Bonanza Creek rejects equity proposal; trustee appointment requested

By Caroline Salls

Pittsburgh, Feb. 3 – Bonanza Creek Energy, Inc. announced Friday that a restructuring proposal made by an informal equity committee “did not result in an acceptable transaction and no counteroffer was made,” according to an 8-K filed with the Securities and Exchange Commission.

Under the equity committee proposal, restructuring distributions would include 80% notes, 20% equity in the reorganized company and five-year warrants.

The equity proposal also included a $300 million rights offering, with $200 million to be allocated to noteholders and $100 million to equityholders, who would also share in a backstop fee.

The equityholders proposed that rights offering proceeds would be used for general corporate purposes, payment of administrative expenses and payment of the company’s other general unsecured creditors.

As previously reported, a restructuring proposal from the company’s noteholders calls for a 95.5% notes distribution, 4.5% of equity and three-year warrants to purchase 7.5% of Bonanza Creek’s equity at a $1.45 billion equity value.

The noteholders proposed a $200 million rights offering, fully backstopped by noteholders. Proceeds of that rights offering would be used for general corporate purposes and payment of administrative expenses.

On Friday, the informal equity committee asked the U.S. Bankruptcy Court for the District of Delaware to appoint a Chapter 11 trustee or an examiner for Bonanza Creek’s bankruptcy case.

“This case marks another example of apparent collusion between a vocal group of sophisticated hedge funds and a debtor’s management team attempting to steal value from subordinated parts of a debtor’s capital structure,” the equityholders said in their motion.

The committee said it is also prepared to work with an independent trustee on an alternative Chapter 11 plan “that will provide more new money at a higher valuation for the benefit of all stakeholders.”

The equityholders said management’s conflict of interest in connection with an “artificially low” valuation is heightened by attempts to award equity in the reorganized company under a management incentive plan.

“This apparent self-dealing leaves management hopelessly compromised; the appointment of a trustee is in the best interests of the estates so as to rectify this situation,” the motion said.

The informal committee said a trustee could examine Bonanza Creek’s pre-packaged plan and valuation to determine whether it is truly in the best interests of all stakeholders or if perhaps an alternative plan sponsored by equityholders at a higher valuation is superior.

The Denver-based oil and natural gas company filed bankruptcy on Jan. 4. The Chapter 11 case number is 17-10015.

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