Breitburn Energy Partners’ statutory committee of equity security holders filed with the U.S. Bankruptcy Court an objection to the Debtors’ Third Amended Joint Chapter 11 Plan.
The objection asserts, “After criticizing the plan as ‘unworkable,’ the Debtors’ assurances to the Equity Committee changed just days later, when the Debtors suddenly decided to support a plan that had been negotiated not by the Debtors, but rather between the ad hoc bondholder groups (the ‘Ad Hoc Bondholder Groups’) and Second Lien Group. Not surprisingly, that plan required the Debtors to transfer all of their assets exclusively to those two creditor constituencies.”
In addition, “In order to secure the Debtors’ approval of a valuation far below the economic realities, thereby affording the creditor plan proponents with recoveries in excess of their claims, the negotiations resulted in the design of a management incentive plan (the ‘MIP’) that the Debtors’ own Chief Executive Officer testified just two weeks ago will reward executives with cash sooner the lower the Debtors’ assets are valued. By structuring the MIP this way, the creditor plan proponents gave management a strong incentive to embrace an artificially low enterprise value and affirmatively turn off market interest that could deliver a superior transaction based on a higher valuation because doing so would diminish the value of the MIP and the resulting payouts the Debtors’ managers could otherwise receive in the absence of any competitive alternatives, or otherwise eliminate the MIP altogether.”
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