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Law360 (August 17, 2020, 11:32 AM EDT) -- For the second time in five years, Chaparral Energy Inc. filed for Chapter 11 in Delaware, citing industry downturn amid the COVID-19 pandemic for its latest trip into bankruptcy and saying it has an agreement in place to equitize $300 million in debt.
In an initial declaration Monday, the Oklahoma-based oil and gas company said it has reached a restructuring support agreement with the majority of it lenders to "fully equitize their approximately $300 million of outstanding prepetition senior notes in the form of new common stock of reorganized Chaparral parent and raise $35 million of new money at emergence through a convertible note rights offering."
Chaparral's debt also includes roughly $189 million in principal outstanding on a prepetition reserve-based lending credit facility administered by Royal Bank of Canada and $1.4 million of financing lease obligations, the declaration said.
Chaparral and its affiliates entered bankruptcy with expedited plans to seek confirmation of a Chapter 11 plan as soon as next month, already with its agreement with creditors in place to hand over the reorganized company's equity to the senior noteholders, subject to dilution by the issuance of new common stock.
The company's prepetition reserved-based lenders will receive either revolving loans or term loans "on account of their prepetition claims under a $300 million exit facility," the declaration said.
"Over the last 12 months, the company's operations have been impacted by a historic decline in oil and natural gas commodity prices which was exacerbated this year as a result of certain macroeconomic conditions affecting the oil and natural gas markets, including the COVID-19 pandemic and certain actions taken by Russia and Saudi Arabia," Chaparral CEO Charles Duginski said in the declaration.
The economic situation was also impacted by the break down in talks between Russia, Saudi Arabia and other oil producing nations earlier this year "over how much to restrict production in order to stabilize crude oil prices," the declaration said.
Saudi Arabia and Russia both "initiated efforts to increase production, driving down oil prices" and leading to "a severe supply-demand oil imbalance," Duginski said.
"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. Therefore, 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 in a news release.
Some of the debtor entities that filed for Chapter 11 on Sunday also hit bankruptcy in 2016, finalizing a $1.2 billion debt-for-equity plan and emerging from bankruptcy in 2017, the declaration said.
Chaparral and its oil and natural gas exploration and production subsidiaries focus on Oklahoma's hydrocarbon rich mid-continent region, according to the declaration. The company has 66 employees at its headquarters and 36 others who work primarily in the field.
The company plans to seek approval for its Chapter 11 plan and disclosure statement, both of which are already filed with the court, as soon as late September.
"Indeed, the expedited nature of these Chapter 11 cases ― together with the expected corresponding lower administrative expenses compared to a longer case — is one of the cornerstones of the compromise embodied in the plan and is fundamental to the consenting creditors' continued support," the declaration said.
Chaparral is scheduled for an initial virtual court appearance Tuesday afternoon with U.S. Bankruptcy Judge Mary F. Walrath, according to court records.
Chaparral is represented by John H. Knight, Amanda R. Steele and Brendan J. Schlauch of Richards Layton & Finger PA and Damian S. Schaible, Angela M. Libby and Jacob S. Weiner of Davis Polk & Wardwell LLP.
Chaparral's board of directors is represented by Mark Metts, Katy L. Lukaszewski, Duston K. McFaul and Corey Perry of Sidley Austin LLP.
The case is In re: Chaparral Energy Inc. et al., case number 1:20-bk-11947, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Alyssa Miller.
Update: This story has been updated with more details and counsel information for Chaparral's board of directors.
For a reprint of this article, please contact reprints@law360.com.
