PetroQuest Energy – Court Approves First Amended Chapter 11 Plan, Debtors Expect to Emerge More than $200mn Lighter By February 8, 2019

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January 31, 2019 – The Court hearing PetroQuest Energy case entered an order confirming the Debtors’ First Amended Chapter 11 Plan of Reorganization, as Immaterially Modified as of January 28, 2019 [Docket No. 484]. The Debtors have announced that they expect the Plan to become effective on or before February 8, 2019.

On November 6, 2018, PetroQuest Energy and six affiliated Debtors (“PetroQuest Energy” or the “Company”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 18-36322 [Docket No. 1]. At filing, the Company,  which acquires, explores for, develops and operates oil and gas properties in Texas and Louisiana, noted between 1,000 and 5,000 creditors; estimated assets between $100 million and $500 million; and estimated liabilities between $100 million and $500 million. Included in that liability figure was $284.4mn owed to holders of the Company’s secured notes due 2021 who comprise the impaired classes 5 and 6. Holders of these notes are in line to receive their pro rata share of (i) the emerged Company’s new equity and (ii) $80mn in newly issued PIK notes (10% senior secured due 2024); and in doing so help the Debtors shed more than $200mn in debt.

 
The following updated summary of classes, claims, voting rights and expected recoveries (Defined terms are as defined in the Plan and/or Disclosure Statement):
  • Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
  • Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
  • Class 3 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
  • Class 4 (“First Lien Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $50,000,000 plus any accrued and unpaid interest and expenses and the estimated recovery is 100%.
  • Class 5 (“Prepetition Second Lien Notes Secured Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $9,427,000 plus any accrued and unpaid interest and expenses and the estimated recovery 21% to 49%. The Disclosure Statement provides the following detail as to treatment of this class, “Holders of claims…relating to our 10% Second Lien Secured Senior Notes due 2021 (the “2021 Notes”) will…receive on account of the secured portion of such claims (i) its pro rata share of 100% of the common stock in the reorganized company (the “New Equity”), subject to (x) dilution from the issuance of New Equity in connection with the long-term management incentive plan for the reorganized Debtors (the “Management Incentive Plan”) and (y) the New Equity payable to the parties backstopping the Exit Facility (the “Put Option Premium”), and (ii) its pro rata share of $80 million in 10% Senior Secured PIK Notes due 2024 (the “New PIK Notes”); such pro rata share of the New Equity and the New PIK Notes calculated by including the $275,045,768 (plus any accrued and unpaid interest through the Petition Date) of claims relating to the 2021 PIK Notes as claims that will share pro rata in 100% of the New Equity, subject to (x) dilution from the issuance of New Equity in connection with the Management Incentive Plan and (y) the Put Option Premium, and $80 million in New PIK Notes.”
  • Class 6 (“Prepetition Second Lien PIK Notes Secured Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $275,045,768 plus any accrued and unpaid interest and expenses and estimated recovery 21% to 49%.
  • The Disclosure Statement provides the following detail as to treatment of this class, “Holders of claims…relating to the our 10% Second Lien Senior Secured PIK Notes due 2021(the “2021 PIK Notes”)…will receive on account of the secured portion of such claims (i) its pro rata share of 100% of the New Equity, subject to (x) dilution from the issuance of New Equity in connection with the Management Incentive Plan and (y) the Put Option Premium, and (ii) its pro rata share of $80 million in New PIK Notes; such pro rata share of the New Equity and the New PIK Notes calculated by including the $9,427,000 (plus any accrued and unpaid interest through the Petition Date) of claims relating to the 2021 Notes as claims that will share pro rata in 100% of the New Equity, subject to (x) dilution from the issuance of New Equity in connection with the Management Incentive Plan and (y) the Put Option Premium, and $80 million in New PIK Notes. 
  • Class 7a (“General Unsecured Claims Other than Convenience Claims”) is impaired and entitled to vote on the Plan. Each holder shall receive its pro rata share of the General Unsecured Claims Distribution (ie $1,200,000 in cash, less (a) the Convenience Class Distribution and (b) the reasonable out of pocket expenses of the GUC Administrator) on the Effective Date.; provided, however, that the Holders of Second Lien Notes Claims shall not receive any distribution on account of their Allowed Second Lien Deficiency Claims; provided, further, that, subject to the entry of an order authorizing the Holders of the Hoog/Lee Litigation Claims to file a class Proof of Claim on account of such Claims, the aggregate portion of the General Unsecured Claims Distribution distributed to the Holders of the Hoog/Lee Litigation Claims shall not exceed $400,000.
  • Class 7b (“Convenience Claims”) is impaired and entitled to vote on the Plan. “Convenience Claim” is defined as an Allowed General Unsecured Claim with a face amount equal to or less than $7,500. Each holder shall receive the Convenience Class Distribution (with respect to each Convenience Claim, an amount equal to 50.0% of such Convenience Claim). For the avoidance of doubt, holders of Allowed General Unsecured Claims with a face amount greater than $7,500 may elect to reduce the face amount of their Allowed General Unsecured Claim to $7,500 by notifying the GUC Administrator of such election and receive the treatment specified in this section for Class 7b Convenience Claims.
  • Class 8 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%.
  • Class 9 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. The estimated recovery is N/A.
  • Class 10 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. The estimated recovery is N/A.
  • Class 11 (“PetroQuest Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%.

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