OKLAHOMA CITY, September 14, 2016 – Judge David R. Jones on Friday approved the SandRidge reorganization plan and the company will emerge from Chapter 11 bankruptcy protection within 30 days. The bankruptcy plan eliminates the company’s $3.7 billion in debt and creates a $425 million credit facility for the company going forward. SandRidge is one of nearly 100 energy companies that have sought Chapter 11 protection in the midst of declining oil and gas prices.
Oklahoma City-based SandRidge, which was founded in 2006 by former Chesapeake Energy Corp (CHK.N) executive Tom Ward, had estimated its assets were worth $7 billion as of March 31, according to its Chapter 11 filing in May.
U.S. Bankruptcy Judge David Jones said he read every letter he received from individual shareholders, some of whom lost their entire savings, when SandRidge filed a prepackaged bankruptcy in May with $4.4 billion of debt.
“I have spent more time than anyone will ever know agonizing over this issue,” Jones said in Houston bankruptcy court after confirming SandRidge’s reorganization plan.
Jones said he understood the pain that comes with losing an investment but was also aware that the reorganization plan was not to blame for the lost equity. “Equity was lost long ago,” he said.
SandRidge has eliminated much of its debt and nearly all of its interest cost through restructuring. However, due to the relatively weak economics of its Mid-Continent assets, SandRidge is still looking at needing around $65 oil and $3.30 natural gas to breakeven.
“The confirmation of our plan is a milestone event toward the restructuring of our business, attributable to the tireless work of many individuals,” CEO James Bennett said in a statement. “I would like to acknowledge and thank our dedicated employees for their unwavering focus and high-level performance throughout the reorganization process. It’s also important to express my appreciation to our vendors and other stakeholders for their cooperation and support. We look forward to continuing these relationships as we work together to grow our business.”
Under the plan, $3.7 billion in debt is converted to equity in the newly reorganized company. SandRidge’s 7 percent and 8.5 percent convertible perpetual preferred stock and all common stock is canceled.
Even though it is normal for shareholders to lose their investment during a bankruptcy, SandRidge’s shareholders were hoping to prove its assets were valuable enough so they would recoup some money after repaying creditors.
SandRidge’s financial advisor Houlihan Lokey estimated the reorganized company’s enterprise value at $1.0 billion to $1.3 billion, while an independent analysis commissioned by the shareholders put the value at almost three times that amount.
The Debtors expect that the effective date of the Plan will occur as soon as all conditions precedent to the Plan have been satisfied (defined in the Plan as the “Effective Date”). Although the Debtors are targeting occurrence of the Effective Date within the next 30 days, the Debtors can make no assurances as to when, or ultimately if, the Plan will become effective. It is also possible that technical amendments could be made to the Plan.
The following is a summary of the material terms of the Plan. This summary highlights only certain substantive provisions of the Plan and is not intended to be a complete description of the Plan.
Holders of claims under the Debtors’ existing first lien credit facility will receive their proportionate share of a new $425 million first lien reserve-based revolving credit facility and $35 million in cash.
Holders of claims under the Debtors’ existing second lien notes will receive their proportionate share of a new mandatorily convertible note and new common stock, equal to 83.5% of the total new common stock after conversion of the mandatorily convertible note, subject to dilution from various sources.
Holders of general unsecured claims against the Debtors will receive their proportionate share of $10 million in cash, $27 million in cash proceed of a new $35 million mortgage note issued on certain real property, warrants to purchase new common stock, and new common stock representing 16.5% of the total new common stock after conversion of the mandatorily note, subject to dilution from various sources.
Holders of certain trade claims against the Debtors were provided the option to elect to receive 12.5% of their allowed claim in cash in place of the treatment otherwise received by general unsecured claims.
Holders of Company preferred and common stock will receive no recovery on account of their equity interests.
Unless otherwise specified, the treatment set forth in the Plan and Confirmation Order will be in full satisfaction of all claims against and interests in the Debtors, which will be discharged on the Effective Date. All of the Company’s existing funded debt and preferred and common stock will be extinguished by the Plan.
