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February 20, 2019 – Barings LLC (“Barings”) filed an emergency motion seeking the appointment of an examiner to investigate the Debtors’ Plan and a Plan process it believes "has been improperly usurped by the Backstop Commitment Group@ [Docket No. 363].
The motion states, “Barings, on behalf of certain of its managed funds and investment accounts, which collectively hold approximately $35 million of the Debtors’ 6.75% unsecured senior notes due 2022 (the ‘2022 Notes’) [requests] the appointment of an examiner….On December 12, 2018 (the ‘Petition Date’),Parker Drilling…filed their Chapter 11 Plan of Reorganization…with the Court. The Plan provides substantial value to certain entities (collectively, the ‘Backstop Commitment Parties’) at the expense of Barings and other similarly situated creditors, who were excluded from the Plan negotiations and from obtaining many of the substantial benefits under the Plan. As the sole group to negotiate the terms of the Plan with the Debtors, the Backstop Commitment Parties—who upon information and belief held approximately 77% of the Notes2 issued by the Debtors, 62% of the Existing Preferred Interests and 25% of the Existing Common Stock—arrogated substantial value to themselves at the expense of Barings and other similarly situated Noteholders.
In particular, and as discussed more fully below, the Plan gives the Backstop Commitment Parties (with whom the Debtors were complicit) an outsize distribution of Plan value in a multitude of ways. First, the Plan improperly shifts Plan value that rightfully should have gone to all Noteholders (including Barings) over to junior stakeholders, including the Backstop Commitment Parties, by giving them an incredibly large and improperly enhanced recovery on their holdings of Existing Preferred Interests and Existing Common Stock (collectively, the ‘Equity Interests’). Indeed, Equity Interests are to receive under the Plan an extremely disproportionate allocation of subscription rights to a heavily discounted Rights Offering. What’s more, adding insult to injury, is that the Plan gives the Backstop Commitment Parties the exclusive right to backstop this heavily discounted Rights Offering and thereby soak up additional Plan value by purchasing all of the unsubscribed shares offered to holders of Equity Interests in the Rights Offering. Finally, there is absolutely no justification whatsoever for the Plan’s better treatment of the 2020 Notes than the 2022 Notes. All of these benefits inure to the Backstop Commitment Parties at the direct expense of Barings and other similarly situated Noteholders.
The motion continues, “More fundamentally, to the extent that the Plan negotiation process was unduly influenced by the Backstop Commitment Parties, this raises serious questions as to whether (i) the Debtors are really the true Plan proponents or whether it is the Backstop Commitment Group masquerading as the Debtors, (ii) the Plan has been proposed in good faith, and (iii) the Plan proponents have complied with the applicable provisions of the Bankruptcy Code.
In view of the foregoing, Barings respectfully requests that an examiner be appointed to investigate whether the Plan process has been improperly usurped by the Backstop Commitment Group. In connection therewith, the examiner should investigate, among other things: (i) how the Plan proponents and/or the Backstop Commitment Group determined the allocation of the subscription rights available to each group of stakeholders in the Rights Offering and particularly amongst each of the 2020 Notes, the 2022 Notes, the Existing Preferred Interests and the Existing Common Stock; (ii) whether the Plan distributions to holders of Existing Preferred Interests and/or Existing Common Stock are inappropriate or unjustified; (iii) whether the recovery provided under the Plan to holders of Equity Interests is really a disguised return on the Backstop Commitment Parties’ Notes that is not available to other Noteholders; (iv) whether the Backstop Commitment Group constitutes an insider and an affiliate, as each of those terms is used in Section 101 of the Bankruptcy Code; (v) whether the Backstop Commitment Group exercised control over the Debtors and usurped the Plan process; (vi) whether the Backstop Commitment Parties were required to file a verified statement pursuant to Bankruptcy Rule 2019 and failed to do so; (vii) whether the fee being paid to the Backstop Commitment Group for backstopping the Rights Offering is excessive; and (viii) whether there is any legitimate basis for the disparity in treatment between the 2020 Notes and the 2022 Notes. Furthermore, the examiner should be authorized to retain counsel, financial advisers and such other professionals as are necessary to assist the examiner with the investigation.”
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