EP Energy Wins Approval to Leave Bankruptcy With $3.3 Billion Less Debt -- Update
March 06 2020 - 6:07PM
Dow Jones News
By Andrew Scurria
The judge overseeing EP Energy Corp.'s bankruptcy signed off
Friday on a $3.3 billion debt-cutting plan, ruling against senior
bondholders who said the drilling company's business projections
are too optimistic.
Judge Marvin Isgur of the U.S. Bankruptcy Court in Houston said
on Friday he would approve the restructuring proposal, which turns
junior creditors Apollo Global Management Inc. and Elliott
Management Corp. into controlling shareholders of EP Energy, the
largest U.S. energy producer to file for chapter 11 protection
since 2016.
The ruling followed a multi-day trial in which senior
bondholders and other unhappy creditors challenged EP Energy's
strategy and said the bankruptcy plan wasn't feasible. In part,
they pointed to the recent coronavirus epidemic and its devastating
impact on oil prices to argue that EP Energy was unlikely to meet
financial projections once it exited bankruptcy.
Fidelity Management & Research Co., JPMorgan Chase & Co.
and other senior bondholders also said they were being underpaid,
demanding nearly $178 million in premium payments on top of $1
billion in bond principal. EP Energy's plan reinstates their debt
claims, but without the extra premiums.
Judge Isgur said forcing EP Energy to pay the premiums would
amount to a penalty on its decision to seek chapter 11 protection,
"which is inconsistent with the public policy of the country,
inconsistent with what everyone has assumed is true in
bankruptcy."
"You can't unreasonably block somebody's ability to file for
bankruptcy, " he said.
The judge also said EP Energy was likely to stay current on its
debts or refinance them after leaving bankruptcy, despite the
recent shocks to crude prices and the potential for a long-lasting
oil slump.
Oil prices hit a 2 1/2 year-low on Friday, pushed down by market
expectations that the coronavirus epidemic would sap global demand
through the first half of 2020.
Already, worries about fallout from the coronavirus have
pummeled energy stocks while investors try to gauge the magnitude
of its impact on crude prices.
Avinash D'Souza, a banker advising EP Energy, testified in court
that Covid-19, the respiratory disease caused by the new
coronavirus, would likely have only a short-term impact on global
economic output and oil prices.
Under the bankruptcy plan, Apollo, Elliott and other junior
creditors are buying the bulk of EP Energy's equity through a $475
million rights offering composed of cash and the forgiveness of
debt.
Senior bondholders said EP Energy's plan overvalued the company
and left it burdened with too much debt in a weak commodity
market.
Owners of oil-and-gas leases also opposed the proposal and
accused the company of orchestrating a sweetheart deal with Apollo,
which acquired junior bonds that are being traded for equity under
the chapter 11 plan. The debt exchange allows Apollo to hang on to
some of its stake in EP Energy, despite the bankruptcy.
In his ruling, Judge Isgur acknowledged that Apollo had bought
EP Energy debt while the firm's executives were inside the energy
company's boardroom. But there was nothing illegal about that, and
EP Energy proposed the restructuring plan months later, he
said.
EP Energy was one of a growing number of oil and gas companies
pushed into bankruptcy over the past year as investors grew
disaffected with shale and U.S. drilling activity slowed down.
Many energy companies financed production growth by becoming
deeply indebted, betting that higher oil prices would sustain them.
But investor interest has faded after years of meager returns, and
many private companies and smaller public drillers are now
struggling to meet obligations.
Apollo led a debt-fueled buyout of EP Energy in 2012, when oil
traded at nearly $110 a barrel. Analysts now worry it could dip
below $40 as the coronavirus fallout spreads.
-- Jonathan Randles and Sarah Toy contributed to this
article.
Write to Andrew Scurria at Andrew.Scurria@wsj.com
(END) Dow Jones Newswires
March 06, 2020 17:52 ET (22:52 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.