EP Energy Corporation – Files Fourth Amended Plan and Related Disclosure Statement to Reflect Settlement with Creditors’ Committee

January 13, 2020 – The Debtors filed their Fourth Amended Joint Chapter 11 Plan, a related Disclosure Statement, and redlines of each of those documents showing changes to versions filed on January 8, 2020 [Docket Nos. 674, 675 and 677, respectively] and then did it all over again later in the day [Docket Nos. 685, 686 and 688, respectively] as professionals scrambled to update documents before a scheduled Disclosure Statement hearing to reflect a last-minute deal between the Debtors and their Creditors' Committee. It is not clear whether the Debtors' professionals deserve a medal or a fee review, having also filed two sets of these documents on January 8th, the very same day that they were apparently putting final touches on the settlement; the January 8th documents prominently adding references to the Creditors' Committee's intention to object to the Plan…something that was clearly about to change. Two things for sure, the last minute scramble has been messy and costly; and in both cases, the second batch of Plan documents don't materially modify disclosure in ways that should not have been anticipated, if at all.

Plan Settlement (all new disclosure)

The most recent iteration of the Disclosure Statement provides: "On January 8, 2020, the Debtors and the Initial Supporting Noteholders reached an agreement in principle with the Creditors’ Committee that resolved the Creditors’ Committee’s objections to confirmation of the Plan. The detailed terms of the agreement in principle were subsequently negotiated among the Creditors’ Committee, the Commitment Parties, and the Debtors, resulting in a settlement (the ‘Plan Settlement’). The terms of the Plan Settlement are embodied in the Plan and include the following: 

(a) the class of Unsecured Claims has been amended to exclude all 1.5L Notes Claims, resulting in substantially increased recoveries on Unsecured Notes Claims and General Unsecured Claims; 

(b) holders of Unsecured Claims will receive (i) their Pro Rata share of 1.75% of the New Common Shares outstanding as of the Effective Date after giving effect to the Plan, the Rights Offerings, and the Backstop Commitment Agreement (including the shares issued pursuant to the Backstop Commitment Agreement), subject to dilution only by the EIP Shares and (ii) either (A) for Eligible Offerees (which excludes Backstop Parties),18 rights to participate in the Unsecured Rights Offering (i.e. an equity rights offering for aggregate cash consideration of $25 million) and (B) for Non-Eligible Offerees, the Non-Eligible Offeree Distribution, which comprises Cash, New Common Shares, or a combination thereof, not to exceed a value of $500,000 in the aggregate, and is calculated to be equivalent to the value of the rights granted to Eligible Holders to participate in the Unsecured Rights Offering; 

(c) the reasonable and documented fees and out-of-pocket expenses of the Unsecured Notes Trustees will be paid in full, thereby avoiding any dilution of recoveries on Unsecured Notes Claims that would otherwise have occurred from the exercise of a charging lien by an Unsecured Notes Trustee; 

(d) a claims monitor (the “Claims Monitor”) will be appointed and provided with a budget of $17,500 per month to represent the interests of unsecured creditors in the claims reconciliation process; 

(e) certain modifications to the releases granted under the Plan; and 

(f) certain other improvements and modifications to the Plan. In connection with the Plan Settlement, the Initial Supporting Noteholders agreed to extend the milestone date set forth in Sections 6(c)(v) and 6(c)(vi) of the Plan Support Agreement to January 15, 2020."

Revised Plan Overview (with principal changes highlighted)

The Disclosure Statement [Docket No. 675] notes, “The Plan is the result of extensive good faith negotiations, overseen by the Debtors’ independent Special Committee (as defined herein), among the Debtors and a number of their key economic stakeholders, that have agreed to support the Plan pursuant to, among other things, (i) that certain Plan Support Agreement dated as of October 18, 2019 (the “Plan Support Agreement” or “PSA”) with holders of approximately (a) 52.0% of the Debtors’ 8.00% senior secured notes due 2024 and (b) 79.3% (in the aggregate) of the Debtors’ 9.375% senior secured notes due 2024 and the Debtors’ 8.00% senior secured notes due 2025, and (ii) that certain Exit Commitment Letter (as defined below) with holders of 100% of the Claims under the Debtors’ prepetition RBL Facility.

