EP Energy General Counsel Jace Locke and lawyers at Weil Gotshal celebrated March 6, 2020, when U.S. Bankruptcy Judge Marvin Isgur approved the Houston-based energy company’s multibillion-dollar plan to exit bankruptcy.
The restructuring blueprint eliminated $3.3 billion in EP Energy’s debt and gave the exploration and production company a path to solvency.
“We were able to celebrate our confirmation for all of one weekend – no joke,” Locke said.
Over the 10 days that followed, the U.S. went on lockdown due to the Covid-19 pandemic. A huge rift developed between Saudi Arabia and Russia, resulting in both countries flooding the global oil market with product. Oil prices plummeted – even went negative for a couple days – and the economy was sent into a tailspin.
Eleven days after the agreement was reached, the private equity firms and financial institutions behind EP Energy’s new business plan reversed course. The deal was dead.
Financial and legal analysts predicted that the shale driller faced an actual possibility of liquidation.
“Back to the drawing board,” Locke said, in an interview with The Texas Lawbook. “We weren’t certain we could exit without a liquidation.”
Fast-forward to Aug. 27. Locke and his lawyers at Weil, lawyers for the creditors, lenders and financial institutions were back in Judge Isgur’s courtroom in Houston. They presented a new restructuring plan.
For Premium Subscribers: Click Here for a special Q&A with Jace Locke on challenges facing in-house counsel, outside counsel and what he now knows first hand about “bankruptcy hell.”
The 162 days between those two proceedings had been filled with turmoil and contention, negotiations and concessions. Cuts were made, losses were accepted and new funds were committed. A publicly traded oil company once worth billions was taken private.
The result: Judge Isgur approved and EP Energy officially exited bankruptcy in October 2020.
“Pretty insane time period,” said Locke, who has been a lawyer at EP Energy for nearly a decade and its general counsel for four years.
Bankruptcy experts say the EP Energy restructuring was one of the biggest oil and gas companies to file under Chapter 11 in Texas history, but it also is one of the most complex and riskiest. The company carried nearly $5 billion in debt into the bankruptcy. EP Energy also had an intensely complicated capital structure involving numerous creditors with varying interests.
In the end, it also was one of the most successful.
As a result, the Association of Corporate Counsel’s Houston Chapter and The Texas Lawbook recognize Locke and his outside counsel at Weil Gotshal as finalists for the 2021 Houston Corporate Counsel Award for Transaction of the Year.
Transaction of the Year is one of the award categories honors both in-house counsel and the outside lawyers who worked with them. Business Litigation of the Year and Creative Partnership are the two others.
ACC Houston and The Lawbook will honor the finalists and announce the winners of the annual corporate counsel awards at an in-person ceremony Jan. 13.
“Navigating this restructuring process properly required a very tightly designed effort, a deft touch and a cool head – all attributes that Jace demonstrated abundantly,” said Weil Gotshal partner Paul Genender, who nominated Locke for the award. “In short, the fact that EP Energy ultimately emerged with the plan and reenergized business that it did is a powerful testament to the extremely hard work and creative thinking of Jace and his colleagues, as well as the entire restructuring team.
“This truly remarkable outcome in a time of great uncertainty and rapid change is one that speaks volumes about what EP Energy accomplished,” Genender said.
A lot of the restructuring process fell directly on Locke’s shoulders.
“I found it impressive that he was able to manage what I am sure was an extremely contentious process,” said Akin Gump partner David Sweeney, who has worked with Locke. “Over the past few years, Jace has seen, and can handle, more or less any issue that might come up in the life of a business – from litigation to securities to financial restructuring.
“Jace’s base of experience is hard-won and enviable,” Sweeney said.
Stephen Szalkowski, a corporate transactional partner at Latham & Watkins in Houston, is now representing EP Energy in its proposed sale to EnCap Investments for an estimated $1.5 billion. The proposed deal is in antitrust limbo while the Federal Trade Commission reviews some of the specific terms of the transaction.
Szalkowski said that Locke provides “great attention to detail” while also knowing the big picture.
“Jace is able to catalog and understand the entire list of issues [and] legal risks that may be present in a given document but can also put those risks into perspective,” Szalkowski said. “He is able to weigh – by likelihood of happening and by materiality – the various risks and then make a commercial decision as to the best path forward.
“He understands that his role as an in-house counsel is to guide EP Energy into making well-informed and well-thought-out decisions, rather than simply being the guy saying ‘no’ due to the presence of a theoretical legal risk,” he said.
