Jones Energy – Court Confirms Plan, Debtors Expect to Emerge May 17 Having Equitized $1.0bn of Debt

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May 6, 2019 – The Court hearing the Jones Energy case issued an order [Docket No. 180] approving the Debtors' Disclosure Statement and confirming their Joint Chapter 11 Plan of Reorganization [Docket No. 158]. The Plan will see holders of the Debtors' First Lien Notes get 96% of the equity of the emerged company in exchange for their $450mn principal amount of notes and holders of the Debtors' unsecured notes get 4% of the new equity in exchange for $559.0mn of extinguished debt.

On April 15, 2019, Jones Energy, Inc. and 10 affilliates filed for Chapter 11 protection in the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 19-32112. In its Petition, the Company, an independent oil and natural gas company engaged in the exploration and development of oil and natural gas properties in the Anadarko basin of Oklahoma and Texas, noted estimated assets between $1.0bn and $10.0n and estimated liabilities between $1.0bn and $10.0bn.

In a press release announcing the Plan's confirmation, the Debtors stated: “The Plan fully equitizes the Company’s outstanding prepetition funded debt, authorizes incurrence of an exit facility, and fully satisfies all trade, customer, employee, royalty, working, and other mineral interest claims in the ordinary course of business. Jones Energy will emerge as a private company within the month stronger, well-capitalized, and strategically positioned to maximize the value of its asset portfolio.

As previously announced, on April 3, 2019, Jones Energy commenced the solicitation of votes to accept or reject the Plan. As of today’s confirmation of the Plan, the Company had received votes in favor of the Plan from holders of approximately 98% in principal of the First Lien Notes and approximately 90% in principal of the Unsecured Notes, and 100% of voting general unsecured creditors. These numbers represent overwhelming support from the Company’s creditors for the Plan.”

Plan Overview

The Disclosure Statement [Docket No. 21] stated, “The Restructuring Support Agreement and Plan contemplate a swift restructuring by which the Debtors will (a) equitize all $1.009 billion of the Company’s prepetition funded debt and (b) obtain a new exit credit facility in an aggregate principal amount of up to $20.0 million (the 'Committed Exit Facility'), with the option to seek alternative financing with higher borrowing limits. The Plan also contemplates reinstating or paying in full all trade claims against the Debtors in the ordinary course of business. Finally, although the Debtors believe their total enterprise value does not support a recovery to Unsecured Noteholders, the Plan contemplates an opportunity for a meaningful recovery to the Unsecured Noteholders from the First Lien Notes’ collateral that they likely would not otherwise be entitled to receive. The proposed restructuring transactions are value-maximizing for the Company’s stakeholders. A right-sized capital structure will allow the Debtors to develop their assets and implement a growth-oriented drilling program. In addition, the compromises and settlements embodied in the Restructuring Support Agreement, and to be implemented pursuant to the Plan, preserve value by enabling the Debtors to avoid protracted, value-destructive litigation over potential recoveries and other causes of action that could delay the Debtors’ emergence from chapter 11. As of the date of this Disclosure Statement, holders of approximately 84% in principal of the First Lien Notes and approximately 84% in principal of the Unsecured Notes have signed onto the Restructuring Support Agreement, representing nearly $900 million of the Company’s just over $1.0 billion of funded debt.”

The Debtor’s Prepetition Capital Structure

As of the date of the Disclosure Statement, the Debtors had approximately $1.009 billion in total outstanding principal amount of funded debt obligations, as well as outstanding preferred equity with a stated aggregate liquidation preference of approximately $30.1 million. The Debtors also have approximately $11.8 million in marked-to-market secured liabilities to hedge counterparties as of March 22, 2019.

Obligation

Maturity

Annual Interest Expense

Approximate Principal Amount

Senior Secured Revolving Credit Facility (the “RBL”)

Nov. 2019

$0

$0.00

9.25% Senior Secured First Lien Notes (the “First Lien Notes”)

March 2023

$41.6 million

$450.0 million

6.75% Senior Unsecured Notes (the “2022 Notes”)

April 2022

$27.6 million

$409.0 million

9.25% Senior Unsecured Notes (the “2023 Notes”)

March 2023

$13.8 million

$150.0 million

Total:

$83.0 million

$1.009 billion

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Disclosure Statement):

  • Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
  • Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
  • Class 3 (“Hedge Claims / RBL Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
  • Class 4 (“First Lien Notes Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $529,828,000 (includes interest and make whole payment) and the estimated recovery is 62.5%.
  • Class 5 (“Unsecured Notes Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $582,125,000 (includes interest) and the estimated recovery is 4.3%.
  • Class 6 (“General Unsecured Claims against Debtors other than JEI and JEI, LLC”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
  • Class 7 (“General Unsecured Claims against JEI and/or JEI, LLC”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $50,200,000 and the estimated recovery is 0%.
  • Class 8 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is N/A and the estimated recovery is 0%.
  • Class 9 (“Existing Preferred Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is N/A and the estimated recovery is 0%.
  • Class 10 (“Existing Common Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is N/A and the estimated recovery is 0%.
  • Class 11 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is N/A and the estimated recovery is 100%.

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