Pursuant to the terms of the Plan Settlement reached with the Debtors and the Commitment Parties, the Creditors’ Committee, in its capacity as a fiduciary on behalf of unsecured creditors, has agreed to support the Plan and recommend that unsecured creditors vote to accept the Plan (as amended by the Plan Settlement). Please note, as indicated below in this Disclosure Statement, the Debtors have not performed an independent valuation analysis of the Debtors’ assets and businesses, but have relied instead upon the valuation implied by the Rights Offering (the “Implied Valuation”). Any recovery estimates set forth in this Disclosure Statement reflect the Debtors’ estimates based on the Implied Valuation. Notwithstanding its entry into the Plan Settlement, the Creditors’ Committee takes no position with respect to the value of the Debtors’ assets and businesses or any securities offered or issued under or in connection with the Plan. For the avoidance of doubt, nothing in this Disclosure Statement or the Plan shall require the Creditors’ Committee to take or refrain from taking any action that it determines in good faith would be inconsistent with its fiduciary duties under applicable law. Notwithstanding the foregoing, the Creditors’ Committee acknowledges that its entry into the Plan Settlement and its support for the Plan (as amended by the Plan Settlement) is consistent with its fiduciary duties.

The Plan provides for a comprehensive restructuring of the Company’s balance sheet and a significant investment of capital in the Debtors’ business. The transactions contemplated in the Plan will strengthen the Company by substantially reducing its debt and increasing its cash flow on a go-forward basis, and preserve in excess of 500 jobs. Specifically, the proposed restructuring contemplates, among other things:

• a reduction of current debt on the Debtors’ balance sheet by approximately $3.3 billion,
• a $475 million equity rights offering (the “1.5L Rights Offering”) made available to eligible holders of Allowed 1.5L Notes Claims as described more fully below, $463 million of which is being backstopped by the Supporting Noteholders (as defined below),
• a $25 million equity rights offering (the “Unsecured Rights Offering”; together with the 1.5L Rights Offering, the “Rights Offerings”) made available to eligible holders of Allowed Unsecured Claims as described more fully below,
• access to an approximately $629 million exit credit facility (the “Exit Facility”), which RBL Lenders holding 100% of the Claims under the Debtors’ prepetition RBL Facility have committed to provide support for, and which the Debtors’ prepetition RBL Facility and postpetition DIP Facility will “roll” into on the effective date of the Plan (“Effective Date”).

The Company also may, subject to the terms of the Plan Support Agreement and Exit Commitment Letter, obtain an incremental amount of up to $300 million in exit financing under the Exit Facility [contemplated $75.0mn private placement now gone].

The Debtors will use the proceeds of the Rights Offerings to, among other things, fund the costs and expenses of these Chapter 11 Cases, fund distributions under the Plan, and pay down the DIP Facility and Exit Facility as well as for working capital after emergence from chapter 11. The Debtors believe that upon consummation of the Plan and the transactions contemplated thereby, the post-emergence enterprise will have the ability to withstand the challenges and volatility of the oil and gas industry and succeed as a leading operator in their three main regions: Northeastern Utah, the Eagle Ford shale in South Texas, and the Permian basin in West Texas.

The Plan provides for the following treatment of claims and equity interests:

