EXCO Resources – BHP and Azure File Separate Objections to Disclosure Statement

October 30, 2018 – BHP Billiton Petroleum (KCS Resources) and several affiliated companies (collectively, “BHP”) filed an objection [Docket No. 1180] to EXCO Resources’ Disclosure Statement [Docket No. 1104]. The objection asserts, “BHP needs to know which of its contracts that the Debtors propose to assume, which they propose to reject, and the proposed cure amounts as early as possible in order to review its accounting records and billings as they relate to each contract and determine whether its records comport with the records of the Debtors for purposes of establishing the correct cure amount. Ideally, such information would be included in the Disclosure Statement itself. Instead, pursuant to the Disclosure Statement Motion, the Debtors’ propose to disclose such information in the Plan Supplement and set the deadline to file the Plan Supplement on November 26, 2018. The proposed deadline to object to confirmation and/or the assumption or rejection of contracts is just one week later, on December 3, 2018. The time allotted for BHP to review the operative contracts and the amounts outstanding for purposes of determining the correct cure amounts is insufficient. Moreover, unless an “effective date” is established for purposes of the proposed cure amount, BHP may be unable to determine the correct amount to assert for purposes of establishing cure amounts due to the timing issues associated with the relevant billings. BHP submits that the Disclosure Statement Motion should be denied unless the Debtors amend the proposed order to require the Plan Supplement to be filed at least two weeks prior to the deadline to object to confirmation and the assumption or rejection of contracts.”

Separately, Azure Midstream Energy, Azure Midstream Holdings and TGG Pipeline (collectively, “Azure”) filed with the Court an objection [Docket No. 1188] to the Debtors’ Disclosure Statement. The objection asserts, “The Disclosure Statement fails to comply with applicable law because it fails to provide “adequate information” as required by section 1125(a) of the Bankruptcy Code. Moreover, solicitation of the Plan, as proposed, would be a waste of estate resources because the Plan violates the absolute priority rule and, thus, is patently unconfirmable. In its distinctive Q&A format, the Disclosure Statement is noticeably missing one point: ‘Who is, as a fiduciary, representing the interests of Raider’s unsecured creditors who are not receiving anything under the proposed Plan?’ The Disclosure Statement also fails to, inter alia, (i) contain adequate information regarding Raider Marketing, LP (“Raider”), including why its interest in certain litigation is being assigned to a Litigation Trust for the benefit of certain creditors, but not Raider’s unsecured creditors, (ii) explain how the Debtors determined the estimated amount of allowed claims in certain classes and the risk that the Debtors will be unsuccessful in their attempt to disallow in excess of approximately $380 million in unsecured claims against EXCO Operating Company (i.e. claims in Class 7); (iii) contain adequate information regarding unique issues related to Plan confirmation, such as a description of the basis for separately classifying general unsecured claims against Raider (Class 8) and general unsecured claims against all other Debtors (Class 7) and providing disparate treatment of such classes; and (iv) provide sufficient information on the Settlement embodied in the Plan and the justification for entering into such Settlement. In addition to the information deficiencies, the Court should deny approval of the Disclosure Statement Motion because the Debtors cannot satisfy the absolute priority rule where equity holders of Raider are unimpaired and will retain their equity interests (Intercompany Interests – Class 11), while holders of unsecured claims against Raider (Raider Marketing Claims – Class 8) are wiped out and will not receive any distributions under the proposed Plan….As such, the Disclosure Statement should be amended to (i) explain how the Debtors determined the estimated amount of Allowed Claims in Class 7 and Class 8, (ii) disclose the risks associated with the Debtors’ pending objections of approximately $380 million in unsecured claims against EXCO Operating, and (iii) explain how the approximate $420 million of estimated rejection damages may be allocated between Class 7 and Class 8….The Disclosure Statement lacks adequate information for creditors to make informed decisions as to critical confirmation-related issues.  Absent accurate information on the below-described issues, it will be impossible to understand whether the distributions proposed under the Plan comply with section 1129 of the Bankruptcy Code and to assess the proposed treatment to various classes under the Plan.”