EP Energy files fifth amended plan; statement hearing set for July 20

By Caroline Salls

Pittsburgh, July 15 – EP Energy Corp. is requesting court approval of the disclosure statement for a fifth amended plan of reorganization, according to a motion filed Tuesday with the U.S. Bankruptcy Court for the Southern District of Texas.

EP Energy said in the disclosure statement that it was “on the cusp of emerging from these Chapter 11 cases” in early March after the court confirmed its fourth amended Chapter 11 plan.

The company said the fourth amended plan would have enabled it to exit Chapter 11 by eliminating billions of dollars of debt and providing new capital to fund the restructuring and EP Energy’s business going forward.

However, the company said in the days following the court’s oral ruling confirming the fourth amended plan, Saudi Arabia and Russia implemented price reductions that severely affected the price of oil and gas, causing United States oil prices to fall by more than 30%, and the spread of Covid-19 resulted in the crash of financial markets.

“As a result, the Debtors became unable to satisfy all of the conditions to the effectiveness of their exit facility and therefore could not consummate the prior plan,” the disclosure statement said.

The fourth amended plan was vacated by the bankruptcy court on March 23. EP Energy said oil prices continued to fall following entry of the vacatur order, presenting further challenges.

As a result, EP Energy said it developed a new business plan, explored strategic alternatives, held discussions with several of its major stakeholders regarding potential paths forward and took steps to reduce costs.

The company said oil prices have also since risen from their record lows, helping to facilitate a path toward emergence.

The holders of 98% of the claims under EP Energy’s pre-bankruptcy RBL facility have agreed to support the new exit term sheet, and the company said it is hopeful that 100% of the holders of those claims and 100% of the holders of debtor-in-possession financing will execute the proposed amended commitment letter and agree to provide similar support.

To the extent any holder of RBL claims does not execute the amended commitment letter, the company said either the existing or amended commitment letter may be modified or replaced to provide that non-consenting lenders will receive first-lien, second-out term loans under an exit financing agreement on a dollar-for-dollar basis under the plan.

Based on negotiations with the advisers to a noteholders group, EP Energy said it expects the members of that group to support the plan.

Plan terms

The company said the transactions in the fifth amended plan will substantially reduce debt and preserve more than 450 jobs through a $4.4 billion reduction of current debt and access to a $629 million exit credit facility, supported by the RBL lenders, into which the pre-bankruptcy RBL facility and DIP facility will roll on the plan effective date.

Also under the fifth amended plan, holders of 1.125-lien notes claims will receive their portion of 100% of the new common shares in the reorganized company, subject to dilution by employee incentive plan shares.

Holders of unsecured claims, including 1.25-lien notes claims, 1.5-lien notes claims, unsecured notes claims and general unsecured claims will receive no distribution, although notes trustee fees and expenses will be paid and the company has agreed to waive avoidance actions against ongoing trade parties.

Holders of parent unsecured claims will be paid in full in cash or receive a share of the cash on EP Energy’s balance sheet on the plan effective date.

Holders of convenience claims will receive the lesser of 10% of the allowed claim amount in cash or a share of a $175,000 claim distribution amount.

Holders of existing parent equity interests will receive their share of $300,000 in cash on account of available EP Energy assets.

Treatment comparison

As previously reported, the fourth amended plan was based on a restructuring agreement reached with key creditors in October 2019 that included a roll up of 50% of EP Energy’s asset-based facility into a first-out debtor-in-possession facility. The DIP facility would roll into a new reserve-based facility at emergence. Any lenders not agreeing to participate in the new RBL facility would have their existing commitments rolled into a last-out piece.

The agreement also included a $475 million equity rights offering, which would be backstopped by noteholders.

Existing 1.125-lien and 1.25-lien secured notes would have been reinstated.

Holders of 1.5-lien notes would have received 100% of the company’s equity, subject to dilution by a 10% management incentive plan award.

Holders of unsecured claims would have received their share of 1.75% of the new common shares in the reorganized company, subject to dilution by an incentive plan.

Eligible general unsecured creditors would also have received rights to participate in a $25 million rights offering, while non-eligible holders would have received cash, new common shares or a combination of those not to exceed $500,000 in value.

Holders of existing parent equity interests would have received, on account of available assets of EP Energy, their share of $500,000 in cash.

A hearing on conditional approval of the disclosure statement is scheduled for July 20.

The oil and natural gas exploration and production company is based in Houston. The company filed bankruptcy on Oct. 3, 2019 under Chapter 11 case number 19-35654.

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