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Item 1.01
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Entry into a Material Definitive Agreement.
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Restructuring Support Agreement
On May 11, 2016 (the “Petition Date”), Linn Energy, LLC (the “Company”), LinnCo, LLC, an affiliate of the Company
(“LinnCo”), certain of the Company’s direct and indirect subsidiaries (collectively with the Company, the “LINN Debtors”), and Berry Petroleum Company, LLC (“Berry” and, collectively with the LINN Debtors and
LinnCo, the “Debtors”), filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for
the Southern District of Texas (the “Court”). The Debtors’ Chapter 11 cases are being administered jointly under the caption
In re Linn Energy, LLC, et al.
, Case No. 16-60040 (the “Chapter 11 Cases”).
On October 7, 2016, the LINN Debtors entered into a restructuring support agreement (the “Restructuring Support
Agreement”) with (i) certain holders of the Company’s 12% Senior Secured Second Lien Notes due December 2020 (such notes, the “Second Lien Notes,” and such holders, the “Consenting Second Lien Noteholders”);
and (ii) certain holders of the Company’s unsecured notes (such notes, the “Unsecured Notes,” such holders of the Unsecured Notes, the “Consenting Unsecured Noteholders,” and together such Consenting Unsecured
Noteholders with the Consenting Second Lien Noteholders, the “Consenting Noteholders”).
The Restructuring Support Agreement
sets forth, subject to certain conditions, the commitment of the LINN Debtors and the Consenting Noteholders to support a comprehensive restructuring of the LINN Debtors’ long-term debt (the “Restructuring”). The Restructuring
will be effectuated through a joint plan of reorganization (the “Plan”) to be filed in the Company’s pending Chapter 11 Cases with the Court.
At this time, the lenders (the “LINN Lenders”) under the Company’s Sixth Amended and Restated Credit Agreement, dated as of
April 24, 2013 (as amended, restated, supplemented or otherwise modified from time to time, the “LINN Credit Facility”) are not parties to the Restructuring Support Agreement. The Company and the Consenting Noteholders have engaged in
discussions with the LINN Lenders with respect to the terms of the Restructuring with the goal that certain of the LINN Lenders will become parties to the Restructuring Support Agreement in the near term. The restructuring support agreement with the
Linn Lenders dated as of May 10, 2016 (as amended, restated, supplemented, or otherwise modified from time to time, the “Bank RSA”) remains in full force and effect. Upon entry into the Restructuring Support Agreement by a certain
threshold number of LINN Lenders, the LINN Debtors and the Consenting Noteholders intend for the Restructuring Support Agreement to replace the Bank RSA with respect to the terms of the Restructuring of the LINN Debtors.
Certain principal terms of the Restructuring Support Agreement and the Restructuring contemplated thereby are outlined below:
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The Plan will provide for the formation of one or more new legal entities, in a to-be-determined form, that will directly or indirectly hold all of the assets of the LINN Debtors. Following the Restructuring, the LINN
Debtors will be standalone companies, separate from Berry.
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The holders of claims under the LINN Credit Facility will receive their pro rata share of $1.7 billion reserve-based revolving and term loan credit facilities, as described further below (the “New LINN Exit
Facility”), and a cash paydown in an amount that has yet to be determined.
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The Company’s Second Lien Notes will be allowed in the aggregate as a $2 billion unsecured claim (plus accrued and unpaid interest and reasonable and documented fees and expenses), and the holders of the Second
Lien Notes will receive their pro rata share of (i) a to-be-determined percentage of new common stock or limited liability company interests in the reorganized Company (the “New Common Stock”); (ii) certain rights to purchase
shares of New Common Stock in the Rights Offering, as described below; and (iii) $30 million in cash to the extent such holders vote their Second Lien Notes claims to accept the Plan.
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The holders of the Company’s Unsecured Notes will receive their pro rata share of (i) a to-be-determined percentage of the New Common Stock; and (ii) certain rights to purchase shares of New Common Stock
in the Rights Offering, as described below.