• To the extent the DIP Facility is not paid down in full from the proceeds of the Rights Offerings, each holder of Allowed DIP Claims will receive on a dollar-for-dollar basis, first-lien, first-out revolving loans or revolving commitments (as applicable) under the Exit Credit Agreement and letter of credit participations under the Exit Credit Agreement.
• Holders of Allowed RBL Claims will receive, on a dollar-for-dollar basis, first lien, second-out term loans under the Exit Credit Agreement; provided, that each holder of an Allowed RBL Claim that elects to participate in the first-out revolving portion of the Exit Facility by the Voting Deadline shall receive on a dollar-for-dollar basis first lien, first- out revolving loans under the Exit Credit Agreement and letter of credit participations under the Exit Credit Agreement.
• Holders of Allowed 1.125L Notes Claims will have their 1.125L Notes reinstated in the principal amount of $1 billion in accordance with section 1124(2) of the Bankruptcy Code and the 1.125L Notes Indenture and continued after the Effective Date in accordance with the terms of the 1.125L Notes Indenture.
• Holders of Allowed 1.25L Notes Claims will have their 1.25L Notes reinstated in the principal amount of $500 million in accordance with section 1124(2) of the Bankruptcy Code and the 1.25L Notes Indenture and continued after the Effective Date in accordance with the terms of the 1.25L Notes Indenture.
• Holders of Allowed 1.5L Notes Claims will receive on account of such Allowed 1.5L Notes Claim, in full and final satisfaction of such Allowed 1.5L Notes Claim, (i) its Pro Rata share of 100% of the New Common Shares (which shall be distributed to holders of Allowed 1.5L Notes Claims on or about the Effective Date), subject to dilution by the Rights Offering Shares, the Backstop Commitment Premium, the Unsecured Claims Shares, and the EIP Shares, and (ii) either (A) for Eligible Offerees, the right to participate in the 1.5L Rights Offering in accordance with the 1.5L Rights Offering Procedures or (B) for Non-Eligible Offerees the Non-Eligible Offeree Distribution (which shall be distributed to Non-Eligible Offerees that hold Allowed 1.5L Notes Claims on or about the Effective Date). Holders of Allowed 1.5L Notes Claims should carefully review the 1.5 Rights Offering Procedures annexed hereto as Exhibit F-1.
• Holders of Allowed Unsecured Claims (i.e., Unsecured Notes Claims and General Unsecured Claims, but not Convenience Class Claims) will receive on account of such Allowed Unsecured Claim, in full and final satisfaction of such Allowed Unsecured Claim, (i) its Pro Rata share of 1.75% of the New Common Shares outstanding as of the Effective Date after giving effect to all Plan distributions, the Rights Offerings, and the Backstop Commitment Agreement (including the Backstop Commitment Premium), subject to dilution solely by the EIP Shares, and (ii) either (A) for Eligible Offerees8 (other than the Backstop Parties), the right to participate in the Unsecured Rights Offering in accordance with the Unsecured Rights Offering Procedures or (B) for Non-Eligible Offerees, either (1) the Unsecured Non-Eligible Offeree Distribution or (2) if the value of the Unsecured Non-Eligible Offeree Distribution exceeds $500,000 in the aggregate, each Non-Eligible Offeree’s ratable share of the Unsecured Non-Eligible Offeree Distribution not to exceed a value equal to $500,000.
  • Only holders of Unsecured Claims that are (a)(i) Allowed11 as of January 15, 2020 (the “Unsecured Rights Offering Record Date”) or (ii) deemed Allowed for purposes of the Unsecured Rights Offering no later than seven (7) calendar days prior to 4:00 p.m. (prevailing Central Time) on February 13, 2020 (the “Unsecured Subscription Expiration Deadline”) as a result of a Bankruptcy Court order estimating, allowing, disallowing or reclassifying a General Unsecured Claim, and (b) otherwise Eligible Holders, may participate in the Unsecured Rights Offering. The mere filing of a proof of claim does NOT mean that such Claim is Allowed.
  • Holders of Claims that would otherwise be General Unsecured Claims in the amount of $100,000 or less shall not be entitled to participate in the Unsecured Rights Offering or receive a Distribution of Common Stock but, rather, shall be treated as holders of Convenience Claims and if Allowed shall receive the treatment set forth in Section 4.9 of the Plan. Moreover, based on the definition of “Allowed,” the Debtors do not believe there are currently any holders of General Unsecured Claims that are Allowed in an amount greater than $100,000 as of the Unsecured Rights Offering Record Date. Accordingly, any holder of a General Unsecured Claim that wishes to participate in the Unsecured Rights Offering or receive the Non-Eligible Offeree Distribution MUST FILE AN EMERGENCY MOTION IN THE BANKRUPTCY COURT requesting temporary allowance of such General Unsecured Claim for purposes of participating in the Unsecured Rights Offering or receive the Unsecured Non-Eligible Offeree Distribution. Such motion must state the reason(s) why such General Unsecured Claim should be deemed valid or otherwise should be temporarily Allowed for purposes of allowing the holder of such General Unsecured Claim to participate in the Unsecured Rights Offering. As noted, to be deemed Allowed, an order relating to such motion would have to be entered no later than seven (7) calendar days prior to the Unsecured Subscription Expiration Deadline, which is 4:00 p.m. (prevailing Central Time) on February 13, 2020.
• Holders of Parent Unsecured Claims will receive, on the later of (i) the Effective Date, and (ii) the date on which such Parent Unsecured Claim becomes allowed, or, in each case, as soon as reasonably practicable thereafter, the lesser of (a) payment in cash of 100% of such Allowed Parent Unsecured Claim, or (b) its Pro Rata share of the Cash on EP Energy’s balance sheet on the Effective Date.
• Holders of Allowed Convenience Claims (i.e., Claims that would otherwise be a General Unsecured Claim but are (i) Allowed in the amount of $100,000 or less, or (ii) irrevocably reduced to the Convenience Claim Amount at the election of the holder in accordance with the Plan) will receive the lesser of (a) payment in Cash of 10% of such Allowed Convenience Claim, or (b) their Pro Rata share of the Convenience Claim Distribution Amount.
• Holders of Existing Parent Equity Interests will receive, on account of available assets of EP Energy, their Pro Rata share of $500,000 in Cash."

