Knight Energy committee opposes statement, cites lack of information

By Caroline Salls

Pittsburgh, Sept. 27 – Knight Energy Holdings, LLC’s unsecured creditors committee objected to the disclosure statement for the company proposed Chapter 11 plan, arguing that the statement does not provide adequate information about the plan and “provides little to no information regarding the values of the debtors’ assets or the sweeping releases granted to a myriad of parties.”

According to the objection filed Wednesday with the U.S. Bankruptcy Court for the Western District of Louisiana, Knight’s current equityholders and the holders of pre-bankruptcy senior credit facility claims “are the primary architects of the plan, and its primary beneficiaries.”

In addition, the committee said current equityholders are slated to receive a 20% equity stake in the reorganized company, as well as the right to purchase up to an additional 13% of the interests.

“Just as significantly, the current equity is to receive a broad release that covers not only $8 to $9 million in fixed liabilities, but also undisclosed, but potentially significant, claims for breach of their fiduciary duties,” the objection said.

The committee said secured creditors JPMorgan Chase Bank, NA and IberiaBank are to be paid in full, although the a review of management’s most recent assessment of Knight’s values indicates that both creditors are grossly over-secured.

Meanwhile, the committee said unsecured creditors are estimated to receive a 10% dividend, “explicitly conditioned on a class vote in favor of the plan,” while a class vote against the plan will trigger a “poison pill,” whereby any deficiency asserted by the holders of the senior credit facility claims will be included in the class, significantly diluting the proposed distribution to the predominantly trade creditors that compose the class.

“Initial claim estimate suggests that the amount of such claim may be grossly understated,” the committee said. “The disclosure statement offers little information as to purported size of this deficiency.”

While the proposed plan timeline might be achievable under perfect conditions, the committee said “these conditions are far from perfect in that the disclosure statement lacks nearly all of the information necessary for the sole constituency receiving less than payment in full to make an informed decision on whether to vote in favor or against the plan.”

Knight, a Lafayette, La., oilfield rental tool company, filed bankruptcy on Aug. 8. The Chapter 11 case number is 17-51014.

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