July 18, 2022 – The Debtors filed a First Amended Chapter 11 Plan (which attaches a blackline showing changes to the version filed on May 10, 2022) and a Disclosure Statement Supplement [Docket Nos. 455 and 456, respectively].
The Debtors' May 10th Plan and Disclosure Statement (latter approved for solicitation) reflected what was then still a "toggle" Plan, with the Debtors since determining that "the Sale Transactions represented a higher or otherwise better path forward than the proposed transaction set forth in the Initial Plan." Amendments in this turn of the Plan documents largely reflect that decision.
Plan Summary
The Disclosure Statement Supplement states, “As a result of the sale process, the Debtors determined, in their business judgment, that the Sale Transactions represented a higher or otherwise better path forward than the proposed transaction set forth in the Initial Plan. Accordingly, the First Amended Plan incorporates modifications to provide for, among other things, the distribution of the Sale Proceeds to Holders of Claims and the wind-down of the Debtors’ estates. As described in more detail below, the First Amended Plan increases the treatment for Holders of General Unsecured Claims from the Initial Plan. While Holders of ION Geophysical Common Interests will no longer receive a recovery under the First Amended Plan, such Holders were already deemed to reject the Plan and not otherwise entitled to vote given the de minimis nature of their proposed distribution.
A summary of the terms of the First Amended Plan is set forth below:
1. The Plan Administrator.
(a) On the Effective Date, a person or entity designated by the Committee with the consent of the Debtors and the Required Supporting Creditors shall be appointed as the plan administrator (the ‘Plan Administrator’) to, among other things, wind-down the Chapter 11 Cases, the Debtors, and the Debtors’ estates. If Holders of General Unsecured Claims (Class 5) timely vote to accept the Plan as a class, the Committee may, in its sole discretion, elect to appoint three members to form a committee to consult with the Plan Administrator in accordance with the Plan.
(b) On the Effective Date, any remaining assets of the Debtors shall vest and be controlled by the Plan Administrator (the ‘Plan Administrator Assets’), including any causes of action that are preserved in accordance with the Plan.
- Any causes of action that are preserved in accordance with the Plan (the ‘Plan Administrator GUC Assets’) shall be held by the Plan Administrator for the benefit of the Holders of General Unsecured Claims.
- The Plan Administrator Assets, other than the Plan Administrator GUC Assets, the Wind-Down Budget (as defined below), the Disputed Claims Reserve (as defined below), and the GUC Recovery Reserve (as defined below) (collectively, the ‘Plan Administrator Lender Assets’) shall be held by the Plan Administrator for the benefit of creditors in accordance with the Plan.
2. Claim Reserves and Wind-Down Expenses.
(a) On the Effective Date, a reserve shall be established for distributions on account of Disputed Administrative Claims, Disputed DIP Claims, Disputed Priority Tax Claims, Disputed Other Secured Claims, and Disputed Other Priority Claims in accordance with the terms of the First Amended Plan (the ‘Disputed Claims Reserve’).
(b) On the Effective Date, a reserve shall be established for distributions on account of General Unsecured Claims in the amount of $1,550,000 (the ‘GUC Cash Payment’) plus four percent of any Second Lien Notes Distributable Cash (as defined below) (the ‘GUC Recovery Pool’); provided that the GUC Recovery Pool shall be subject to reduction on account of the following in accordance with the First Amended Plan:
- any fees and expenses of the advisors to the Committee in excess of $1,512,000;
- any fees and expenses of the Unsecured Notes Trustee in excess of $75,000; and
- any costs and expenses incurred by the Plan Administrator related to administering the Plan Administrator GUC Assets, objecting to, reconciling, and/or settling General Unsecured Claims, or effectuating distribution on account of General Unsecured Claims in accordance with the Plan.
(c) On the Effective Date, the Debtors shall fund a budget for the reasonable activities and expenses to be incurred in winding down the Chapter 11 Cases (the ‘Wind Down Budget’), which Wind Down Budget shall be acceptable in form and substance to the Required Supporting Creditors. The amount of the Wind-Down Budget shall be disclosed as part of the Plan Supplement.
3. Treatment of Claims.
(a) RCF Claims shall be paid in full in cash by receiving their pro rata share of the Sale Proceeds in excess of amounts necessary to (i) satisfy all Claims senior in priority to the RCF Claims in full, (ii) fund the GUC Recovery Cash Payment and the Disputed Claims Reserve; (iii) fund the Wind-Down Budget, and (iv) pay the certain fees and expenses of the advisors to the Supporting Creditors (the ‘Restructuring Expenses’), the Second Lien Notes Trustee (the ‘Second Lien Notes Trustee Fees and Expenses’), and the Unsecured Notes Trustee (the ‘Unsecured Notes Trustee Fees and Expenses’) (collectively, the ‘RCF Distributable Cash’).