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

• Class 1 (“Other Secured Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is N/A.
• Class 2 (“Other Priority Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is N/A.
• Class 3 (“RBL Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $314,710,456 and expected recovery is 100%. Each holder will receive, on a dollar-for-dollar basis, first lien, second-out term loans under the Exit Credit Agreement; provided, that each holder of an Allowed RBL Claim that elects to participate in the first-out revolving portion of the Exit Facility by the Voting Deadline shall receive on a dollar-for-dollar basis first lien, first-out revolving loans under the Exit Credit Agreement and letter of credit participations under the Exit Credit Agreement.
• Class 4 (“1.125L Notes Claims”) is unimpaired, presumed to accept, and not entitled to vote on the Plan. The aggregate amount of claims is $1.0bn and expected recovery is 100%. The estimated Allowed amount of 1.125L Notes Claims does not include any accrued interest. On the Effective Date, all Allowed 1.125L Notes Claims will be reinstated in the principal amount of $1.0bn and continued after the Effective Date in accordance with the terms of the 1.125L Notes Indenture.
• Class 5 (“1.25L Notes Claims”) is unimpaired, presumed to accept, and not entitled to vote on the Plan. The aggregate amount of claims is $500.0mn and expected recovery is 100%. The estimated Allowed amount of 1.25L Notes Claims does not include any accrued interest. On the Effective Date, all Allowed 1.25L Notes Claims will be reinstated in the principal amount of $500.0mn and continued after the Effective Date in accordance with the terms of the 1.25L Notes Indenture.
• Class 6 (“1.5L Notes Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $2,186,617,532 and expected recovery is 15.13%. Approximately 69.3%% of such recovery is on account of the 1.5L Rights Offering and approximately 30.7% of such recovery is on account of the New Common Shares, assuming the 1.5L Rights Offering is fully subscribed. Each holder of an Allowed 1.5L Notes Claim will receive on account of such Allowed 1.5L Notes Claim, in full and final satisfaction of such Allowed 1.5L Notes Claim, (i) its Pro Rata share of 100% of the New Common Shares (which shall be distributed to holders of Allowed 1.5L Notes Claims on or about the Effective Date), subject to dilution by the Rights Offering Shares, the Backstop Commitment Premium, the Unsecured Claims Shares, and the EIP Shares, and (ii) either (A) for Eligible Offerees, the right to participate in the 1.5L Rights Offering in accordance with the 1.5L Rights Offering Procedures or (B) for NonEligible Offerees, the Non-Eligible Offeree Distribution (which shall be distributed to NonEligible Offerees that hold Allowed 1.5L Notes Claims on or about the Effective Date). The estimated Allowed amount referred to herein includes the full amount of the 1.5L Notes Claims
