Oklahoma City's Chaparral Energy seeks bankruptcy after reaching approval with backers
Chaparral Energy is the latest Oklahoma energy company to seek bankruptcy.
On Sunday, it sought Chapter 11 protection from a federal bankruptcy court in Delaware after reaching a deal to restructure its business with a majority of its debt holders.
The plan seeks to equitize $300 million of debt and create a new reserves-based lending facility the company could draw upon for future needs.
It also intends to raise $35 million through a convertible notes rights offering that it would use to help compensate holders of that debt after it emerges from bankruptcy, company officials said.
So far, Chaparral has secured the support of about 78% of holders of its credit facility and about 78% of holders of its senior notes for its plans, officials said.
Given that support, officials added the company expects its reorganization to be completed relatively quickly.
“While we have taken carefully measured and decisive action to address the challenges of 2020, the overall impact to the energy industry, including Chaparral, has been severe,” Chuck Duginski, the company’s CEO, stated in a release issued Monday about its plans. “After thorough analysis of our strategic options, we determined that a voluntary Chapter 11 filing with broad creditor support provides the best course for Chaparral and its stakeholders."
Duginski said the company, which had about $32 million in cash on Friday, expected it could use that and its ongoing cash flow to maintain normal operations and meet its other financial commitments throughout the Chapter 11 restructuring period.
Its filings included a series of motions that would, if approved, allow the company to continue to pay employee wages and benefits without interruption, make royalty and working interest payments when due and to pay suppliers and vendors in full under existing terms for goods and services, among other things.
Chaparral's bankruptcy is the latest in a string of filings that include companies as large as Chesapeake Energy, which sought Chapter 11 protection in late June, and privately owned Templar Energy, which just completed its bankruptcy process earlier this month.
Chaparral itself has been in a difficult situation for the past 18 months. In 2019, it implemented two major staff reductions (one in August and another in November), ultimately cutting its corporate staff by 37% and its field staff by 40%.
The company also sold its headquarters building for $11.5 million, using proceeds to pay off the $8.2 million it owed on the building.
Duginski joined Chaparral in December 2019 as its new CEO, replacing Earl Reynolds in that role.
Chaparral last filed for bankruptcy in 2017, when it converted about $1.2 billion in debt into equity for shareholders.
It appears its bankruptcy filing was prompted by an inability to make required interest payments on the senior notes investors held in July.
The company has terminated all of its outstanding derivative contracts, using $28.2 million it collected for previous settlements to knock $24 million off what it owed under its pre-bankruptcy revolving credit facility to $188.5 million.
Officials said the company intends to partially retire that debt after bankruptcy using cash on hand and proceeds from the $35 million convertible note offering.
If plans are ultimately approved, Chaparral would exit bankruptcy with a $300 million revolving credit facility that would include a reserves based facility with a minimum of $20 million and an initial borrowing base of $175 million, or the estimated value of the company’s proved developed producing reserves, plus hedges (whichever is less).
The available balance on that facility also would be reduced by what it owes to second-out term loan holders.
Chaparral’s pre-bankruptcy existing equity would be cancelled by the deal, and its existing stock, traded under the ticker CHAP on the New York Stock Exchange, would be cancelled once the bankruptcy is complete.
Officials said the approved deal would reduce Chaparral’s ongoing annual interest burden by more than $25 million, enhancing its financial flexibility without interrupting its daily operations.
“A swift restructuring will right-size our balance sheet, improve our cost structure and best position Chaparral for the future,” Duginski said.