Arsenal Resources Development makes pre-packaged bankruptcy filing

By Caroline Salls

Pittsburgh, Nov. 8 – Arsenal Resources Development LLC made a pre-packaged Chapter 11 bankruptcy filing Friday in the U.S. Bankruptcy Court for the District of Delaware to implement a recapitalization transaction that includes a $100 million new equity investment made by funds affiliated with Chambers Energy Capital and Mercuria Energy Co. and a deleveraging of the company’s balance sheet, according to a news release.

Arsenal said Chambers and Mercuria are two of its most significant lenders.

The company said its pre-packaged plan of reorganization has the support of 100% of its existing lenders and an overwhelming majority of its equityholders, all of whom signed a restructuring support agreement.

When the plan takes effect, the recapitalized company will be majority-owned by funds affiliated with Chambers and by Mercuria.

In addition to the $100 million equity investment, Arsenal said syndicated lenders have agreed to equitize more than $360 million of long-term debt. Upon completion of the transaction, the recapitalized company is projected to have a new $130 million RBL facility and no other funded debt.

DIP financing

In conjunction with the bankruptcy filing, the company secured a commitment for $90 million in debtor-in-possession financing, which the motion said “will provide access to $45 million of much-needed liquidity to fund these Chapter 11 cases.”

Arsenal said $30 million of the new-money loan will be available on an interim basis.

Citibank, NA is the DIP facility agent.

The facility will mature on the earliest of six months from the bankruptcy filing date, the effective date of a Chapter 11 plan or the closing of a sale of substantially all of the company’s equity or assets.

Interest will accrue at the alternate Base rate plus 450 basis points or Libor plus 550 bps.

Plan terms

The plan calls for employees, customers and vendors of Arsenal’s operating subsidiaries to be paid in full in the ordinary course of business.

General unsecured claims and DIP financing claims will be paid in full.

Holders of existing equity interests will receive no distribution.

“We are pleased that our principal lenders have demonstrated their confidence in the company,” Arsenal chief executive officer Jonathan Farmer said in the release.

“Implementing the plan will provide the company with the needed capital to execute on its long-term business plan and pursue growth opportunities and allow it to continue to operate seamlessly for our customers, vendors, employees and stakeholders.”

As previously reported, Arsenal Energy Holdings LLC emerged from a previous pre-packaged Chapter 11 case in February 2019.

That plan implemented a debt-for-equity exchange under which $861 million of subordinated notes were converted into equity.

Debt details

According to court documents, Arsenal Resources has $500 million to $1 billion in both assets and debt.

The company’s largest unsecured creditors are Chambers Energy and Mercuria of Houston, with an unsecured term loan claim in an undetermined amount; LR – Mountaineer Holdings, LP and Chambers Energy of Houston, with a seller noteholder claim in an undetermined amount; Columbia Gas Transmission, LLC of Houston, with a $12.99 million trade claim; BJ Services, LLC of Tomball, Tex., with a $9.58 million trade claim; Stonewall Gas Gathering LLC of Houston, with a $7.39 million trade claim; K & R Services, Inc. of Waynesburg, Pa., with a $3.86 million trade claim; Goff Connector LLC of San Antonio, with a $2.58 million trade claim; B&L Pipeco Services, Inc. of Houston, with a $2.31 million trade claim; Anchor Drilling Fluids USA, Inc. of Houston, with a $2.08 million trade claim; and Schlumberger Technology Corp. of Sugar Land, Tex., with a $1.82 million trade claim.

The company is represented by Simpson Thacher & Bartlett LLP and Young Conaway Stargatt & Taylor LLP as legal counsel, PJT Partners LP as investment banker and Alvarez & Marsal North America, LLC as restructuring adviser.

Arsenal is a Pittsburgh-based independent exploration and production company. The Chapter 11 case number is 19-12347.

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