Locke was born and reared in Sandy, Utah, a suburb of Salt Lake City.
His father was the director of inmate placement for the Utah Department of Corrections and was diagnosed with multiple sclerosis in his early 30s.
“Despite the physical and emotional toll this took on him – he passed away from complications associated with MS in 2017 – he continued to work without complaint until his retirement,” Locke said, noting that his father was wheelchair-bound with very limited mobility for more than a decade.
Locke’s mother worked as an elementary school teacher and cared for his father throughout their marriage.
“My parents were a model of commitment, dedication and hard work,” he said.
Locke played tennis, was a member of the debate team and an avid reader of fantasy and science fiction. He loved everything Tolkien well-before the movie Lord of the Rings debuted in 2001.
His initial interest in becoming a lawyer came from TV.
“Embarrassed to say it, but I became hooked on the television show L.A. Law while in my teens,” he said. “That exciting, albeit highly romanticized, view of the law is what initially piqued my interest.”
Locke went to college at the University of Utah and law school at Brigham Young University.
As an undergraduate, he did internships with a local county attorney in 1995 and with the U.S. Supreme Court in 1998, where he met Chief Justice William Rehnquist and justices Sandra Day O’Connor, Ruth Bader Ginsburg and Stephen Breyer. His job was to give tours to dignitaries, including U.S. senators.
“After that, I was hooked,” he said.
LeBoeuf, Lamb, Greene & MacRae – later Dewey & LeBoeuf – recruited Locke to join its ERISA, benefits and executive compensation practice group in Jacksonville, Florida, in 2002.
The U.S. Securities and Exchange Commission revised its proxy disclosure rules to enhance disclosure on executive compensation and governance practices. At the same time, the IRS enacted new rules on nonqualified deferred compensation arrangements. These changes kept Locke busy with clients.
After five years at LeBoeuf, Locke wanted something different.
“While I enjoyed advising clients on these new regulatory fronts, I was looking for an opportunity to put that advice into practice and transition from a purely outside – and at times theoretical – practice of the law to the day-to-day practice of working at a public company,” he said.
El Paso Corporate Secretary Marguerite Woung-Chapman had a position open for someone specializing in ERISA, executive compensation and corporate governance.
“The job looked to have been drafted just for me,” he said.
Locke was at El Paso from 2007 to 2012 when he joined the in-house legal department at EP Energy as associate general counsel over corporate governance, finance, ERISA and employment.
In late 2017, EP Energy underwent a shake-up at the top. Several of the C-suite departed. Locke was promoted to general counsel and corporate secretary Jan. 1, 2018.
Unfortunately, the time Locke had to celebrate was short.
By late 2018, Locke and EP’s CFO became increasingly concerned that the company’s debt load was unsustainable. The executives had worked with Evercore Partners on liability management issues for a couple of years. Because Evercore was already familiar with EP’s complex debt structure, they were a logical choice to advise the oil company on possible restructuring.
“Bankruptcy … is not a simple decision by any means,” Locke said. “Under the direction of a special committee comprised of three independent directors, we worked with Evercore for months to evaluate alternatives and see if there was a way to avoid bankruptcy through further liability management exercises.”
In September 2019 the committee and advisors concluded that a Chapter 11 process was “the only way to save the company,” he said.
Locke needed to find a law firm to advise EP through the bankruptcy and restructuring. He put together a list of eight law firms that specialized in debtor-side representation to evaluate.
“The selection was complicated though due to the need to avoid potential conflicts of interest involving our larger stockholders, some of whom were also debtholders,” he said. “[We] weeded out firms that could be viewed as having potential conflicts due to relationships with our prior sponsors, which narrowed it down to three or so.”
The potential conflict involved shareholder Apollo Global Management, a private equity firm that had seats on the EP Energy board of directors and had purchased a significant amount of EP debt.
Two EP independent directors and Locke then flew to New York to interview three finalists. They chose Weil Gotshal.
“I couldn’t be happier with our choice,” he said.
On Oct. 3, 2019, EP Energy filed for protection under Chapter 11.
The company listed $4.975 billion in debt and $4.19 billion in assets.
“Weighed down by debt from a debt-fueled buyout in 2012, EP Energy was not only bringing a lot of money to the table but also had one of the most complex capital structures our team at Weil had ever seen,” said Genender, a Weil litigation partner in Dallas. “Accommodating the stakeholders and creditors in the first deal proved tricky enough.”
