Law360 (July 16, 2020, 11:14 AM EDT) -- California-based energy company California Resources Corp. filed for Chapter 11 protection in Texas bankruptcy court with over $6 billion in debt, saying current market pressures from the COVID-19 pandemic have forced it into restructuring.
Poor market conditions and the ongoing COVID-19 pandemic have forced several oil and gas companies into bankruptcy. California Resources Corp. is the latest to file for Chapter 11 protection with over $6 billion in debt. (AP Photo/Charlie Riedel)
CRC has inked a restructuring support agreement with the holders of 84% of its 2017 term loans, 51% of its 2016 term loans and with Ares Management LP, its joint venture partner in a California gas plant called Elk Hills. CRC said it has received commitments of over $1 billion in debtor-in-possession financing.
CRC has worked to cut debt since its 2014 spinoff from energy giant Occidental Petroleum, but recent market conditions created an unexpected challenge, President and CEO Todd Stevens said in a statement late Wednesday.
"Today's unprecedented market conditions, including oversupply and reduced demand due to COVID-19, require that we further reduce our debt through a Chapter 11 process," Stevens said.
The company has taken a variety of cash-saving measures in recent months, including delaying payments of operating expenses, which "damag[ed] the debtors' relations with their vendors and harm[ed] their operations," court filings said.
CRC said it plans to continue operating during the restructuring process. The committed debtor-in-possession financing will go toward refinancing a 2014 revolving credit facility and, in combination with CRC's existing cash, allow CRC to continue operations, court filings said.
The deal with Ares over Elk Hills Powers LLC will see Ares exchange its joint venture interests for equity and new CRC notes in the reorganized company, CRC said in a press release published late Wednesday. The gas plant, which is a joint venture between CRC and an Ares portfolio company, will continue to operate during the bankruptcy process and will be fully owned by CRC when it emerges from Chapter 11, the press release said.
Numerous energy companies have sought bankruptcy protection amid drops in demand due to the pandemic and cratering energy prices. Like CRC, some oil and gas companies, such as driller Chesapeake Energy Corp. and Texas energy producer Sable Permian Resources, have hit Chapter 11 with more than $1 billion in liabilities.
The most recent energy companies to file petitions include oilfield services provider Calfrac Well Services Corp., which filed a Chapter 15 petition Tuesday; fracking logistics business Hi-Crush Inc., which filed for Chapter 11 protection on Sunday; and oil and gas production company Lilis Energy Inc., which hit Chapter 11 in late June with $251 million in debt.
Representatives for CRC did not immediately respond to a request for comment Thursday.
CRC is represented by Sullivan & Cromwell LLP and Vinson & Elkins LLP.
The Sullivan & Cromwell team includes restructuring partners Andrew G. Dietderich and James L. Bromley and special counsel Alexa J. Kranzley; and corporate partners Alison S. Ressler and John E. Estes.
The Vinson & Elkins team is led by partners Paul Heath, Sarah Morgan, Matthew Moran and Harry Perrin and includes partners John B. Connally IV, David Peck, Wendy Salinas, Scott Rubinsky, Tzvi Werzberger, Guy Gribov, Matt Dobbins and Shane Tucker; counsel Jordan Leu, Bradley Foxman and Tan Lu; senior associates Reese O'Connor, Casey Downing, Kristy Fields and Jing Tong; and associates Matt Struble, Kiran Vakamudi, Kathryn Hastings, Kelly King, Marcus Martinez, Brandon Brunet, Liz Snyder, Austin Pierce, Erin Cusenbary, Victoria E. Berkowitz, Bryan Gividen and Devin Kerns.
The case is In re: California Resources Corp., case number 20-33568, in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division.
--Additional reporting by Vince Sullivan, Rick Archer and Keith Goldberg. Editing by Alyssa Miller.
Update: This story has been updated with more details from the filing and with counsel information.
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