Magnum Hunter files bankruptcy to implement prearranged restructuring

By Caroline Salls

Pittsburgh, Dec. 15 – Magnum Hunter Resources Corp. and some of its wholly owned subsidiaries filed Chapter 11 bankruptcy Tuesday in the U.S. Bankruptcy Court for the District of Delaware to facilitate the restructuring of their consolidated balance sheet through a prearranged restructuring plan, according to a news release.

Magnum said it entered into a restructuring support agreement with lenders that hold about 75% in principal amount of its funded debt claims. Specifically, the parties to the restructuring support agreement hold substantially all of the company’s first-lien debt, 66.5% in principal amount of its second-lien debt and 79% in principal amount of its senior unsecured notes.

The restructuring support agreement calls for the debt-to-equity conversion of substantially all of Magnum’s pre-bankruptcy funded debt and 100% of its contemplated post-bankruptcy debtor-in-possession financing, resulting in a significantly deleveraged balance sheet upon emergence from the Chapter 11 bankruptcy process in April 2016.

In addition, the company said the restructuring support agreement provides a significant cash recovery to vendors and trade claimants.

All other secured debt will be reinstated, including equipment and real estate notes.

Preferred stock and common shares will be cancelled.

DIP financing

Magnum said the restructuring support agreement also provides for $200 million in DIP financing, which will be backstopped by lenders who are parties to the restructuring support agreement.

Magnum said it expects the DIP financing to provide sufficient liquidity to stabilize its operations and satisfy key vendor, employee and other key stakeholder commitments for the duration of the restructuring process.

The DIP financing will be provided in three installments, including $40 million to be made available upon entry of an interim order, $100 million to be made available upon entry of a final order and $60 million to be made available on or before the date that is one week before the plan confirmation hearing.

The facility will mature on the earliest of nine months after the closing date, 31 days after entry of an interim order if no final order has been entered, the effective date of a plan of reorganization or liquidation, closing of a sale of the company’s assets and termination of the commitments and acceleration of the loan.

Interest will be Libor plus 800 basis points, with a 1% Libor floor.

Industry woes

According to the release, the restructuring support agreement represents a significant achievement for the company in the face of historic commodity price declines in both oil and natural gas and an increasingly depressed operating environment.

“I believe this restructuring will position Magnum Hunter as a market leader in the upstream sector with an ideal capital structure to capitalize on the large number of opportunities anticipated in our industry due to the precipitous commodity cycle downturn affecting the industry as a whole,” chairman and chief executive officer Gary C. Evans said in the release.

“At a very challenging time for the entire energy industry, when many of our competitors have been forced to either file for bankruptcy without a plan to emerge in place or continue to attempt to restructure with creditors without an ‘end game,’ our global restructuring accomplishment is definitely an outlier.

“We expect the entire process to be efficient, cost effective, and quick. We also anticipate emerging from bankruptcy financially stronger than ever before.”

The company said the decline in oil and natural gas prices, the general uncertainty in the overall energy markets and Magnum Hunger’s substantial debt obligations resulted in its decision to explore all strategic restructuring alternatives to reduce its overall debt and achieve a sustainable reconstituted capital structure.

Debt details

According to court documents, Magnum Hunter has $1 billion to $10 billion in both assets and debt. As of Sept. 30, the company reported $1.5 billion in total assets and $1.1 billion in total debt, as well as $416.3 million in stated value of preferred stock.

The company’s largest unsecured creditors are:

• Wilmington Trust, NA, with two $634.63 million claims related to the company’s 9¾% senior unsecured notes due May 15, 2020;

• Continuum Midstream, LLC of Tulsa, Okla., with a $6.19 million trade payable claim;

• Stone Energy Corp. of Lafayette, La., with a $4.3 million trade payable claim;

• Hunt Oil Co., based in Dallas, with a $3.68 million settlement claim;

• SM Energy of Denver, with a $2.29 million settlement claim;

• Dominion Field Services, Inc. of Upper St. Clair, Pa., with a $2.15 million contractual obligation claim;

• Bridges Equipment Ltd. of Odessa, Texas, with a $1.93 million trade payable claim;

• Bracewell and Giuliani LLP of Dallas, with a $1.49 million trade payable claim;

• Beaver Excavating Co. of Canton, Ohio, with a $1.36 million trade payable claim; and

• USA Compression Partners LLC of Austin, Texas, with a $1.35 million trade payable claim.

Magnum Hunter unit Eureka Hunter Holdings, LLC and its subsidiaries are not part of the Chapter 11 bankruptcy proceedings, the release said.

PJT Partners LP is serving as financial adviser to Magnum Hunter, Kirkland & Ellis LLP is serving as legal counsel, and Alvarez & Marsal North America, LLC is serving as restructuring advisor.

Weil, Gotshal & Manges LLP and Houlihan Lokey are serving as legal counsel and financial advisers, respectively, to an informal group of first-lien and second-lien debtholders. Akin Gump Strauss Hauer & Feld LLP and Centerview Partners are serving as legal counsel and financial advisers, respectively, to an informal group of first-lien debtholders and senior unsecured noteholders.

Magnum Hunter is an Irving, Texas, oil and gas exploration and production company. The Chapter 11 case number is 15-12533.

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