March 9, 2021 – Sundance Energy Inc. and three affiliated Debtors (NASDAQ: SNDE; “Sundance” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-30882 (Judge Jones). The Debtors, "an onshore independent oil and natural gas company focused on the development of large, repeatable resource plays [largely Eagle Ford] in North America," are represented by Timothy A. Davidson II of Hunton Andrews Kurth LLP. Further board-authorized engagements include (i) Latham & Watkins LLP as general bankruptcy counsel, (ii) FTI Consulting, Inc. as financial advisors, (iii) Miller Buckfire & Co., LLC and its affiliate Stifel, Nicolaus & Co., Inc. as investment banker and (iv) Prime Clerk as claims agent.
The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets of $450.3mn (funded debt of $399.9mn) and estimated liabilities of $428.8mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Step Energy Services Ltd ($2.1mn trade claim), (ii) U.S. SBA ($1.9mn PPP Cares Act Loan claim) and (iii) Refinery Specialities Inc. ($629k trade claim).
In a press release announcing the filing, the Debtors advised that they had sought Chapter 11 protection: “to effectuate a transaction that will strengthen the Company’s balance sheet and best position Sundance for sustained future success. All operations will continue as usual without interruption and the Chapter 11 process is expected to conclude in approximately 60 days.
Upon emergence, the Company’s recapitalized balance sheet will include (i) $137.5 million of funded indebtedness comprising a senior secured reserve-based revolving credit facility, a senior secured second out term loan, and, if necessary, a senior secured third out term loan, in each case provided by the existing RBL Facility lenders and (ii) new common equity interests issued in exchange for DIP financing claims and Term Loan claims, subject to dilution by new common equity interests granted under a new management incentive plan.
In addition, the RSA and Prepackaged Plan contemplate that unsecured trade creditors will be paid in full under the Prepackaged Plan.”
The Debtors’ CEO Eric McCrady commented: “Sundance has faced numerous challenges in the last few years resulting in declining cash flow and liquidity that have only been exacerbated by the unprecedented COVID-19 pandemic and volatility in the market price of crude oil and natural gas.”
Goals of the Chapter 11 Filings
The Anderson Declaration (defined below) provides: "The Debtors are commencing these Chapter 11 Cases after extensive discussions over the past several months with certain of their key creditor constituencies. As a result of these negotiations, the Debtors entered into the Restructuring Support Agreement with the Restructuring Support Parties. Under the terms of the Restructuring Support Agreement, the Restructuring Support Parties agreed to deleveraging transactions, including a debt for equity exchange, that will eliminate over $250 million of funded debt obligations of the Debtors through the proposed Plan…"
Restructuring Support Agreement and Prepackaged Plan
On March 9, 2021, the Debtors entered into a restructuring support agreement (the "RSA," attached to Docket No. 7 at Exhibit B) with (a) Toronto Dominion (Texas) LLC ('Toronto Dominion'), as successor administrative agent under the Debtors’ prepetition reserve-based revolving credit facility (the “Prepetition RBL Agent”), (b) holders of 100% of the outstanding principal amount of revolving loans under the Debtors’ prepetition reserve- based revolving credit facility (the “Consenting RBL Lenders”), (c) Morgan Stanley Capital Administrators Inc. as administrative agent under the Debtors’ prepetition term loan (the “Prepetition Term Loan Agent”), and (d) holders of 100% of the outstanding principal amount of term loans under the Debtors’ prepetition term loan (such holders, the “Consenting Term Lenders”), and (a) through (d), collectively, the “Restructuring Support Parties”).
Further to the RSA, the Restructuring Support Parties have agreed to support the Debtors' prepackaged Plan, terms of which provide, inter alia: "
The treatment of certain classes of Claims and Equity Interests will be as follows:
- All allowed administrative expense claims, priority tax claims, other priority claims, and other secured claims will be paid in full (or will receive such other treatment rendering such claims unimpaired).
- Each holder of an allowed DIP Facility Claim will receive its pro rata share of the New Common Equity Interests DIP Pool, comprising 38.0338% of the New Common Equity Interests (subject to dilution by the MIP Equity (as defined below); provided, that in the discretion of the required consenting Prepetition Term Lenders the New Common Equity Interests DIP Pool shall be increased to include equity to be issued in exchange for Case Extension Loans (if any) (as defined in the DIP Credit Agreement), which shall be subject to dilution by the MIP Equity.
- With respect to holders of Prepetition RBL Claims:
- each holder of a Prepetition RBL Claim that votes to accept the Plan will receive: (i) its pro rata share (determined as a percentage of the allowed Prepetition RBL Claims held by lenders electing to participate in the Exit RBL Facility) of the loans under the Exit RBL Facility; (ii) its pro rata share (determined as a percentage of the allowed Prepetition RBL Claims held by lenders electing to participate in the Exit RBL Facility) of the loans under the Exit Second Out Term Loan Facility; and (iii) its pro rata share (determined as a percentage of all allowed Prepetition RBL Claims) of the Cash Paydown.
