The one-two punch of the COVID-19 crisis and low oil prices are causing energy companies to continue filing for bankruptcy protection. Texas lawyers from seven law firms — Kirkland & Ellis, Jackson Walker, Winstead, Hunton Andrews Kurth, Norton Rose Fulbright, Vinson & Elkins and Weil, Gotshal & Manges — were on the frontlines for the most recent filings in the energy industry’s venue of choice: Houston federal court.
Hornbeck Offshore Services is the latest energy company to file for bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of Texas. The Louisiana-based company and its 13 affiliates chose Jackson Walker’s Matt Cavenaugh and Kristhy Peguero in Houston and Kirkland & Ellis’ Edward Sassower (New York) and Ryan Blaine Bennet (Chicago) to lead its restructuring.
Hornbeck’s bankruptcy petition, filed Tuesday morning, came with a prepackaged Chapter 11 plan already approved by a significant percentage of its creditors. Combined with the COVID-19 pandemic and oil pricing war, the provider of offshore services vessels also cited the six-year downturn in the offshore drilling industry as a catalyst to its need for corporate reorganization.
The pre-negotiated plan includes $75 million in debtor-in-possession financing, a significant delevering of the company’s capital structure, access to $100 million of new equity capital post-emergence and capacity for post-petition financing to provide additional liquidity.
Lawyers from Winstead also provided legal service for Hornbeck during its negotiations with creditors and are involved with the bankruptcy. The Winstead team includes partner Clyde Parker and associates Roy Richter and Cameron Warr from the firms Woodlands office.
About a fourth of Hornbeck’s common stock is owned by Cyrus Capital Partners, a trust tied to the Hunt family and Fine Capital Partners, one of the handful of Wall Street investment firms owned and run by women.
Hornbeck said in court filings that it has between 1,000 and 5,000 estimated creditors and close to $3 billion in outstanding debt.
Wilmington Trust by far holds Hornbeck’s two largest unsecured claims, which total to $675 million plus interest and are both associated with debt offerings for notes due this year and next year. Hornbeck’s 28 other creditors don’t come close to claiming the amount Wilmington is owed; with the exception of Louisiana company Schottel Inc., all other claims are worth under $1 million.
Guggenheim Securities is acting as Hornbeck’s financial advisor. Portage Point Partners is serving as the restructuring advisor. Stretto is serving as the company’s claims and noticing agent.
The case has been assigned to U.S. Bankruptcy Judge David Jones.
From Canada to Houston
While Plano-based J.C Penney dominated Friday’s bankruptcy headlines, two energy companies also appeared on the Southern District’s docket.
The first was Canada-based ENTREC Corporation, a heavy haul transportation and crane provider in the oil patch that is currently undergoing the Canadian version of a Chapter 11 reorganization. ENTREC and its affiliates filed a Chapter 15 petition in Houston in an attempt to protect its business assets in the U.S. from being seized by creditors while it works out a plan in the primary Canadian proceeding.
ENTREC filed the Chapter 15 petition with its court-appointed monitor, Alvarez & Marshal Canada (A&M), the Canadian equivalent to a receiver in a bankruptcy. They asked Houston federal Judge Marvin Isgur to recognize a foreign judgment entered by a Canadian judge on Friday that essentially put a temporary stay on all other litigation or creditor collection efforts while ENTREC works through the Canadian process. Judge Isgur has set a hearing on the matter for May 28.
Steve Peirce, Lou Strubeck and Julie Goodrich Harrison from Norton Rose Fulbright’s San Antonio, Dallas and Houston offices represent A&M, while Houston Hunton Andrews Kurth lawyers Timothy “Tad” Davidson, David Zdunkewicz and Philip Guffy represent ENTREC and its affiliate companies.
Pending litigation in the U.S. involving ENTREC includes lawsuits in Harris County, Tarrant County, Colorado and North Dakota.
In court documents, ENTREC said it filed for bankruptcy protection after the COVID-19 pandemic, Saudi-Russian oil price war, chronically tough market conditions in Canada and regulatory challenges caused the company to default on obligations to its creditors, including a syndicate of lenders led by Wells Fargo. On May 14, many of the company’s creditors demanded immediate payment.
Through its bankruptcy, ENTREC said it hopes to pursue either a sale of its assets or additional investments to help pay down its debts.
Conflict in the Eagle Ford
The other company to file for bankruptcy protection Friday evening was Gavilan Resources, a Houston-based oil and gas company formed by Blackstone Group.
Like its two other docket mates, Gavilan cited the coronavirus outbreak and low oil prices as factors for filing for Chapter 11 reorganization. But it also pointed to an ongoing dispute against competitor and also-bankrupt Sanchez Energy as a financial strain. The dispute stems from the companies’ joint $2.3 billion purchase of acreage in the Eagle Ford Shale from Anadarko Petroleum.
In a court filing, Gavilan CEO David Roberts described the company’s relationship with Sanchez as “increasingly unworkable.” Litigation between the companies began in the fall of 2018.
Representing Gavilan in its Chapter 11 reorganization are Alfredo Perez and Brenda Funk from Weil, Gotshal & Manges’ Houston office and Ray Schrock and Garrett Fail from the firm’s New York office. Lawyers from Vinson & Elkins’ Dallas office are also representing Gavilan.
In court filings, Gavilan said it has under 50 creditors and approximately $552 million in secured debt. It said it hopes to pursue a sale of assets through the Chapter 11 proceeding.
Its largest unsecured creditor is a Sanchez subsidiary, SN EF Maverick, LLC, which is owed $10 million. Jackson Walker’s Cavenaugh is listed as its attorney of record. An Occidental Petroleum subsidiary is owed nearly $5 million and is listed as Gavilan’s second largest creditor.
U.S. Bankruptcy Judge David Jones conducted a first-day hearing on the case Tuesday afternoon, where he approved a series of Gavilan’s motions on a temporary basis. He set another hearing for June 9 to continue discussion of the matters.
Lazard is serving as Gavilan’s investment banker, while Huron Consulting Services is serving as the company’s restructuring advisor. Epiq Corporate Restructuring is serving as Gavilan’s claims and noticing agent.
The case numbers for each bankruptcy case are as follows:
- Hornbeck: 20-32679
- ENTREC: 20-32643
- Gavilan: 20- 32656