A federal court has approved Magnum Hunter Resources Corp.'s reorganization plan, a critical step that brings it closer to emerging from Chapter 11 bankruptcy.
Magnum said the U.S. Bankruptcy Court for the District of Delaware has approved its plan, but cautioned that the court still must issue its order and the company has to meet a number of conditions set forth in it to exit the bankruptcy. The company said it anticipates that the reorganization plan will become effective and that it will emerge "a stronger company" on or before May 3.
Magnum filed for Chapter 11 bankruptcy protection on Dec. 15 (see Shale Daily, Dec. 15, 2015). Prior to its filing, the company's lenders holding nearly all of its first lien debt, 66.5% of its second lien debt and 79% of its senior unsecured notes entered into a restructuring support agreement.
Under the agreement, the creditors provided $200 million in financing so Magnum could continue to meet its vendor, employee and other stakeholder obligations during the bankruptcy. The restructuring plan allows the company to clear its debt and convert the financing into equity after it emerges from bankruptcy.
Steep financial losses, dwindling cash flow and growing debt that were exacerbated by the commodities downturn forced the company to declare bankruptcy.
In recent years, it has sold assets in Texas, North Dakota and Canada to build up a core in the Appalachian Basin, where most of its properties are now located. In the months leading up to the bankruptcy filing, Magnum promised but failed to deliver on a Utica Shale joint venture, the sale of its 45% stake in the Eureka Hunter Pipeline system and other liquidity-enhancing events such as having a third party assume some of its transportation liability to free up more credit.
Its executive ranks were also shuffled in the process and most of its subsidiaries filed for bankruptcy along with it.