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Now Private, Sabine Emerges From Bankruptcy With $150M Borrowing Base

Sabine Oil & Gas Corp. officially emerged from bankruptcy protection as a private company last week, bringing its contentious journey through Chapter 11 to a close.

Houston-based Sabine said its reorganization plan, which was approved in U.S. Bankruptcy Court for the Southern District of New York [No. 15-11835] in late July (see Daily GPIJuly 28), took effect last Thursday. On that same day, the company also filed a Form 15 with the U.S. Securities and Exchange Commission (SEC), terminating the registration of its securities and suspending its reporting obligations under the Securities Exchange Act of 1934.

According to an 8-K filed last month with the SEC outlining the capital structure of the plan, there were more than 202.8 million shares of the company's former common stock outstanding at the end of June. The plan called for Sabine to enact a new charter and issue new shares of common stock to certain debtors. Upon the effective date, each share of Sabine's new common stock will be exchanged for a warrant for common stock in Sabine Oil & Gas Holdings Inc. (HoldCo).

The 8-K said Sabine is now a wholly-owned subsidiary of HoldCo. There are currently less than 300 holders of record of the new common stock, according to the Form 15 filed with the SEC.

"Sabine has successfully restructured its balance sheet, addressing its leverage and liquidity needs," CEO David Sambrooks said in a statement. "Throughout this process we have valued and appreciated the support and guidance of our outgoing board of directors as well as our professional advisors. Above all, I am humbled by the dedication and outstanding effort of our employees, and have great optimism for the next chapter of our organization.

"We look forward to working under the guidance of our new, remarkably experienced board to create value for our new ownership group."

The plan calls for the appointment of a five-member board to lead the new company. Wells Fargo Bank NA and Barclays Bank plc will each appoint one member, while reserve-based lending facility (RBL) lenders will appoint two others, provided they are "reasonably acceptable" to Wells Fargo and Barclays. The fifth board member will be the CEO.

Under the plan, the reorganized company and its debtors will enter into an exit revolver credit facility agreement, with initial commitments equal to $200 million. The agreement -- which will be provided to each of the RBL lenders on account of its pro rata share of the allowed RBL secured claims -- will contain deemed borrowings equal to $100 million, have an initial borrowing base of approximately $150 million, and mature at the end of 2020. It will be secured by first-priority security interests in and liens on substantially all of assets of the reorganized company and its debtors.

The reorganized company will also enter into a new second lien credit facility, a term loan with a principal amount of $150 million maturing at the end of 2021. It will be secured by second-priority security interests in and liens on substantially all of assets of the reorganized company and its debtors.

Sabine fought a bitter battle in bankruptcy court with its creditors and midstream companies it signed agreements with in the past. Faced with crushing debt and the collapse in oil and gas prices, Sabine voluntarily filed for Chapter 11 bankruptcy in July 2015 (see Shale Daily,July 15, 2015).

Last June, Judge Shelley Chapman rejected a motion by Nordheim Eagle Ford Gathering LLC and HPIP Gonzales Holdings LLC to stay a court ruling that would have allowed Sabine to cancel agreements it signed with them in 2013 and 2014 (see Shale Daily, June 15). She also rejected a summary judgment stay motion.

Chapman ruled last March that Sabine could terminate agreements with Nordheim, a subsidiary of Cheniere Energy Inc., and HPIP, but was unable to determine whether the covenants at issue run with the land under Texas law and ordered further proceedings on the matter (see Daily GPIMarch 9March 8). The court ultimately sided with Sabine in May, agreeing that the contracts do not run with the land.

Midstream companies are fearful that, should Sabine and other producers be allowed to terminate their contracts, a host of other E&P companies struggling in the low commodity price environment could attempt the same strategy (see Daily GPIFeb. 23).

Executives and analysts are divided over whether the Sabine case could spell trouble for the midstream sector. While some agree the ruling could be troublesome, others don't believe the ruling sets a precedent. Nevertheless, the latter group is advising midstream companies to fortify their contracts with producers.

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