(b) Second Lien Notes Secured Claims shall receive their pro rata share of 96 percent of the following:
- Sale Proceeds in excess of amounts necessary to (A) satisfy all Claims senior in priority to the Second Lien Notes Secured Claims in full, (B) fund the GUC Recovery Reserve and the Disputed Claims Reserve, (C) fund the Wind-Down Budget, and (D) pay the Restructuring Expenses, Second Lien Notes Trustee Fees and Expenses, and the Unsecured Notes Trustee Fees and Expenses;
- any unused amount of the Disputed Claims Reserve; and
- any unused amount of the Wind-Down Budget (collectively (i) through (iii), the ‘Second Lien Notes Distributable Cash’).
(c) Holders of General Unsecured Claims shall receive their pro rata share of (a) the available GUC Recovery Pool and (b) any proceeds derived from, or on account of, the Plan Administrator GUC Assets; provided that the Plan Administrator shall be authorized to retain funds in the GUC Recovery Pool and proceeds of Plan Administrator GUC Assets in its reasonable discretion to enhance recoveries on account of additional Plan Administrator GUC Assets for the benefit of Holders of Allowed General Unsecured Claims. For the avoidance of doubt, the Second Lien Notes Deficiency Claims shall not participate in any recoveries or distributions to the Holders of Allowed General Unsecured Claims.
(d) On the Effective Date all ION Geophysical Preferred Interests and all ION Geophysical Common Interests will be cancelled, released, and extinguished, and will be of no further force or effect.”
The following is an amended summary of classes, claims, voting rights and expected recoveries (defined terms are in the Plan and/or Disclosure Statement, see also the Liquidation Analysis below):
- Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and entitled to vote on the Plan.
- Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“RCF Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $15,600,000. Each Holder shall receive its Pro Rata share of the RCF Distributable Cash and estimated recovery under the First Amended Plan is 100% .
- Class 4 (“Second Lien Notes Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $116,193,000 and estimated recovery under the First Amended Plan is 28-30%. Each Holder shall receive its Pro Rata share of 96% of any Second Lien Notes Distributable Cash.
- Class 5 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The projected recovery under the First Amended is 3-4%. Each Holder shall receive its Pro Rata share of (i) the available GUC Recovery Pool and (ii) any proceeds derived from, or on account of, the Plan Administrator GUC Assets; provided that the Plan Administrator shall be authorized to retain funds in the GUC Recovery Pool and proceeds of Plan Administrator GUC Assets in its reasonable discretion to enhance recoveries on account of additional Plan Administrator GUC Assets for the benefit of Holders of Allowed General Unsecured Claims. For the avoidance of doubt, the Second Lien Notes Deficiency Claims shall not participate in any recoveries or distributions to the Holders of Allowed General Unsecured Claims.
- Class 6 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote on the Plan.
- Class 7 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote on the Plan.
- Class 8 (“ION Geophysical Preferred Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 9 (“ION Geophysical Common Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
3 The estimated recovery under the Initial Plan to Holders of Second Lien Notes Secured Claims was not disclosed as part of the Disclosure Statement.
4 Under the Initial Plan, Holders of ION Geophysical Common Interests were for purposes of satisfying the requirements of section 1129 of the Bankruptcy Code, being treated as if they were deemed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code.
Revised Key Dates
- Deadline to File Plan Supplement: July 20, 2022
- Voting Deadline: July 25, 2022
- Plan and Disclosure Statement Objection Deadline: July 25, 2022
- Deadline to File Sale Objections: July 25, 2022
- Sale Hearing: July 28, 2022
- Confirmation Hearing: July 28, 2022
Asset Sales
The Disclosure Statement Supplement provides: "As set forth in the Disclosure Statement, the transaction embodied in the Initial Plan was subject to a market test. On May 3, 2022, the Court entered the Order (I) Approving (A) Bidding Procedures and (B) Assumption and Assignment Procedures and (II) Granting Related Relief [Docket No. 174] (the 'Bid Procedures Order'), pursuant to which the Debtors and their non-Debtor affiliates (collectively, the 'Sellers') conducted a comprehensive marketing process to determine if any sale or combination of sales of all or substantially all of the Sellers’ assets would be higher or otherwise better than the proposed transaction set forth in the Initial Plan.
In accordance with the procedures approved by the Bid Procedures Order, the Sellers received sufficient bids by the bid deadline of June 23, 2022, to warrant an auction (the 'Auction'). The Sellers held the Auction on June 29, 2022.
