Lilis Energy Inc., which plies its exploration talents across the Permian Basin, on Monday sought voluntary protection under Chapter 11 to reduce debt.
The filing came one day after onshore giant Chesapeake Energy Corp. filed for voluntary bankruptcy. Fort Worth, TX-based Lilis filed petitions in U.S. Bankruptcy Court for the Southern District of Texas, Houston Division.
The petitions by Lilis were filed under a proposed restructuring support agreement (RSA) with investment funds and entities affiliated with Värde Partners Inc., which collectively own all of the outstanding preferred stock, a portion of the outstanding debt and some of the common stock.
“Like many companies in the oil and gas industry, we have been impacted by the severe downturn in commodity prices throughout the Covid-19 pandemic,” said CEO Joseph C. Daches. “While facing this challenging environment, we have worked diligently to explore a variety of alternatives to cut costs, improve our liquidity and address debt maturities. We…are confident that Lilis Energy can emerge from Chapter 11 better positioned to meet the challenges that have faced us.”
Lilis, with more than 18,000 net acres in the Permian, is following a growing list of Lower 48 explorers and oilfield services firms burdened by debt that have sought voluntary restructuring.
Under the proposed RSA, Lilis expects to reduce debt by close to $35 million and right-size for future operations. The RSA also would cancel the common stock.
Management expects to continue to operate “in the ordinary course” until the restructuring is completed without substantial disruption to vendors, suppliers and partners.
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The plan is contingent upon Värde agreeing to provide by Aug. 17 an “equity commitment and provision of additional debtor-in-possession (DIP) financing,” Lilis noted. If Värde does not provide DIP financing and make the equity investment, or if the RSA is not pursued, management plans to sell the assets.
As part of the restructuring, Lilis director Markus Specks has resigned and Värde has named its managing director Nicholas Winter as the designated director.
With the filing and subject to court approval, Lilis has a commitment from its bank lenders to provide up to $15 million in DIP financing. The company anticipates up to $5 million would be available on an interim basis. With “usual operating cash flows, these financings are expected to provide sufficient liquidity for the company to continue to operate in the ordinary course through the restructuring process.”
Vinson & Elkins LLP is serving as legal adviser, while Barclays Capital is serving as investment banker and Opportune LLP is serving as restructuring adviser.
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