Legacy Reserves Inc. – Files Amended Plan; $351mn of Term Loans to be Exchanged for 51.4% of Emerged Debtors Equity, $983mn of Senior Notes Left with 2.5%

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September 9, 2019 – The Debtors filed a Further Revised Plan and a related Disclosure Statement [Docket Nos. 453 and 454, respectively] each of which attaches a blackline showing changes to the versions of each document filed on August 18, 2019.

Overview of the Plan

The Disclosure Statement provides the following revised summary of the Plan:

"The Plan contemplates the implementation of a debt-to-equity conversion of a substantial portion of the Debtors’ prepetition funded indebtedness, the payment in full of all Allowed General Unsecured Claims, committed equity investment from the Plan Sponsor and certain Holders of Notes Claims, a rights offering, an exit financing facility, and other potential sources of debt or equity capital, which collectively will result in a significantly deleveraged balance sheet and necessary liquidity for the Reorganized Debtors upon emergence. Successful implementation of the Plan will avoid a sale of all or substantially all of the Debtors’ assets during these Chapter 11 Cases. The compromises and settlements embodied in the Plan preserve value by enabling the Debtors to avoid costly and time-consuming litigation that would delay the Debtors’ emergence from chapter 11."

The key component of the Plan is its debt-for-equity exchange further to which (i) all Term Loan Claims in Class 4 will be converted into equity in the reorganized Debtors ("Term Loan New Common Stock Shares," receiving approximately 51.4% of the emerged Debtors' equity) and (ii) $464.6mn of the Senior Notes in Class 5 will be exchanged for "Notes Claims Shares," representing approximately 2.5% of the emerged Debtors' equity. The $518.1mn of Senior Notes held by Legacy Reserves LP will be cancelled and will have no equity allocation.

The following is summary of classes, claims, voting rights and expected recoveries showing no major changes (Defined terms are as in the Plan and/or Disclosure Statement):

  • Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is undetermined and the estimated recovery is 100%.
  • Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is undetermined and the estimated recovery is 100%.
  • Class 3 (“RBL Claims”) is impaired and entitled to vote the Plan. The estimated aggregate amount of claims is $313.0mn and the estimated recovery is 100%.
  • Class 4 (“Term Loan Claims”) is impaired and entitled to vote the Plan. The estimated aggregate amount of claims is $351.2mn and the estimated recovery is 53.9%-83.4%. Each holder of an Allowed Term Loan Claim will receive its pro rata share of the Term Loan New Common Stock Shares (about 51.4% of the emerged Debtors' equity, see see Equity Allocation table below).
  • Class 5 (“Notes Claims”) is impaired and entitled to vote the Plan. The estimated aggregate amount of claims is $982.7mn (although the $518.1mn held by Legacy Reserves LP will get no distribution) and the estimated recovery is 3.1%-4.8%. Each holder of an Allowed Notes Claim shall receive its respective pro rata share of the Notes Claim Shares (about 2.5% of the emerged Debtors' equity, see Equity Allocation table below). Holders of Notes Claims that are Qualified Noteholders will also receive Subscription Rights to participate in the Rights Offering. This estimated Notes Claim recovery includes potential receipt of the Participation Premium Shares, as such shares will be available to each Holder of Notes Claims pursuant to the terms of the Plan and the Rights Offering Procedures. The estimated Notes Claim projected recovery without taking into account such shares is 2.0%-3.0%.
  • Class 6 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $2.0-4.0mn and the estimated recovery is 100%.
  • Class 7 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote the Plan. The estimated aggregate amount of claims is NA and the estimated recovery is 100%/0%.
  • Class 8 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote the Plan. The estimated aggregate amount of claims is NA and the estimated recovery is NA.
  • Class 9 (“Existing Common Equity Interests”) is impaired, deemed to reject and not entitled to vote the Plan. The estimated aggregate amount of claims is NA and the estimated recovery is NA.