On July 1, 2022, the Debtors filed a Notice of Successful Bidders [Docket No. 379], identifying the following successful bidders and successful bids for substantially all of the Sellers’ assets (each a 'Sale Transaction' and, collectively, the 'Sale Transactions'):
1. TGS ASA ('TGS') as the successful bidder for certain marine data and processing assets of the Sellers, plus Gemini™;
2. Sercel, Inc. and Sercel Holding SAS (collectively, 'Sercel'), as the successful bidder for the Seller’s software business segment;
3. Fairfield Industries Incorporated ('Fairfield'), as the successful bidder for certain land data assets of the Sellers plus the FloridaSPAN and GulfSPAN data sets;
4. SWK O&G Limited ('SWK'), as the successful bidder for the Sellers’ devices business segment; and
5. Exion LLC ('Exion' and together with TGS, Sercel, Fairfield, and SWK, collectively, the 'Successful Bidders'), as the successful bidder for certain remaining intellectual property and inventory."
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Morrison Declaration), Mike Morrison, the Debtors' CFO provides: "The COVID-19 pandemic caused the global economy to enter a recessionary period beginning in the second quarter of 2020. During 2020, the E&P industry faced the dual impact of demand deterioration from COVID-19 and market oversupply from increased production, which caused oil and natural gas prices to decline significantly for most of 2020. The sharp commodity-price decline triggered E&P companies to reduce budgets by approximately 25%. When commodity prices fall, E&P companies have less cash to invest and allocate capital to their highest return assets. Exploration offerings and data purchases are often discretionary and, therefore, receive disproportionately higher reduction rates than overall budget cuts. Consequently, there was a material slowdown in offshore seismic spending since the second quarter of 2020, which negatively impacted ION’s liquidity levels.
In 2021, the global economy surpassed pre-pandemic levels and Brent crude prices, which are most relevant to ION’s internationally focused business, rebounded above pre-pandemic levels. While this reflected a continued expectation of rising oil demand as both global economic activity and COVID-19 vaccination rates increased, combined with ongoing crude oil production
limits from member of OPEC and partner countries, energy companies’ capital discipline persisted. As a result, the offshore seismic market remained challenging throughout 2021 and E&P companies continued portfolio rationalization and high-grading to find the best return on investment. Despite signs of gradual market improvement, ION’s 2021 revenues were lower than expected causing increased liquidity constraints.
Moreover, ION faced significant near-term obligations coming due in the fourth quarter of 2021, including principal and interest in the amount of approximately $7.7 million on the Unsecured Notes and interest in the amount of approximately $4.6 million on the Second Lien Notes. Additionally, ION needed sufficient liquidity to maintain ongoing operations, including paying its seismic acquisition partners and royalty obligations. Accordingly, it became apparent that without an additional cash infusion or relief from its existing debt obligations, ION would likely not be able to continue to operate as a going concern through the first quarter of 2022."
Prepetition Indebtedness
As of the Petition date, the Debtors have approximately $147,627,690 million of funded debt, including principal and accrued interest, consisting of:
- a first lien revolving credit facility (the “Revolving Credit Facility”) with approximately $15,600,000 in outstanding principal amount of borrowings, in addition to approximately $30,559 of accrued and unpaid interest;
- the 8.00% second lien notes (the “Second Lien Notes”) due December 15, 2025, with approximately $116,193,000 in aggregate principal amount outstanding, in addition to approximately $7,804,684 of accrued and unpaid interest; and
- the original 9.125% second lien notes that were subsequently amended to release the second priority security interest in the collateral (the “Unsecured Notes”), with approximately $7,097,000 in aggregate principal amount that matured on December 15, 2021, in addition to approximately $902,447 of accrued and unpaid interest.
Key Documents
The Disclosure Statement attaches the following:
- Exhibit A: Corporate Structure Chart
- Exhibit B: Plan of Reorganization
- Exhibit C: Restructuring Support Agreement
Significant Prepetition Shareholders
- Gates Capital Management, Inc.: 10.00%
- BGP, Inc. (NB: Chinese investor): 5.4%
Liquidation/Recovery Analysis (see Disclosure Statement Supplement for further notes)
"The Debtors believe the costs in chapter 7 are higher and recoveries are generally lower relative to the First Amended Plan (which do not have such incremental costs), as shown below:"
About the Debtors
According to the Debtors: “Leveraging innovative technologies, ION delivers powerful data-driven decision-making to offshore energy and maritime operations markets, enabling clients to optimize investments and results through access to our data, software and distinctive analytics."
Thr Morrison Declaration adds: "ION operates through two key business segments—Exploration and Production Technology & Services ('EPTS') and Operations Optimization ('OO'). Within the EPTS segment, ION creates digital data assets on a proprietary and multi-client basis and delivers services to help exploration and production ('E&P') companies improve decision-making, reduce risk, and maximize value. The OO segment develops mission-critical software and technology that enable operational control and optimization offshore. In that regard, ION provides survey design, command and control software systems and related services for marine towed and seabed operations and develops intelligent hardware and devices to optimize operations."
Corporate Structure Chart (see Exhibit A to Disclosure Statement)
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