- each Non-Participating RBL Lender will receive: (i) loans under the Exit Third Out Term Loan Facility with a principal amount equal to the amount of such holder’s allowed Prepetition RBL Claim minus the amount of Cash Paydown received by such holder; and (ii) its pro rata share (determined as a percentage of all allowed Prepetition RBL Claims) of the Cash Paydown.
- Each holder of an allowed Prepetition Term Loan Claim will receive its pro rata share of 100% of the New Common Equity Interests Term Loan Pool, comprising 61.9662% of the New Common Equity Interests (subject to dilution by the MIP Equity) and equity issued in exchange for Cash.
- The legal, equitable, and contractual rights of holders of allowed General Unsecured Claims will be unaltered by the Plan. On or as soon as practicable after the earliest to occur of the effective date of the Plan and the date an allowed General Unsecured Claim becomes due in the ordinary course of business, each Holder of an allowed General Unsecured Claim will receive payment in full in Cash on account of its General Unsecured Claim or such other treatment as would render such claim unimpaired.
- All existing common stock in Parent and any claim subordinated pursuant to section 510(b) of the Bankruptcy Code (the 'Old Parent Interests') will be cancelled, and each holder of an Old Parent Interest will not receive any distribution or retain any property on account of such Old Parent Interest."
Events Leading to the Chapter 11 Filings
In a declaration in support of the Chapter 11 filing (the “Anderson Declaration”), Cathy Anderson, the Debtors’ Chief Financial Officer, detailed the events leading to the Debtors' Chapter 11 filings which appear to follow an unsucesful attempt to attract a buyer in either an in-court or out-of-court context; with the Debtors then turning to their existing lenders (financial covenants breached and borrowing base lowered) to sort out waivers and then a restructuring deal.
The Anderson Declaration provides: “In addition to the proposed Restructuring, the Debtors, with the assistance of their advisors, conducted extensive prepetition marketing processes of substantially all of the Debtors’ assets through potential in-court and out-of-court sale options. The Debtors also explored numerous other financing options to improve their balance sheet and best position the Debtors’ business to continue to operate as a going concern.
Like many other companies in the oil and gas industry, the Debtors have faced numerous challenges that have resulted in declines in revenue, cash flow, and liquidity. Among other things, the combination of the COVID-19 pandemic and a downward trajectory in the market price of crude oil and natural gas both prior to and after the beginning of the pandemic—including prices reaching, at times, the lowest ever recorded in the United States—has made it difficult for the Debtors to meet certain financial covenants under their prepetition credit facilities.
As a result of these challenges, the Debtors retained restructuring counsel and began to negotiate with the Prepetition Term Lenders and the Prepetition RBL Lenders, entering into various amendments and waivers, as discussed above. Such amendments and waivers resulted in further limitations on the Debtors’ incurrence of indebtedness and use of certain funds, including the redetermination of the Debtors’ borrowing base under the Prepetition RBL Facility from $210 million to $170 million in June 2020. As of the date hereof, the Debtors have current liabilities of approximately $37.8 million.
The Debtors’ significant debt and limited liquidity, the volatility of the commodity price market, and the Debtors’ inability to comply with certain covenants in their debt agreements led to the Debtors reporting in their Form 10-K for the yearly period ended December 31, 2019 and their Form 10-Qs for the quarterly periods ended March 31, 2020, June 30, 2020, and September 30, 2020 that they had substantial doubt that they would be able to continue as a going concern.”
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, see also the liquidation Analysis below):
- Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 4 (“Prepetition RBL Claims”) is impaired and entitled to voteon the Plan. Expected recovery is 100%. On the Effective Date, the Prepetition RBL Credit Agreement will be deemed to be amended and restated in its entirety by the Exit Facilities Credit Agreement and, in full and final satisfaction, settlement, discharge and release of, and in exchange for, each Allowed Prepetition RBL Claim:
- each Holder of an Allowed Prepetition RBL Claim that votes to accept the Plan (and/or its designee) that is not otherwise a Non-Participating RBL Lender will receive: (a) its Pro Rata share (determined as a percentage of all Allowed Prepetition RBL Claims held by Holders electing to participate in the Exit RBL Facility) of the loans and commitments under the Exit RBL Facility; (b) its Pro Rata share (determined as a percentage of all Allowed Prepetition RBL Claims held by Holders electing to participate in the Exit RBL Facility) of the loans under the Exit Second Out Term Loan Facility; and (c) its Pro Rata share (determined as a percentage of all Allowed Prepetition RBL Claims) of the Cash Paydown.
- each Non-Participating RBL Lender (and/or its designee) will receive: (a) loans under the Exit Third Out Term Loan Facility in a principal amount equal to the amount of such Holder’s Allowed Prepetition RBL Claim minus the amount of Cash Paydown received by such Holder; and (b) its Pro Rata share (determined as a percentage of all Allowed Prepetition RBL Claims) of the Cash Paydown.