• Class 7A (“Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $845,067,228 and expected recovery is 3.46% (fully diluted). Each holder of an Allowed Unsecured Claim (excluding, for the avoidance of doubt, any Convenience Claim) will receive on account of such Allowed Unsecured Claim, in full and final satisfaction of such Allowed Unsecured Claim, (i) its Pro Rata share of 1.75% of the New Common Shares outstanding as of the Effective Date after giving effect to all Plan distributions, the Rights Offerings, and the Backstop Commitment Agreement (including the Backstop Commitment Premium), subject to dilution solely by the EIP Shares, and (ii) either (A) for Eligible Offerees (other than the Backstop Parties), the right to participate in the Unsecured Rights Offering in accordance with the Unsecured Rights Offering Procedures or (B) for Non-Eligible Offerees, either (1) the Unsecured Non-Eligible Offeree Distribution or (2) if the value of the Unsecured Non-Eligible Offeree Distribution exceeds $500,000 in the aggregate, each NonEligible Offeree’s ratable share of the Unsecured Non-Eligible Offeree Distribution not to exceed a value equal to $500,000. Approximately 46.1% of such recovery is on account of the Unsecured Rights Offering and approximately 53.9% of such recovery is on account of the New Common Shares, assuming the Unsecured Rights Offering is fully subscribed.
• Class 7B (“Parent Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $1,000 and expected recovery is 100%. Each holder of an Allowed Parent Unsecured Claim will receive, on the later of (i) the Effective Date, and (ii) the date on which such Parent Unsecured Claim becomes allowed, or, in each case, as soon as reasonably practicable thereafter, the lesser of (a) payment in cash of 100% of such Allowed Parent Unsecured Claim, or (b) its Pro Rata share of the Cash on EP Energy’s balance sheet on the Effective Date.
• Class 8 (“Convenience Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $1.75mn and expected recovery is 10%. Each holder will receive the lesser of (a) payment in Cash of 10% of such Allowed Convenience Claim, or (b) its pro rata share of the Convenience Claim Distribution Amount.
• Class 9 (“Intercompany Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The expected recovery is 100%.
• Class 10 (“Subordinated Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is N/A.
• Class 11 (“Existing Parent Equity Interests”) is impaired and entitled to vote on the Plan. The aggregate amount of claim is N/A and expected recovery is N/A. Each holder of Allowed Existing Parent Equity Interests will receive its Pro Rata share of $500k in cash.
• Class 12 (“Other Equity Interests”) is impaired, presumed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is N/A.
• Class 13 (“Intercompany Interests”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claim is N/A and expected recovery is N/A.

Equity Holdings of Reorganized Debtors

The following table sets forth the amended projected approximate percentages of equity ownership of the Reorganized Debtors (including per Supporting Noteholder) upon the Effective Date (prior to dilution by the EIP):

FN1: Assumes pro rata participation in full of $475 million 1.5L Rights Offering. The fully subscribed cash equity 1.5L Rights Offering amount is assumed to be $337 million. Assumes $25 million Unsecured Rights Offering is also fully subscribed by holders of Unsecured Claims, not including Backstop.

Exhibits attached to the Amended Disclosure Statement:

• Exhibit A: Plan
• Exhibit B: Plan Support Agreement
• Exhibit C: Organizational Chart
• Exhibit D: Liquidation Analysis
• Exhibit E: Financial Projections
• Exhibit F-1: 1.5L Rights Offering Procedures
• Exhibit F-2: Unsecured Rights Offering Procedures
• Exhibit G: Ad Hoc Proposal (October 27, 2019)
• Exhibit H: Ad Hoc/Creditors’ Committee Proposal (December 31, 2019)
• Exhibit I: Creditors’ Committee Recommendation Letter

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