, Judge Gregory L. Taddonio continued the conversion motion, urging the parties to come to a consensual resolution on exiting the chapter 11 cases.
The first day hearing has been scheduled for Wednesday, Feb. 9, at 2 p.m. ET.
The company’s prepetition capital structure includes:
- Secured debt:
- Term loans (White Oak Global Advisors): $35 million (including $2.3 million in protective advances made between April 2021 and January 2022)
- Swap claim (BP Energy Company): $3.2 million
- Unsecured debt: $11 million (trade and miscellaneous debt)
- Equity: Tilden Marcellus Holdings, LLC owns 100% of the debtor’s membership interests.
Pursuant to an intercreditor agreement, the term loan and swap liens are pari passu
and prepetition term agent White Oak was appointed collateral agent with respect to the prepetition swap liens. The debtor says it has been unable to pay interest that has accrued since November 2020 in addition to other amounts owing under the prepetition credit facility, which, along with other circumstances, has led to the occurrence of numerous events of default thereunder.
Cameron International Corporation, Diamond T Services, Inc., Newpark Mats & Integrated Services, LLC, Patterson-UTI Drilling Company, Principle Enterprises, LLC and Suit-Kote, Inc. have purported claims, and disputed judgments and/or mechanics’ lien claims on property in Tioga County, Pa. which are junior to the claims and interests of White Oak.
The debtor has approximately $100,000 of cash on hand, consisting of proceeds of protective advances and subject to liens of the prepetition term loan.
The debtor is represented by Morris, Nichols, Arsht & Tunnellas counsel, Tucker Arensberg as local counsel and Petrie Partners Securities as investment banker. G2 Capital Advisors managing director Jeffrey Varsalone is serving as CRO. Epiq is the claims agent. The case has been assigned to Judge Gregory L. Taddonio (case number 22-20212).
Events Leading to the Bankruptcy Filing / Prepetition Restructuring Efforts
The company attributes the bankruptcy filing to underperforming wells and the “prolonged dip in gas prices” in 2019 and 2020, curbing the debtor’s ability to drill additional wells and undercutting its ability to meet the minimum volume commitments required under a gathering contract with UGI.
“Taken together, the underperformance of certain of the Debtor’s wells, the lack of drilling capital for additional wells, the fixed terms of the UGI Agreement, and the depression in gas commodity prices have jeopardized the sustainability of the Debtor’s business,” the debtor says. “In light of these difficult circumstances, the continued production of natural gas became unprofitable for the Debtor.” Tilden says that by June 2021, it was compelled to shut-in all but one of its wells and cease substantially all its operations.
Given these challenges, Tilden has faced severe liquidity constraints for over a year. The debtor and its parent, Tilden Holdings failed to meet their commitments under its secured term loan to raise post-closing equity capital in connection with the purchase of its leases and wells.
In April 2021, the debtor obtained $2.3 million of “rescue” financing from its prepetition term lenders in the form of protective advances to pursue strategic alternatives and an orderly chapter 11 filing, “rather than face a premature and potentially value-destructive liquidation.” To that end, as well as to restart its operations in a profitable manner and “take advantage of recent (and potential future) improvements in natural gas prices,” the debtor pursued various restructuring options, leading to entry into the DIP financing and modification of the UGI agreement and the filing of the bankruptcy case.
Tilden is a privately held natural gas exploration and production company with operations in the Pennsylvania counties of Potter and Tioga. The debtor’s gas interests comprise approximately 375 oil and gas leases, and the debtor holds interests in approximately 50 previously operated wells.
The debtor acquired working interests in more than 27,000 net leasehold acres, including 50 natural gas wells and a gathering system in Potter and Tioga counties for $44 million. The debtor then sold to UGI the gathering system and certain related assets for $20 million, and the parties entered into a 20-year contract pursuant to which UGI provides gas gathering services to the debtor. All but one of the debtor’s wells are connected to the UGI gas gathering system. The sole well not connected to the UGI gathering system is connected to a pipeline wholly owned by the debtor.
Tilden is also party to a variety of gas gathering, transportation, and similar midstream services to (a) source and deliver fresh water to the wellhead and (b) gather produced water from the wellhead and dispose of the same.
The company’s corporate organizational structure is below:
The debtor's largest unsecured creditors are listed below:
|10 Largest Unsecured Creditors
|UGI Texas Creek LLC
|Patterson-UTI Drilling Company LLC
|Principle Enterprises LLC
|Commonwealth of Pennsylvania
|Moelis & Company
|J.L. Watts Excavating Inc.
|Commonwealth of Pennsylvania
|Newpark Mats & Integrated Services LLC
|Moore Trucking LLC
The case representatives are as follows:
||Robert J. Dehney
Arsht & Tunnell
|Tamara K. Mann
|Michelle M. Fu
||Beverly Weiss Manne
|Kevin L. Hall
||Jeffrey T. Varsalone
|Co-Counsel to the
DIP Agent and
|Darren S. Klein
|Co-Counsel to the
DIP Agent and
|Debtor's Claims Agent
||Office of the
DIP Financing Motion
The debtor seeks approval of $13.2 million in DIP financing consisting of a $4.4 million new money term loan ($1.3 million on an interim basis) and an $8.8 million rollup of certain of the prepetition credit facility. The prepetition term loan parties, consisting of White Oak Global Advisors and certain of its affiliates, as of the petition date, would provide the DIP financing. White Oak is the DIP agent.
