Shoreline Energy files bankruptcy; support deal calls for asset sale

By Caroline Salls

Pittsburgh, Nov. 10 – Shoreline Energy LLC filed Chapter 11 bankruptcy on Nov. 2 in the U.S. Bankruptcy Court for the Southern District of Texas to implement a restructuring support agreement.

Under the restructuring support agreement, which followed negotiations with second-lien lender Highbridge Capital Management LLC and oil and gas hedging agreement party Morgan Stanley Capital Services LLC, Shoreline, the affiliates of Highbridge and the first-lien lenders agreed on the basic terms of a sale process for substantially all of the assets of the debtors and the terms of a Chapter 11 plan of liquidation.

Specifically, a partnership will be established to serve as stalking horse bidder for the company’s core assets.

In consideration for the assets, the purchaser and Morgan Stanley agreed to submit a credit bid of the outstanding amount under the debtor-in-possession credit agreement, plus an amount equal to $115 million less the amount of claims bid under the DIP credit agreement under a first-lien credit bid, plus $1.5 million in cash.

The purchaser’s capital structure will include a $40 million 4.5-year first-lien multi-draw term loan facility that will bear interest at a rate equal to Libor plus 700 basis points with a 1% Libor floor and carry a 2% original issue discount, a $35 million five-year second-lien term note, which will bear interest at Libor plus 600 bps with a 1% Libor floor, preferred A equity with zero coupon in the face amount of $60 million, preferred B equity with zero coupon in the face amount of $60 million and common equity.

Plan terms

Under the plan of liquidation, if the partnership is the high bidder for the assets, the debtor-in-possession financing agent will credit bid all of the outstanding obligations under the DIP credit agreement, satisfying those obligations in full. If an alternate transaction is completed, the DIP facility will be repaid in full in cash.

The first-lien agent will credit bid up to 100% of the credit facility claims to purchase designated assets. Any unsecured portion of the first-lien facility claims will be treated as general unsecured claims.

If an alternate transaction is completed, holders of first-lien facility claims will be paid in full in cash.

Holders of second-lien facility claims will retain liens attached to liquidating trust assets, and the claims will be paid from any remaining proceeds from the liquidation of those trust assets after payment of the costs of administration of the trust and the payment in full of all first-lien facility claims.

If an alternate transaction is completed, holders of second-lien facility claims will receive a share of cash from the sale of the core assets following payment of all administrative, priority, DIP facility and first-lien facility claims. Second-lien facility claims not paid in cash from an alternate transaction will be treated as general unsecured claims.

Holders of general unsecured claims will receive their share of any proceeds from the liquidation of the trust assets remaining after the payment of the costs of administering the trust and the payment in full of all first-lien and second-lien facility claims.

Existing equity interests will be cancelled, and holders will receive no distribution.

The restructuring support agreement requires the bid procedures and asset sale approval motion to be filed with the court by Nov. 18, the liquidation plan and related disclosure statement to be filed by Dec. 1, the bid deadline to be set for no later than Jan. 27 and the auction date for no later than Feb. 1, the plan to be confirmed and asset sale to be approved by Feb. 10 and the plan to take effect and the sale to close by Feb. 17.

Liquidity issues

Shoreline chairman and chief executive officer Daniel P. Hurley said in a statement filed with the court that “like the industry as a whole, the debtors’ recent performance has been significantly impacted by the extreme and continuing decline in oil and natural gas prices.”

Hurley said the steep decline in crude oil and natural gas prices that began in 2014, as well as disappointing production from Shoreline’s Manti acquisition, has adversely affected the company’s liquidity and balance sheet “to the point that a restructuring has become necessary.”

DIP financing

In conjunction with the bankruptcy filing, Morgan Stanley committed to provide a $50 million DIP facility, which includes a $32 million rollup of the amounts owed under the company’s pre-bankruptcy first-lien credit agreement.

The facility will mature five months from the effective date.

Interest will accrue at the Eurodollar rate plus 900 bps.

The company received approval to use $5 million of the DIP financing on an interim basis. The final hearing is scheduled for Dec. 1.

Debt details

According to court documents, Shoreline has $100 million to $500 million in both assets and debt.

The company’s largest unsecured creditor is Sankaty Advisors, LLC of Boston, with a $71.4 million unsecured notes claim. No other unsecured creditors were listed with claims of $1 million or more.

The company is represented by Jones Day.

Houston-based Shoreline is a privately owned oil and gas exploration and production company The Chapter 11 case number is 16-35571.

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