Quicksilver committee looks to end second-lien protection payments

By Caroline Salls

Pittsburgh, Feb. 25 – Quicksilver Resources Inc.’s official committee of unsecured creditors asked the U.S. Bankruptcy Court for the District of Delaware to amend the terms of the company’s final cash collateral order, arguing that there will be no need to continue making adequate protection payments to second-lien parties under the order after Quicksilver’s asset sale closes.

According to the motion filed Thursday, Quicksilver intends to close the $245 million sale of its oil and gas assets to BlueStone Natural Resources II, LLC by the close of business on March 31.

As a result of the sale, the committee said the company will no longer own the assets on which the second-lien parties previously had liens. The committee said Quicksilver will also no longer be operating its business after the sale closes and will no longer require the use of cash collateral.

“Adequate protection for the use of the second-lien parties’ cash collateral is therefore no longer necessary after the sale closes and should terminate at that point,” the motion said.

The creditor group said the second-lien parties have already received “generous adequate protection payments” under the cash collateral order. Specifically, the committee said the undersecured second-lien lenders will have received in excess of $54 million as adequate protection and $8.3 million on account of their professional fees and expenses.

In addition, the committee said the second-lien parties were granted adequate protection as a “proxy” for a potential diminution claim and do not need to be adequately protected during the post-sale process, as “their collateral will have been converted to cash that cannot decline in value.”

“While the second-lien parties will likely claim they are entitled to receive adequate protection payments until the debtors make distributions under a Chapter 11 plan, this would be contrary to the purpose of the adequate protection payments and should not be permitted by the court,” the committee said.

A hearing is scheduled for March 17.

Quicksilver is a Fort Worth-based independent oil and gas exploration and production company. It filed for bankruptcy on March 17, 2015 under Chapter 11 case number 15-10585.

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