- Class 5 (“Prepetition Term Loan Claims”) is impaired and entitled to vote on the Plan. Expected recovery is 21.0% – 42.7%. On the Effective Date, each Holder of an Allowed Class 5 Claim will receive its Pro Rata share of the New Common Equity Interests Term Loan Pool (subject to dilution by the MIP Equity).
- Class 6 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 7 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to cote on the Plan
- Class 8 (“Old Parent Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 9 (“Old Sundance Subsidiary Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
NB: The recovery values are based on the range of reorganized equity value of the Debtors as described in the Valuation Analysis.
DIP and Exit Financing
The Debtors have secured commitments from certain of their prepetition Term Loan lenders for at least $45.0mn in junior debtor-in-possession (“DIP”) financing that, along with normal operating cash flows and the consensual use of cash collateral, they believe will fund normal-course operations and reorganization expenses.
The Debtors' proposed exit facilities include:
- Exit RBL Facility. The reorganized Debtors and each Prepetition RBL Lender that elects to participate in the Exit RBL Facility will enter into a new reserve-based lending revolving credit facility (the “Exit RBL Facility”) having a borrowing base of $107.5 million (inclusive of a $20.0 million letter of credit subfacility) minus the Initial Third Out Term Loan Amount (as defined below).
- Exit Second Out Term Loan Facility. The reorganized Debtors and each Prepetition RBL Lender that elects to participate in the Exit RBL Facility will enter into a new first lien second out term loan facility (the “Exit Second Out Term Loan Facility”) having a principal amount of $30.0 million.
- Exit Third Out Term Loan Facility. The reorganized Debtors and each Non- Participating RBL Lender,15 if any, will be deemed to enter into a new first lien third out term loan facility (the “Exit Third Out Term Loan Facility”) having a principal amount equal to the amount of allowed prepetition RBL Claims held by Non-Participating RBL Lenders minus the aggregate Cash
As of the Petition date, the Debtors have outstanding funded debt obligations in the amount of approximately $400.0mn which is summarized in the table below:
Approximate Principal Amount Outstanding
Prepetition RBL Facility
October 23, 2022
Prepetition Term Loan Facility
April 23, 2023
Total Funded Debt
The RSA provides the following milestones:
- Voting Record Date: March 5, 2021
- Commencement of Solicitation: March 9, 2021
- Voting Deadline: March 23, 2021
- Plan and Disclosure Statement Objection Deadline: April 12, 2021
- Deadline for Plan confirmation hearing: April 19, 2021
The Disclosure Statement attaches the following:
- Exhibit A: Plan
- Exhibit B: Organizational Structure Chart
- Exhibit C: Liquidation Analysis
- Exhibit D: Financial Projections
- Exhibit E: Valuation Analysis
The Plan attaches the following:
- The Restructuring Support Agreement (p69 of pdf)
- DIP Credit Agreement (p374 of pdf)
- Exit Debt Commitment Letter (p354 of pdf)
- Governance Term Sheet (p521 of pdf)
Liquidation Analysis (see Exhibit C of Disclosure Statement for notes)
About the Debtors
The Debtors provide: "Sundance Energy Inc. is an independent energy exploration and production company located in Denver, Colorado. The Company is focused on the acquisition and development of large, repeatable oil and natural gas resource plays in North America. Current activities are focused in the Eagle Ford."
The Anderson Declaration adds as to the Debtors' corporate history: "The Company was founded in 2004, with a focus on targeting the development of onshore oil and gas deposits in Australia’s Cooper Basin. In 2005, former non-Debtor affiliate Sundance Energy Australia Limited ('SEAL'), the former parent company of the Sundance group of companies, completed an initial public offering on the Australian Stock Exchange and became a public company incorporated under the laws of the State of South Australia. Between 2005 and 2019, the Sundance entities made various oil and gas plays in Australia and North America, focusing on a strategy of sustainable, systematic expansion. In 2016, SEAL began trading publicly in the United States on the Nasdaq Global Market via American Depository Shares ('ADSs').
Since 2017, the Company has focused primarily on the Eagle Ford formation.
On November 26, 2019, Parent acquired all of the issued and outstanding ordinary shares of SEAL pursuant to a Scheme of Arrangement under Australian law, which was approved by the Federal Court of Australia on November 14, 2019 and by SEAL shareholders at a meeting of shareholders on November 8, 2019 (the 'Redomiciliation'). All of the issued and outstanding shares of SEAL were exchanged for newly issued shares of common stock of Parent…Thereafter, SEAL distributed all of its assets to Parent, and Parent assumed all of the liabilities of SEAL.
The purpose of the Redomiciliation was to reorganize the operations of SEAL into a structure whereby the ultimate parent company of the Sundance group of companies would be a Delaware corporation. In connection with the Redomiciliation, the ordinary shares of SEAL were delisted from the Australian Securities Exchange, and the common stock of Parent began trading on the Nasdaq Global Market on November 25, 2019 under the ticker symbol “SNDE”. As of March 5, 2021, there were 6,875,672 shares of common stock issued and outstanding.
Corporate Structure Chart
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