By Becky Yerak

Arena Energy LP has filed for bankruptcy with a plan to sell virtually all of its assets to private-equity firm Lime Rock Partners and a management group in a deal that includes $64.2 million in cash.

The Texas-based driller, which operates in the Gulf of Mexico, filed for chapter 11 protection Thursday in U.S. Bankruptcy Court in Houston to restructure more than $1 billion in debt.

Arena was founded in 1999 and controls about 341,000 acres in the Gulf of Mexico.

The company's bankruptcy comes less than a month after its reserve-based loan matured. It hasn't made interest payments on that debt since late March to preserve liquidity.

In court records, Arena said that like many of its peers, it has been challenged in recent years by the downturn and volatility in the commodities market.

Those problems, it said, have been exacerbated in recent months by a drop in global energy prices and market uncertainty due to the combined effects of the coronavirus pandemic and a price war between Saudi Arabia and Russia.

Arena has 57 employees and had $580.8 million in revenue last year. Its biggest unsecured creditors include the U.S. Small Business Administration, which is owed $1.8 million.

Lime Rock, with offices in Texas and Connecticut, is a buyout firm with a focus on oil-and-gas companies. The private-equity firm counts stakes in Prime Rock Resources, Augustus Energy Partners II and Crown Rock among its holdings of oil-and-gas drillers and services companies.

Arena enters bankruptcy with a restructuring agreement that is supported by 72% of its reserve-based facility lenders and 94% of term-loan lenders. The deal must be approved by bankruptcy court.

Reserved-based lenders are expected to recoup between 10 cents and 20 cents on the dollar of the nearly $630 million they are owed. Arena's term lenders are expected to receive about 2 cents on the dollar of the $439 million they are owed.

The proposed deal includes the assumption of certain liabilities.

Arena is owned by a small group of current or former employees and their family members.

Representing Arena and related entities in their bankruptcies are law firms Jackson Walker LLP and Kirkland & Ellis LLP. Its financial adviser is Evercore Group LLC. Alvarez & Marsal North America LLC is its restructuring adviser.

The case, number 20-34215, has been assigned to Judge Marvin Isgur.

Write to Becky Yerak at becky.yerak@wsj.com

(END) Dow Jones Newswires

August 21, 2020 15:11 ET (19:11 GMT)

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