This original restructuring proposal granted junior creditors, such as Apollo and Elliott Management, a 99% majority controlling interest of EP Energy.
JPMorgan Chase, Fidelity and other senior noteholders objected to the plan, claiming they were being underpaid.
Judge Isgur called EP Energy’s plan “the most hotly contested confirmation hearing in his 17 years on the bench.” But on March 6 he approved the plan, which eliminated $3.3 billion in debt from EP’s balance sheet.
Only hours after Judge Isgur signed the order approving EP’s restructuring plan, Saudi Arabia decided to flood the global market with cheap oil to punish Russia after it walked away from talks with OPEC. A few days later, the Trump administration declared a coronavirus national emergency.
Oil prices plummeted. The economy slipped into a recession.
On March 16, Apollo and other funders of the restructuring plan withdrew their financial commitments to EP.
“The fulcrum backstop parties that we had been working with for almost a year on a plan abandoned the transaction in light of the oil price collapse, and we were left with no clear path to exit bankruptcy,” Locke said. “Then oil prices further plummeted and even went negative for a time. We weren’t certain we could exit without a liquidation.”
“We had to give the process a bit of time to see if oil prices would stabilize, cut costs, come up with a new plan and leverage that could be supported in a much lower commodity price environment and then work with the highest-tranche of our senior secured debtholders on a plan to equitize and exit,” he said. “Keeping employees engaged during this time period was also a real challenge with both the lockdowns and the uncertainty regarding an exit. Our employees really have been amazing through this process.”
After weighing its options – liquidation or additional months of complicated litigation – EP went through another “tightly structured process to ensure all parties to its complex capital structure were accommodated for, deescalating the numerous, significant related party issues that arose,” Genender said.
“EP Energy looked for options to cut its cash exposure while still operating a business in a completely virtual world,” he said.
Weil bankruptcy partner Ronit Berkovich said Locke “kept his cool throughout this ordeal.”
“Jace projected calm leadership as he worked with his legal team and business team to determine the potential courses of action and choose the best course of action,” Berkovich said. “Jace led the negotiations with creditors on a scaled-down plan that enabled the company to reduce billions of dollars of debt, emerge from bankruptcy and position itself for success when the oil markets improved – which they ultimately did later in 2020.”
On Aug. 27, Judge Isgur approved EP Energy’s plan to reduce its pre-petition debt of approximately $4.4 billion, which also eliminated more than 90% of its annual cash interest expense. Under the plan, EP Energy also received a new three-year $629 million senior secured reserve-based loan facility from the existing revolving loan lenders, which was backed by a $650 million borrowing base supported by the company’s oil and gas reserves.
On Oct. 1, EP Energy emerged from bankruptcy with $200 million of available liquidity and about $400 million of debt net of unrestricted cash.
That same day, shareholders of the publicly traded EP Energy were issued ownership shares in the new privately held business. The company was officially delisted from the New York Stock Exchange.
“That day, Oct. 1 and exiting bankruptcy, was definitely my best day at EP,” Locke said.
Within weeks of exiting bankruptcy, Locke turned his attention and energy to an offer by EnCap, a private equity firm, to acquire EP Energy for about $1.5 billion.
Locke tapped Latham to advise EP, while Vinson & Elkins is representing EnCap.
“Jace understands and can handle all the elements of strategic M&A and financing transactions,” Szalkowski said. “He also has shepherded the company through both a bankruptcy process and a de-listing, which are both major events that a GC does not expect to face and likely has no experience with before they arise. He has an uncanny ability to keep multiple balls in the air at the same time which relate to somewhat similar, though distinct, issues.”
Locke is quick to point out that EP’s restructuring could not have been successful without EP Associate General Counsel Karolyn K. Gillespie and Joseph C. James, a senior paralegal in the corporate legal department.
“Karolyn is a consummate oil and gas attorney – she jokingly refers to herself as a true ‘dirt’ attorney – with an incredible knowledge of every aspect of oil and gas law and commitment to problem-solving and client service,” Locke said. “Karolyn managed virtually all of the day-to-day oil and gas legal matters during the time we were in bankruptcy, which enabled me to focus 100% of my efforts on the restructuring and governance process.”
Locke said James was “the glue that keeps everything together.”
“Joseph took the lead in managing the claims adjudication process post emergence and has been instrumental in our efforts to clean up our litigation docket,” he said. “We are a lean and mean staff of three and I wouldn’t trade this team for any other.”