Vanguard Natural Resources files for Chapter 11, plans restructuring

By Susanna Moon

Chicago, Feb. 2 – Vanguard Natural Resources, LLC said it filed for Chapter 11 protections in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division.

In connection with the filing, which was made on Wednesday, Vanguard has entered into a restructuring support agreement with some consenting holders of the company's 7 7/8% senior notes due 2020, 8 3/8% senior notes due 2019 and 7% senior secured second-lien notes due 2023, according to a company announcement.

Under the agreement, the restructuring support parties agreed to support a plan of reorganization that would include

• A fully committed $19.25 million equity investment by the consenting holders of the second-lien notes; and

• A $255.75 million rights offering that is fully backstopped by the consenting holders of the senior notes due 2020 and senior notes due 2019.

Through these measures, the company would eliminate about $708 million of debt under its reserve-based credit facility and senior unsecured debt, the release noted.

Creditor treatment

According to an 8-K filed with the Securities and Exchange Commission, treatment of creditors under the plan will include:

• First-lien credit agreement claims will be paid down with $275 million in cash from the proceeds of a senior notes rights offering and second-lien investment and may be paid down further with proceeds from non-core asset sales or other available cash.

The remaining first-lien claims will participate in a new $1.1 billion reserve-based lending facility;

• Holders of second-lien claims will receive new notes in the current principal amount of $75.6 million, which will be substantially similar to the current second-lien notes, except that they will have a 12-month later maturity and a 200 basis point increase to the interest rate;

• Holders of senior note claims will receive a share of 97% of the ownership interests in the reorganized company and the opportunity to participate in the senior note rights offering;

• If the plan is accepted by the classes of general unsecured claims and holders of the 7 7/8% series A cumulative redeemable preferred units, 7 5/8% series B cumulative redeemable preferred units and the 7¾% series C redeemable preferred units, holders of the preferred units will receive their share of 3% of the new equity interests and three-year warrants for 3% of the new equity interests;

• If the plan is accepted by the classes of general unsecured claims in addition to the holders of the preferred units and the company’s common units, the holders of the common units will receive their share of three-year warrants for 3% of the new equity interests; and

• The plan will provide for the establishment of a customary management incentive plan under which 10% of the new equity interests will be reserved for grants made from time to time to the officers and other key employees.

DIP financing

The company said it has obtained a committed $50 million debtor-in-possession financing facility underwritten by Citibank, NA, JPMorgan Securities LLC and Wells Fargo Bank, NA.

The DIP financing, subject to court approval, combined with the company's cash from operations, is expected to provide enough liquidity during the Chapter 11 cases to support its continuing business operations and minimize disruption, the release noted.

The facility will mature on Nov. 1, 2017, and interest will accrue at a rate of Libor plus 550 bps.

The company is seeking interim access to $15 million of the DIP financing.

Debt details

According to the Chapter 11 petition, Vanguard had $1,546,000,000 in total assets and $2.3 billion of total debt as of Feb. 1.

The company’s largest unsecured creditors are:

• Indenture trustee UMB Bank, NA of Kansas City, Mo., with a $391.85 million unsecured notes claim;

• Wilmington Trust, NA of Wilmington, Del., with a $51.83 million unsecured notes claim;

• Banc of America Leasing and Capital, LLC of San Francisco, with a $19.4 million equipment financing claim;

• Parties to bondholder litigation, with a claim in an unknown amount; and

• Sublette County Treasurer, based in Pinedale, Wyo., with a $2.31 million tax claim.

The bankruptcy filing constituted an event of default under the company’s undrawn letters of credit, senior notes due 2019, senior notes due 2020 and second-lien notes. However, any attempts to enforce default-related rights if automatically stayed under the Bankruptcy Code.

First-day motions

Vanguard said it has filed a series of motions, including first-day motions with the court that would allow the company to maintain its operations as usual throughout the restructuring process.

The company also has filed motions seeking authority to pay expenses associated with production operation and drilling and completion activities, as well as costs associated with gathering, processing, transportation, marketing and those related to joint interest billing for non-operated properties.

Paul Hastings LLP is the legal counsel, and Evercore Partners is the financial adviser. Opportune LLP is the company's restructuring adviser.

“We continue to believe in the quality of our asset base and the dedication and competence of our office and field employees,” Scott W. Smith, president and chief executive officer, said in the company press release.

“The depressed commodity price cycle which has persisted over the past two years, combined with a tightened regulatory environment for senior debt providers, has resulted in a situation where, despite reducing our total debt by over $500 million in 2016, we find ourselves unable to meet the obligations of our current credit facility.

“With a successful restructuring of our balance sheet, Vanguard will be better positioned to weather this new lower for longer commodity price environment, while also improving our long-term financial security and better position us for long-term success.”

Vanguard is a Houston-based oil and gas exploration and development company. The Chapter 11 case number is 17-30560.

Caroline Salls contributed to this report

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