Chaparral Energy files bankruptcy, will equitize unsecured bonds

By Caroline Salls

Pittsburgh, Aug. 17 – Chaparral Energy, Inc. made a pre-packaged Chapter 11 bankruptcy filing Monday in the U.S. Bankruptcy Court for the District of Delaware to implement a restructuring support agreement reached with some of its funded debtholders, according to a company news release.

Chaparral said its pre-packaged plan of reorganization will restructure its balance sheet by equitizing all $300 million of its existing unsecured bond obligations and substantially bolster its liquidity position through $175 million in lending obligations under a reserves-based exit facility and a fully backstopped $35 million new-money convertible note rights offering.

Holders of 78% of the loans under the company’s first-lien revolving credit facility and 78% of its 8¾% senior notes due 2023 have agreed to vote in favor of the pre-packaged plan.

Chaparral said it expects the pre-packaged Chapter 11 reorganization to be completed relatively quickly because of the broad support of its creditors.

“While we have taken carefully measured and decisive action to address the challenges of 2020, the overall impact to the energy industry, including Chaparral, has been severe,” chief executive officer Chuck Duginski said in the release.

“A swift restructuring will right-size our balance sheet, improve our cost structure and best position Chaparral for the future.

“This restructuring will allow us to continue to efficiently operate without interruption and focus on delivering strong results.”

Operations continue

The company said it had $32 million of cash on hand as of Aug. 14, which, combined with its normal operating cash flow, is expected to be enough to allow it to maintain normal operations and meet its other financial commitments throughout the Chapter 11 restructuring period.

The company is seeking court approval to use the cash collateral of pre-bankruptcy administrative agent Royal Bank of Canada to fund working capital and other general purposes.

Chaparral has filed a series of motions that will, upon court approval, allow it to continue to pay employee wages and benefits without interruption, make royalty and working interest payments when due and pay suppliers and vendors in full under existing terms for goods and services.

In addition, the company said it terminated all outstanding derivative contracts in connection with the forbearance by its lenders of the event of default caused by failure to timely pay interest on the senior notes in July.

Proceeds from the early termination along with amounts owed to the company from previously settled positions totaled $28.2 million. The company said it used $24 million of those proceeds to pay down the borrowings under its credit agreement, thereby reducing the outstanding balance to $188.5 million, and kept the remainder of the proceeds.

Restructuring terms

Under the restructuring support agreement, upon Chaparral’s emergence from Chapter 11, the credit agreement borrowings will be partially repaid using a portion of cash on hand and the proceeds from a $35 million second-lien convertible note offering. The remaining borrowings under the credit agreement will constitute outstanding amounts under a $300 million exit revolving credit facility, which will include a reserves-based facility with a minimum $20 million of availability and second-out term loans in an amount to determined.

Senior noteholders will receive their share of 100% of new common equity issued by the reorganized company, subject to dilution by a management incentive plan, exercise of warrants, a 10% put option premium paid in the form of new common equity in connection with the convertible notes offering and any equity issued under the convertible notes upon conversion.

As of emergence, the convertible notes will be convertible into 50% of the equity of the reorganized company.

Chaparral’s existing equity, which has no value according to the independent valuation analysis prepared by the company’s investment banker, will be cancelled without any distribution to holders.

The restructuring agreement does provide for a limited distribution to existing equityholders who do not object to the plan or opt out of releases.

Debt details

According to court documents, Chaparral had $595.17 million in total assets and $522.29 million in total debt as of June 30.

The company’s largest unsecured creditors are indenture trustee UMB Bank, NA of Houston, with a $314.29 million debt claim; Naylor Farms Inc. of Perryton, Tex., with a litigation claim in an undetermined amount; Roan Resources LLC of Tulsa, Okla., with a $1.07 million working interest/royalties payable/trade payable claim; and George W. Clark Jr. Trust of El Reno, Okla., with a $1.05 million working interest/royalties payable claim.

Davis, Polk & Wardwell LLP is acting as legal counsel, Rothschild & Co. and Intrepid Partners, LLC are acting as investment banker, and Opportune LLP is acting as financial adviser to Chaparral in connection with the Chapter 11 cases.

Chaparral Energy is an oil and gas company based in Oklahoma City. The Chapter 11 case number is 20-11947.

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