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The holders of unsecured claims against the Company other than the Unsecured Notes will receive their pro rata share of (i) a to-be-determined percentage of the New Common Stock; and (ii) certain rights
to purchase shares of New Common Stock, at the same price per share as in the Rights Offering, to be issued separate from the Rights Offering. Such holders of unsecured claims less than a to-be-determined amount are expected to have the right to
elect to receive, in lieu of New Common Stock and rights to purchase shares of New Common Stock, cash in an amount equal to a
to-be-determined
percentage of such holder’s allowed unsecured claim.
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Cash recoveries under the Plan will be funded with the proceeds of $530 million from rights offerings (the “Rights Offerings”) of New Common Stock, which will be fully committed to be backstopped by certain of
the Consenting Noteholders, as described below.
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The board of directors shall consist of seven directors, who shall include: (i) the chief executive officer of the Company, (ii) one director selected by the Company and (iii) five directors selected by a
selection committee
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All existing equity interests of the Company will be extinguished without recovery.
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The
Restructuring Support agreement contemplates a New LINN Exit Facility consisting of (i) a term loan in the amount of $300 million (the “New LINN Term Loan”) and (ii) a revolving loan in the initial amount of $1.4 billion (the
“New LINN Revolving Loan”). The New LINN Term Loan will mature on the earlier of June 30, 2021, or the day prior to the fourth anniversary of the date of emergence from bankruptcy (the “Closing Date”), with interest payable
at LIBOR plus 7.50% and amortized principal payments payable quarterly, beginning March 31, 2017. The New LINN Revolving Loan will be composed of two tranches as follows: (a) a conforming tranche with an initial amount of $1.4 billion
subject to the borrowing base (the “Conforming Tranche”), and (b) a non-conforming tranche with an initial amount of $0 (the “Non-Conforming Tranche”). The Conforming Tranche will mature on the earlier of
(i) June 30, 2021, or (ii) the day prior to the fourth anniversary of the Closing Date, with an interest rate of LIBOR plus 3.50%. The Non-Conforming Tranche will mature on the earlier of (i) December 31, 2020, or (ii) the
day prior to the date that is three years and six months after the Closing Date, with an interest rate of LIBOR plus 5.50%. The New LINN Exit Facility will contain a variety of other terms and conditions including annual year-end borrowing base
redeterminations beginning April 1, 2018, conditions precedent to funding, financial and other covenants, and certain representations and warranties.
The Plan will provide for the establishment of a customary employee incentive plan at the reorganized Company under which a pool of equity
having a value equal to (i) 8% of the equity value of the reorganized LINN Debtors as of the Plan effective date (the “Company Group Emergence Value”) as follows: (A) 2.5% of the Company Group Emergence Value in the form of
restricted stock units to be issued at emergence; (B) 1.5% of the Company Group Emergence Value in the form of profits interests that will vest based on time and performance; and (C) the remaining 4% of the Company Group Emergence Value in
a form of equity-based awards as determined by the board of directors of the reorganized Company; and (ii) an additional 2.0% of the Company Group Emergence Value, which will be issued at emergence in the form of profits interests that vest
once the equity value of the reorganized LINN Debtors (as equitably adjusted for subsequent contributions and distributions) is equal to 1.5 times the Company Group Emergence Value.
The Restructuring Support Agreement obligates the LINN Debtors and the Consenting Noteholders to, among other things, support and not
interfere with consummation of the Restructuring and, as to the Consenting Noteholders, vote their claims in favor of the Plan. The Restructuring Support Agreement may be terminated upon the occurrence of certain events, including the failure to
meet specified milestones relating to the filing, confirmation, and consummation of the Plan, among other requirements, and in the event of certain breaches by the parties under the Restructuring Support Agreement. The Restructuring Support
Agreement is subject to termination if the effective date of the Plan has not occurred by March 1, 2017. There can be no assurances that the Restructuring will be consummated.
The foregoing description of the Restructuring Support Agreement is only a summary, does not purport to be complete and is qualified in its
entirety by reference to the Restructuring Support Agreement attached as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference.
