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Southland Royalty committee says DIP loan favors secured creditors
By Caroline Salls
Pittsburgh, Feb. 20 – Southland Royalty Co. LLC’s official committee of unsecured creditors objected to the company’s motion for approval of debtor-in-possession financing, according to a Wednesday filing with the U.S. Bankruptcy Court for the District of Delaware.
“The DIP facility as currently constructed serves exclusively to improve the position of the pre-petition RBL secured parties and eliminate any impediments to their reaping the entire benefit of any sale of the debtor’s assets in Chapter 11,” the objection said.
“Without significant improvements to certain crucial aspects of the DIP facility, it pre-ordains the DIP secured parties’ ability to exert undue influence and control over this Chapter 11 case, without regard to the interests of other stakeholders.”
The committee said the DIP facility and related adequate protection given to the pre-bankruptcy RBL secured parties elevates the secured parties’ position in connection with unencumbered assets through a roll-up of $35 million in pre-bankruptcy RBL obligations into DIP obligations and adequate protection liens and claims that provide the secured parties with priority to avoidance actions, commercial tort claims and other assets to which their liens may not have been attached before the bankruptcy filing or which may be subject to avoidance.
As a result, the committee said “the DIP facility aggressively restricts the committee’s ability to investigate and, if appropriate, prosecute a challenge.”
In addition, the creditor group said the DIP credit agreement contains numerous events of default and other protective provisions that are triggered by events affecting treatment of the secured parties’ claims and collateral rather than just the DIP obligations.
Fort Worth-based Southland is an upstream energy company. The company filed bankruptcy on Jan. 27 under Chapter 11 case number 20-10158.
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