Equity Allocation Table

Equity Allocation

 

Emergence on 9/30/19

Emergence on 10/31/19

Emergence on 11/30/19

Emergence on 12/31/19

Emergence on 1/31/20

Emergence on 2/29/20

Term Loan New Common Stock Shares

51.40%

51.69%

51.97%

52.25%

52.53% 52.78%

Plan Sponsor Backstop Commitment Shares

31.42%

31.24%

31.06%

30.88%

30.70%

30.53%

Rights Offering Shares 

11.01%

10.94%

10.88%

10.82%

10.76%

10.70%

Plan Sponsor portion of Rights Offering Shares

1.69%

1.68%

1.67%

1.66%

1.65%

1.64%

Plan Sponsor Backstop Commitment Fee Shares

1.60%

1.59%

1.58%

1.57%

1.57%

1.56%

Noteholder Backstop Commitment Fee Shares

0.56%

0.56%

0.55%

0.55%

0.55%

0.55%

Plan Sponsor portion of Noteholder Backstop Commitment Fee Shares

0.09%

0.09%

0.09%

0.08%

0.08%

0.08%

Notes Claims Shares

2.50%

2.49%

2.47%

2.46%

2.44%

2.43%

Participation Premium Shares

1.50%

1.49%

1.48%

1.47%

1.47%

1.46%

Plan Sponsor portion of Participation Premium Shares

0.23%

0.23%

0.23%

0.23%

0.22%

0.22%

 Total

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

 Notes                                                                                             

  1. Equity allocations shown above are prior to dilution from the MIP. 
  2. Equity allocations shown above assume $189.8mm Sponsor Backstop Amount by the Plan Sponsor (excluding $10.2mm Sponsor Participation Amount) and $66.5mm Rights Offering (including $10.2mm Sponsor Participation Amount).
  3. Equity allocations shown above do not assume any Incremental Equity Investment. Ownership for each category will be adjusted with respect to any Incremental Equity Investment raised in accordance with the Plan and otherwise in form and substance acceptable to the Debtors and Plan Sponsor.
  4. (4) Notes Claims ownership includes all Noteholders (including any notes held by Plan Sponsor and for the avoidance of doubt excluding any notes held by the Debtors or their Affiliates).
  5. Equity allocations for emergence after 2/29/20 shall be consistent with the methodology reflected herein in accordance with the Plan and Global RSA. 
  6. Equity allocations are reflected herein on a monthly basis for illustrative purposes only. Actual equity allocations for distributions under the Plan shall be calculated on a daily basis to reflect adjustment to the Effective Date consistent with the methodology reflected herein in accordance with the Plan and Global RSA.

The Disclosure Statement referenced the following Exhibits:

  • Exhibit A: Plan of Reorganization (Filed at Docket No. 453)
  • Exhibit B: Global Restructuring Support Agreement (Filed at Docket No. 343)
  • Exhibit C: Corporate Organizational Chart (Filed at Docket No. 343)
  • Exhibit D: Liquidation Analysis (Filed at Docket No. 373)
  • Exhibit E: Financial Projections (Filed at Docket No. 373)
  • Exhibit F: Valuation Analysis (Filed at Docket No. 373)
  • Exhibit G-1: Plan Sponsor Backstop Commitment Agreement (Filed at Docket No. 343)
  • Exhibit G-2: Noteholder Backstop Commitment Agreement (Filed at Docket No. 343)
  • Exhibit H: Rights Offering Procedures (Filed at Docket No. 343)
  • Exhibit I: Stockholders’ Agreement (Filed at Docket No. 385)

About the Debtors

Legacy Reserves Inc. is an independent energy company engaged in the development, production and acquisition of oil and natural gas properties in the United States.  Its current operations are focused on the horizontal development of unconventional plays in the Permian Basin and the cost-efficient management of shallow-decline oil and natural gas wells in the Permian Basin, East Texas, Rocky Mountain and Mid-Continent regions.

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