Backstop Commitment Letter
On October 7, 2016, the Company entered into a backstop commitment letter (the “Backstop Commitment Letter”) with the parties
thereto (collectively, the “Backstop Parties”), pursuant to which the Backstop Parties, which are also Consenting Noteholders under the Restructuring Support Agreement, have agreed to backstop a $530 million new money investment in
the LINN Debtors pursuant to the Rights Offerings to be conducted in accordance with the Plan. The Backstop Commitment Letter obligates the parties thereto to negotiate in good faith and promptly enter into a long-form backstop commitment agreement
(the “Backstop Commitment Agreement”) that definitively outlines the Backstop Parties’ commitment obligations on terms consistent with the backstop term sheet (the “Backstop Term Sheet”) attached to the Backstop Commitment
Letter.
In accordance with the Plan, the Backstop Commitment Letter, the Backstop Commitment Agreement, and certain Rights Offerings
procedures to be filed in the Chapter 11 Cases, the LINN Debtors will offer eligible creditors, including the Backstop Parties, the right to purchase shares of New Common Stock upon emergence from the Chapter 11 Cases for an aggregate purchase
price of $530 million. The Rights Offerings will consist of the following offerings:
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Holders of Unsecured Notes shall be granted rights (the “Unsecured Subscription Rights”) entitling each such holder to subscribe to the Rights Offering in an amount up to its pro rata share of New Common Stock
(the “Unsecured Rights Offering,” and such New Common Stock offered for purchase thereunder, the “Unsecured Rights Offering Shares”), which Unsecured Rights Offerings Shares, collectively, will reflect an aggregate purchase price
of $319,004,408 at the per share price set forth in the Backstop Term Sheet.
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Holders of Second Lien Notes shall be granted rights (the “Secured Subscription Rights”) entitling each such holder to subscribe to the Rights Offering in an amount up to its pro rata share of New Common Stock
(the “Secured Rights Offering,” and such New Common Stock offered for purchase thereunder, the “Secured Rights Offering Shares”), which Secured Rights Offering Shares, collectively, will reflect an aggregate purchase price of
$210,995,592 at the per share price set forth in the Backstop Term Sheet.
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Under the Backstop Commitment Letter, certain Backstop Parties have agreed to purchase the
Unsecured Rights Offering Shares and the Secured Rights Offering Shares, as applicable, that are not duly subscribed to pursuant to the Unsecured Rights Offering or the Secured Rights Offering, as applicable, at the per share price set forth in the
Backstop Term Sheet by parties other than Backstop Parties (the “Backstop Commitment”).
The LINN Debtors will pay the Backstop
Parties on the Plan effective date a commitment premium equal to 4.0% of the $530 million committed amount (the “Backstop Commitment Premium”), of which 3.0% will be paid in cash and 1.0% in the form of New Common Stock at the discounted
per share price set forth in the Backstop Term Sheet. The Backstop Commitment Premium shall be fully earned and nonrefundable as of the date of the Court order approving the LINN Debtors’ entry into the Backstop Commitment Agreement. All
amounts payable to the Backstop Parties in their capacities as such for the Backstop Commitment Premium shall be paid pro rata based on the amount of their respective backstop commitments on the Plan effective date (as compared to the aggregate
backstop commitment of all Backstop Parties).
The rights to purchase New Common Stock in the Rights Offerings, any shares issued upon
exercise thereof, and all shares issued to the Backstop Parties in respect of their backstop commitments pursuant to the Backstop Commitment Premium, will be issued in reliance upon the exemption from the registration requirements of the securities
laws pursuant to Section 1145 of the Bankruptcy Code. All shares issued to the Backstop Parties pursuant to the Backstop Commitment Agreement in respect of their Backstop Commitment will be issued in reliance upon the exemption from registration
under the Securities Act of 1933 (the “Securities Act”) provided by Section 4(a)(2) thereof and/or Regulation D thereunder. As a condition to the closing of the transactions contemplated by the Backstop Commitment Letter and Backstop Term
Sheet, the Company will enter into a registration rights agreement with the Backstop Parties entitling such Backstop Parties to request that the Company register their securities for sale under the Securities Act at various times.