The DIP financing bears interest at Adjusted LIBOR (with a 1% floor) + 10% or the ABR (with a 2% floor) + 9%. DIP rollup loans would bear interest at “the Default Rate under the Prepetition Credit Agreement, equal to the (a) greater of (i) 2.0% per annum or (ii) LIBOR, plus (b) 6.00% per annum plus (c) 300.00 basis points per annum.” For the DIP obligations, 2% would be added for the default rate. The loan matures July 4.
To secure the DIP financing, the debtors propose to grant (a) a priming lien on all DIP collateral which is prepetition collateral subject to “Permitted Prior Liens” but only to the extent the permitted prior liens are senior to the prepetition liens, (b) a first lien on all DIP collateral that is not prepetition collateral and is subject to a senior lien as as of the petition date, junior to any enforceable permitted prior liens and (c) a first priority lien on unencumbered assets. The debtors propose a lien on avoidance action proceeds subject to the final order.
The facility includes various fees, including a 3% initial funding fee, 3% subsequent funding fees and a $40,000 loan servicing fee.
In support of the proposed DIP financing, the debtors filed the declaration of CRO Varsalone, who states that the prepetition term lenders were “natural candidates” to serve as DIP lenders as the debtor’s senior secured lenders. Varsalone adds that the prepetition term lenders and swap counterparty BP have consented to the priming of their liens. Varsalone also defends the rollup saying that the DIP lenders funded the debtor for more than nine months through protective advances and their commitment to provide the DIP facility.
The company proposes the following adequate protection to White Oak and BP: replacement liens on a pari passu
basis, superpriority administrative claims on a pari passu
basis, payment of professional fees and expenses, and “to the extent allowed pursuant to section 506(b) of the Bankruptcy Code” PIK interest would accrue on the prepetition term loan at 11% (with 13% for the protective advances) and financial reporting.
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 carveout for professional fees of the debtor is $200,000 for an official committee of unsecured creditors is $25,000.
The proposed budget for the use of the DIP facility is HERE
The DIP financing is subject to the following milestones:
- Final DIP order: Entered within 45 days of the petition date;
- UGI order: Entered within 45 days of the petition date;
- Bid procedures order: Entered within 24 days after filing of a bid procedures motion;
- Auction: Within 47 days after entry of a bid procedures order;
- Sale order: Entered within five days after the earlier of conclusion of the auction and the date on which it is determined that no auction is required to be held; and
- Sale consummation: 15 days after entry of the sale order.
The lien challenge deadline is the later of 60 days from appointment of a UCC or 75 days after entry of the interim order for any other party in interest. The UCC lien investigation budget is $25,000.
Motion to Approve UGI Term Sheet
The debtor seeks approval of a term sheet with UGI to modify the parties’ long-term gas gathering agreement. According to the motion, the agreement includes a “purported restrictive covenant” that is “purported by UGI” to run with the land, which “limits the Debtor’s ability to operate with an alternative midstream services provider or market its assets to potential buyers.” The debtor says it reserves all rights to dispute and challenge the covenant running with the land.
The debtor has “struggled to meet its obligations under the UGI Agreement due to a combination of internal and external factors, including the underperformance of certain of the Debtor’s wells, a lack of drilling capital for additional wells, and a sustained depression in gas commodity prices,” and ultimately ceased substantially all of its operations.
The term sheet provides that it would be effective Feb. 4 and run through the earlier of July 31 and the closing of a restructuring or sale transaction. There would not be any amendment to the gathering fees, compression fees or capital recovery fees. The minimum volume commitment would be temporarily suspended and any shortfall fees accrued during the suspension period would be forgiven.
With respect to the sale process, UGI would be given certain consultation rights. The term sheet also provides that the debtor would not directly or indirectly seek to reject the UGI gathering agreement or file other claims or litigation against UGI while the term sheet is in effect; however, this provision has a fiduciary out. The motion says that Tilden represents to UGI that they do not currently intend to seek rejection.
Tilden also agrees not to object to the allowance of any general unsecured claim that UGI asserts on account of any unpaid shortfall fees accrued prepetition and postpetition, provided that the amount as of the petition date would be agreed between UGI and Tilden in good faith. Any shortfall fees accrued postpetition and “any other claims in respect of Tilden’s failure to satisfy the Minimum Volume Commitments on or after the Petition Date shall be general unsecured claims.”
The debtor also filed various standard first day motions, including the following: