EdgeMarc Energy Holdings – Creditors Object to DIP Financing and Bidding Procedures, Don’t Want Debtors Shut in Sale Process While Pennsylvania Assets Remain Shut In Exploded Pipeline

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June 10, 2019 – The Debtors' Official Committee of Unsecured Creditors (the “Committee”) objected [Docket No. 147] to each of the Debtors’ debtor-in-possession ("DIP") financing motion and bidding procedures motion citing that these motions endanger estate value by compelling "a sale transaction within two months (August 2019), regardless of whether the sale process yields optimal value." These concerns are driven in part by the fact that a large percentage of the Debtors' assets are "shut in" following a September 2018 explosion along a pipeline in Pennsylvania. in short, the Creditors don't want to shut in a rapid sales process while asset value remains shut in a damaged and incomplete pipeline that forms a substantial part of the Debtors' business.

The objection states, “These cases are unusual in that they were not precipitated by an over-leveraged balance sheet, failed business plan, or natural headwinds within the Debtors’ industry. These cases are further unusual in that there can be no confidence that the typical M&A process will realize the Debtors’ intrinsic value, given the numerous extrinsic circumstances potentially impacting this sale process. The Debtors’ proposed sale process may be the best way to maximize the value of the Debtors’ assets, or it may not be. As of now, no party, including the Debtors, knows whether a sale will realize optimal value for the Debtors’ assets. The problem is that the DIP Facility and Bidding Procedures compel a sale transaction within two months (August 2019), regardless of whether the sale process yields optimal value. The Committee does not oppose a sale process designed to maximize the value of the Debtors’ assets, but the Committee does oppose a sale process with a preordained outcome (via the DIP Facility), given that no one can provide any reliable assessment as to what that outcome may be. The Debtors’ Pennsylvania assets comprise a substantial portion of the Debtors’ value (e.g., approximately 46% of the Debtors’ fiscal year 2018 total revenue These Pennsylvania assets are currently ‘shut in’ following the September 10, 2018 explosion (the ‘Revolution Explosion’) that occurred along a pipeline and gathering system (the ‘Revolution System’) located in Beaver County, Pennsylvania. According to the Debtors, the Revolution System is the system that, if completed, would enable gas from the Debtors’ Pennsylvania wells to be gathered, processed, and sold. ETC Northeast Pipeline LLC (‘ETC’), a subsidiary of publicly-owned Energy Transfer Partners (the operator of one of the largest interstate pipeline systems in the United States, with a market capitalization as of this filing of approximately $37 billion), was and is responsible for building the Revolution System. 

Most bidders, we can assume, will seek to monetize the Debtors’ Pennsylvania assets. The obvious and critical question, then, is what impact the Revolution Explosion and current 'shut in' of the Debtors’ Pennsylvania assets will have on the sale process and potential bids. The answer, at the moment, is unclear, but the Committee has a healthy degree of skepticism that the sale process, as compelled by the DIP Facility, will yield optimal value given these circumstances. The Committee’s concern is that the proposed DIP Facility and Bidding Procedures, which require the Debtors to obtain approval of a sale by August 2019, create structural impediments to maximizing the value of the estates’ assets (including Inchoate Estate Claims) by compelling the Debtors to move forward and attempt to consummate any sale that repays the DIP loans in full, or else face an immediate event of default, termination of DIP commitments, and acceleration of $108 million of DIP obligations (including the Roll-Up), without any notice to the Debtors or opportunity to cure.”

The Court scheduled a hearing to consider the motion for June 17, 2019.

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