The Backstop Parties’ commitments to backstop the Rights Offerings, and the other transactions contemplated by the Backstop Commitment
Letter and Backstop Term Sheet, are conditioned upon the satisfaction of all conditions to the effectiveness of the Plan, and other applicable conditions precedent set forth in the Backstop Commitment Letter and Backstop Term Sheet, including the
execution, delivery, and Court approval of the Backstop Commitment Agreement. The issuances of New Common Stock pursuant to the Rights Offerings and the Backstop Commitment Agreement are conditioned upon, among other things, confirmation of the Plan
by the Court, and the Plan’s effectiveness upon the Company’s emergence from its Chapter 11 Cases.
The foregoing description of
the Backstop Commitment Letter and Backstop Term Sheet are only summaries, do not purport to be complete and are qualified in their entirety by reference to the Backstop Commitment Letter, of which the Backstop Term Sheet forms a part, attached as
Exhibit 10.2 to this Current Report on Form 8-K and incorporated herein by reference.
Third Amendment to Bank RSA
Prior to the filing of the Bankruptcy Petitions, on May 10, 2016, the Debtors entered into the Bank RSA with certain LINN Lenders (the
“Bank RSA Consenting Creditors”) collectively holding or controlling at least 66.67% by aggregate outstanding principal amounts under (i) the Linn Credit Facility and (ii) Berry’s Second Amended and Restated Credit
Agreement, dated as of November 15, 2010 (the “Berry Credit Facility”).
On October 7, 2016, the Debtors and certain
of the Bank RSA Consenting Creditors entered into an amendment to the Bank RSA, the Third Amendment to Restructuring Support Agreement (the “Third Amendment”), which extended the date by which the Debtors must file with the Court the Plan
(or Plans, if separate), the Plan Solicitation Materials (as defined in the Bank RSA) for the Plan (or Plans, if separate), and the motion or motions to approve the Disclosure Statement (or Disclosure Statements, if separate, and as defined in the
Bank RSA) from 149 days to 156 days following the Petition Date. The Third Amendment provides further that the administrative agent for the LINN Credit Facility and the Berry Credit Facility and the Debtors may agree to further extend such preceding
deadline to 163 days without the consent of the Required Consenting Creditors (as defined in the Bank RSA).
The foregoing description of
the Third Amendment is only a summary, does not purport to be complete and is qualified in its entirety by reference to the Third Amendment attached as Exhibit 10.3 to this Current Report on Form 8-K and incorporated herein by reference.
Fourth Amendment to Settlement Agreement
As previously reported, on April 4, 2016, the Company, Linn Energy Finance Corp. (together with the Company, the “Issuers”), and
all of the Company’s material subsidiaries, other than Berry (collectively, the “Guarantors”), entered into a settlement agreement (as amended, the “Settlement Agreement”) with certain holders (the “Settling
Holders”) of the Issuers’ Second Lien Notes and Delaware Trust Company, as successor trustee (the “Trustee”) and collateral trustee (the “Collateral Trustee”). The Settlement Agreement was executed by the Settling
Holders, which collectively held more than two-thirds of the outstanding principal amount of the Second Lien Notes.
The Settlement Agreement provided that the Trustee, Collateral Trustee and Settling Holders would
retain the right to assert certain claims and defenses in the event that the Alternative Settlement Agreement Order (as defined in the Settlement Agreement) was not entered by the Court on or before January 16, 2017 (the “Alternative
Settlement Agreement Order Date”).
On October 7, 2016, the Issuers, Guarantors, Trustee, Collateral Trustee and Settling
Holders collectively holding more than two-thirds of the outstanding principal amount of the Second Lien Notes entered into a Fourth Amendment to Settlement Agreement (the “Fourth Amendment”). The Fourth Amendment extends the Alternative
Settlement Agreement Order Date to May 1, 2017, and additionally provides that the Trustee, Collateral Trustee and Settling Holders would also retain the right to assert those certain claims and defenses if the motion to approve the Alternative
Settlement Agreement Order is not filed by March 1, 2017.
The foregoing description of the Fourth Amendment is only a summary, does
not purport to be complete and is qualified in its entirety by reference to the Fourth Amendment attached as Exhibit 10.4 to this Current Report on Form 8-K and incorporated herein by reference.