Triangle Petroleum Corporation – Court Confirms Plan, Secured Noteholder J.P. Morgan Securities Handed 100% of Equity (and Estimated 36-43% Recovery on $167mn Note)

June 14, 2019 – The Court hearing the Triangle Petroleum Corporation cases approved the adequacy of the Debtors' Disclosure Statement and confirmed the Debtors' Chapter 11 Plan of Reorganization [Docket No. 71]. The Debtors' will emerge from bankruptcy in the hands of secured noteholder J.P. Morgan Securities, LLC (“JPMS”) who are in line for an estimated 36-43% recovery in respect of their $167.1mn note. JPMS's actual recovery will of course depend on what they actually paid for the note, purchased in distress in October 2017, and what the Debtors' two principal assets, (i) Bakken Real Estate Development LLC (“BRED,” which owns a portfolio of residential and commercial real estate in Western North Dakota) and (ii) a minority interest in midstream services company, Caliber Holdings, are actually worth. The liquidation analysis attached at Exhibit D to the Disclosure Statement provides further detail as to the valuation of these two assets.

On May 8, 2019, privately held Triangle Petroleum Corporation and three affiliated Debtors (“TPC” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 19-11025. Denver-based TPC, an independent energy company with a strategic focus in the Williston Basin of North Dakota, was represented by Andrew L. Magaziner of Young Conaway Stargatt & Taylor, LLP. Further board-authorized engagements include (i) Paul, Weiss, Rifkind, Wharton & Garrison LLP as bankruptcy counsel and (ii) Epiq Corporate Restructuring as claims agent.

At filing, the Company’s petition noted between 1 and 49 creditors; estimated assets between $50mn and $100mn; and estimated liabilities between $100mn and $500mn.

Overview of the Restructuring and Plan

The Debtors' restructuring envisages the cancellation of a $167.1mn secured note claim held by JPMS in exchange for 100% of the emerged Debtors' new common stock. JPMS also holds a $2.0mn term loan claim (comprising the Plan's  Class 1: Term Loan Claim) which will be converted into an exit facility. JPMS, the only holder of a claim in the Plan's only voting class, has voted its claim in favor of the Plan.

In October 2017, a 5.0% convertible promissory note (the “Convertible Note” now comprising the Plan's single voting class, Class 2: Secured Note Claim) issued by TPC in July 2012 to NGP Triangle Holdings, LLC (“NGP” an affilate of Irving, Texas-based private equity energy specialist, NGP Energy Capital Management), was transferred by NGP to JPMS; with JPMS agreeing to forbear on the in-default Convertible Note for a period of one year (ie until October 2018). The initial forbearance agreement was subsequently extended by JPMS until May 17, 2019, but JPMS's patience has now run out.  At issuance, the initial principal amount of the Convertible Note was $120.0 million and the proceeds were primarily used to finance fiscal year 2013 drilling and completion projects. For more on the Convertible Note's issuance, see TPC's August 1012 8-K.

The Disclosure Statement notes, “In the spring of 2019, the JPM Parties and TPC ultimately agreed on a restructuring transaction (the ‘Restructuring’) that would provide for the restructuring of TPC’s balance sheet as follows:

1. On TPC’s emergence from chapter 11, the Allowed Term Loan Claim held by JPMC will be converted into the Exit Facility on the terms described in the Plan. 
2. JPMS, as Holder of the Allowed Secured Note Claim, will receive 100% of the New Common Stock in the Reorganized Debtor. 
3. All General Unsecured Claims and Other Secured Claims against the Debtor shall be Unimpaired and shall be paid in full in cash, paid or disputed in the ordinary course of business and in accordance with applicable law as if the Chapter 11 Case had not been commenced.
4. Holders of Equity Interests and Section 510(b) Claims will not receive any recovery under the Plan.

As described above, the Plan will implement the Restructuring. Among other things, the Plan contemplates the following:  

• The Amended By-Laws and Amended Certificate of Incorporation will become effective and be deemed to amend and restate TPC’s existing certificate of incorporation and bylaws.
• The New Board will be selected by JPMS, in its capacity as Holder of the Allowed Secured Note Claim, and holder of 100% of the New Common Stock, in accordance with the Amended By-Laws and Amended Certificate of Incorporation, effective as of the Effective Date.
• The Plan will provide for customary releases of specified Claims held by the Debtor and the JPM Parties and certain other specified parties against one another and for customary exculpations and injunctions."

