MD America Energy Hits Ch. 11 With Plan To Cut $58M In Debt

By Elise Hansen
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Law360 (October 13, 2020, 3:57 PM EDT) -- Oil and gas company MD America filed for Chapter 11 protection in Texas with a plan in hand to slash about $58 million in debt, saying its preexisting financial woes alongside the steep drop in energy prices forced it into bankruptcy.

MD America Energy LLC and five affiliates said in their court petition on Monday that the company has between $50 million and $100 million in assets and between $100 million and $500 million in liabilities. The restructuring support agreement has the support of all of MD America's secured debt holders, which the company said in court filings was "overwhelmingly the largest creditor group."

MD America focuses on acquisition, development and production of oil and gas in east Texas. The company said in court filings that it owns nearly 65,000 acres in Texas' Brazos Valley and a subsidiary operates over 100 miles of natural gas gathering lines.

The company in March failed to make a $30 million prepayment for a term loan, triggering a default and a change in its board composition, according to court filings. MD America is also dealing with the industrywide challenges posed by the COVID-19 pandemic and the steep decline in energy prices, the filings said.

"The debtors commenced these Chapter 11 cases following proactive liability management against the backdrop of consistently declining oil and gas prices," Scott Avila, the company's chief restructuring officer, said in first-day declarations to the court.

"The debtors have undertaken significant efforts to address their leverage and profitability," Avila said. "Despite these efforts, the recent, dramatic drop in commodity prices and resulting tightening of the credit markets have frustrated the debtors' ability to further deleverage absent a Chapter 11 proceeding."

Under the terms of the restructuring agreement, the company's term loan lenders would see their claims exchanged for a new $60 million loan and all of the equity in the newly reorganized company, Avila said. The claims of trade partners would be unimpaired, he added.

MD America also disclosed a roughly $1.1 million loan under the Paycheck Protection Program, part of the federal government's coronavirus relief program. The company does plan to apply for loan forgiveness, according to court filings.

The company said it's hoping for a quick turnaround in bankruptcy court and is aiming to have its restructuring plan approved by the court within 45 days of the petition filing date.

"A quick resolution to these cases is essential to the preservation of the value of the debtors' assets and estates and to allow the debtors to emerge from chapter 11 as a going concern," Avila said in his first-day declarations.

A representative for MD America said the company is optimistic about its prospects for a speedy Chapter 11 process.

"We expect to move through this swiftly and efficiently," the representative told Law360.

MD America is one of numerous energy companies to seek Chapter 11 protection in recent weeks. Oil driller Lonestar Resources hit Chapter 11 with a plan to cut about $390 million in debt on Oct. 1. The day prior, Oasis Petroleum filed a Chapter 11 petition, hoping to cut $1.8 billion in debt, and drilling services company Superior Energy Services said it planned to seek Chapter 11 protection to wipe out $1.3 billion in debt.

MD America is represented by John F. Higgins, M. Shane Johnson, Megan Young-John and Mark D. Jones of Porter Hedges LLP.

The case is In re: MD America Energy LLC, case number 20-34966 in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division.

--Additional reporting by Vince Sullivan. Editing by Alanna Weissman.

Correction: an earlier version of this story contained misspellings of MD America's name. The errors have been corrected.

For a reprint of this article, please contact reprints@law360.com.

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