PetroQuest Energy – Files Third Amended Disclosure Statement, Includes Details of Valuation Dispute with Creditors’ Committee

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January 3, 2019 – The Debtors filed a Third Amended Disclosure Statement [Docket No. 332] and a related redline showing changes from the version filed on December 20, 2018 [Docket No. 294]. The redline also attaches a slightly amended liquidation analysis. Although the liquidation analysis is not substantially amended, the valuations contained therein have been the subject of a dispute between the Debtors and the Debtors’ Creditors’ Committee which believe that certain valuations (and hence projected recoveries), as prepared by adviser Seaport, are understated. The amended Disclosure Statement further notes (i) that the Creditors’ Committee finds fault with the Debtors’ disclosure as to the settlement of disputes and (ii) that there remain unresolved issues with Northstar Offshore Ventures LLC (“NOV”) which purchased the Debtors’ Gulf of Mexico properties on January 31, 2018,

The amended Disclosure Statement notes as to valuations:
 
  • in respect of Class 6 (“Prepetition Second Lien PIK Notes Secured Claims”): “The Creditors’ Committee’s financial advisor contends that the value of the assets (and the Reorganized Debtors’ Value) is considerably greater than Seaport’s, and is in the range of $198,000,000 to $258,000,000.”
  • in respect of Class 6 Class 7 (“General Unsecured Claims”): “Includes a range of the Allowed amount of the Second Lien Notes Deficiency Claims from $156,436,000-$239,741,000. The Creditors’ Committee contends that (i) the value of the assets (and the Reorganized Debtors’ Value) is greater than the value estimated by Seaport and (ii) the range of the Allowed amount of the Second Lien Notes Deficiency Claims will be less than estimated by the Debtors.”
The amended Disclosure Statement notes as to settlements:
“The Creditors’ Committee contends that the Disclosure Statement provides a summary of the Settled Issues and does not provide detailed legal and factual analysis of the disputes, if any, which are being settled. The Debtors intend to offer appropriate support and evidence in support of the proposedsettlements at the Confirmation Hearing, and the Creditors’ Committee reserves all rights with respect to the proposed settlements of the Settled Issues.”
 
The following is a summary of classes, claims, voting rights and expected recoveries:
 
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%.
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%.
Class 7 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. Expected recovery is 0.1% to 0.2%.
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 0%.
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%.
  
The Disclosure Statement attached the following exhibits (although only the liquidation analysis appears to have been amended):
 
  • Exhibit A: Plan of Reorganization 
  • Exhibit B: Restructuring Support Agreement 
  • Exhibit C: Liquidation Analysis 
  • Exhibit D: Financial Projections 
  • Exhibit E: Valuation Analysis 
  • Exhibit F: Summary of Litigation 
  • Exhibit G: Exit Facility Subscription Form
 
Key Dates:
 
  • Deadline to object to Plan confirmation: January 23, 2019
  • Plan voting deadline: January 23, 2019
  • Plan Confirmation Hearing: January 30, 2019

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