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “McGee Declaration”), Ryan D. McGee, TPC’s Chief Executive Officer, detailed the events leading to TPC’s Chapter 11 filing which is largely a history of the ill-fated Convertible Note.

The McGee Declaration states, "On July 31, 2012, TPC entered into a 5.0% convertible promissory note (the ‘Convertible Note’) with NGP Triangle Holdings, LLC (‘NGP’), with a principal amount of $120 million. The Convertible Note had no stated maturity date or maintenance covenants and would only be accelerated upon the occurrence of certain events of default, including the occurrence of a ‘Fundamental Change,’ defined in the Convertible Note to include, among other things, if TPC’s common stock ‘cease[d] to be listed or quoted on any of The New York Stock Exchange, NYSE MKT, The NASDAQ Global Select Market, The NASDAQ Global Market or any other National Securities Exchange or automated quotation system (or any of their respective successors).’

In June 2016, Triangle USA Petroleum Corporation (‘TUSA’) and its subsidiaries (collectively, the ‘TUSA Debtors’), as well as Ranger Fabrication, LLC (‘Ranger’) and its respective subsidiaries (collectively, the ‘Ranger Debtors’), all of which were wholly-owned direct or indirect subsidiaries of TPC at the time, commenced voluntary chapter 11 cases in the United States Bankruptcy Court for the District of Delaware. Unlike the TUSA Debtors or the Ranger Debtors, TPC had no imminent debt maturities, and was not in default under the Convertible Note. Accordingly, TPC did not commence chapter 11 cases along with the TUSA Debtors and Ranger Debtors and continued to operate in the ordinary course.

On March 10, 2017, the TUSA Debtors’ chapter 11 plan (the ‘TUSA Plan’) was confirmed, and, on March 24, 2017, the TUSA Plan went effective. Pursuant to the TUSA Plan, TPC’s equity interest in TUSA was cancelled. Shortly thereafter, on April 6, 2017, the NYSE MKT delisted TPC. Thereafter, TPC notified NGP that a “Fundamental Change” had occurred under the Convertible Note, following which NGP demanded that TPC repurchase the Convertible Note for the outstanding balance of approximately $154 million. TPC did not repay the Convertible Note, triggering an ‘Event of Default’ thereunder and causing the outstanding balance to become immediately due and payable in full.

Thereafter, TPC and its advisors initiated negotiations with NGP regarding a potential restructuring or recapitalization transaction. On or about October 19, 2017, JPMS agreed to purchase the Convertible Note from NGP— with the consent of TPC—and to forbear until October 19, 2018, from exercising rights and remedies with respect to the aforementioned Event of Default (the ‘Forbearance Agreement’).

During the summer of 2018, TPC and JPMS began discussing a line of credit with a JPMS affiliate. On September 28, 2018, TPC entered into a $5 million term loan credit agreement with JPMorgan Chase Bank, N.A. (the ‘Term Loan Agreement’), which is secured by a first priority lien on substantially all of TPC’s assets. In connection therewith, and as a condition to receiving a seven month extension of the Forbearance Agreement, TPC and JPMS also agreed to amend and restate the Convertible Note (as so-amended and restated, the ‘Secured Note’), pursuant to which TPC granted JPMS a second lien on substantially all of its assets.

In the spring of 2019, having been unable to agree with TPC on terms for a consensual out-of-court restructuring or recapitalization of TPC, JPMS advised TPC that JPMS did not intend to further extend the Forbearance Agreement, which, unless extended, would terminate on May 19, 2019."

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):

• Class 1 (“Term Loan Claim”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $2.0mn and the estimated recovery is 100%.
• Class 2 (“Secured Note Claim”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $167.1mn and the estimated recovery is 36-43%. JPMS will receive 100% of the New Common Stock to be issued by the Reorganized Debtor.
• Class 3 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is undetermined and the estimated recovery is 100%.
• Class 4 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is undetermined and the estimated recovery is 100%.
• Class 5 (“Equity Interests & Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is 0 and the estimated recovery is N/A.

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