Seventy Seven Energy Inc., the onshore oilfield services business spun off from Chesapeake Energy Corp., said Tuesday it plans to restructure under a prepackaged voluntary bankruptcy protection plan to be filed in May after reaching agreement with lenders.

The Oklahoma City-based operator entered into a restructuring support agreement (RSA) with some of its lenders that provides for deleveraging the balance sheet. A prepackaged Chapter 11 proceeding would be filed by May 26.

The operator agreed to issue new common stock to investors holding 92% of the principal in an outstanding term loan and 57.7% of its 6.625% senior notes maturing in 2019. The agreement would convert about $1.1 billion of debt into shares, or about 69% of its total obligations, “without interrupting the company’s daily operations.”

The RSA “is a clear endorsement by the stakeholders of Seventy Seven Energy in the future of this company,” CEO Jerry Winchester said. “The exchange of debt for equity will provide us with a significantly deleveraged balance sheet, and we will emerge from this process as a stronger company. After a thorough evaluation of our options, we are confident this is the correct path that will enable us to take advantage of our operational strengths and strong asset base to proactively grow our business as market conditions improve.”

A key component of the plan is that all trade creditors, suppliers and contractors would be paid in the ordinary course of business. All of the commercial and operational contracts would remain in effect, preserving the rights of all parties and continuing customer relationships uninterrupted. Employees would be paid per usual.

Seventy Seven was spun off from Chesapeake in July 2014 (see Shale Daily, July 1, 2014). In the spinoff, Chesapeake investors received one share of Seventy Seven for every 14 shares they owned in Chesapeake.