Weatherly Oil & Gas – Auction of Assets Postponed as Dispute Arises Over Debtor’s Last Minute Inclusion of Further Qualified Bidder

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June 26, 2019 – Just hours before a scheduled 2pm auction, the Debtor designated a further qualified bidder in respect of the sale of its assets; a last minute development to which stalking horse Angelo, Gordon Energy Servicer, LLC ("AG") vigorously objected [Docket No. 380], arguing that the new bid included assets not otherwise included in respect of its own bid. That objection carried particular weight given AG's role as administrative agent and its ability in that role to "reasonably" withhold consent as to the Debtors' designation of a qualified bidder. Further to a last minute scramble and negotiations in the court house foyer, the parties appear to have come to an agreement (announcing a stipulation on the record); although the whole auction/dispute resolution has now been adjourned until June 28, 2019.

The objection actually preceded the Debtor's motion, the Debtor having advised AG on June 25th that they intended to designate Five-Jab, Inc. as a qualified bidder, although it makes more sense to take events in the more routine notice/objection order. 

On June 26th [Docket No. 382], the Debtor notified the Court that the "Debtor has deemed Five-Jab, Inc. a Qualified Bidder for the Robertson/Leon Assets," and notwithstanding the [to come] objection of AG to that designation (noted discretely by the Debtor in a footnote), it urged the Court to proceed with the auction as scheduled. 

Racing to the court house (or at least Pacer), AG fired back its objection, which offers much more detail on the dispute than that provided in the Debtor's brief footnote. AG stated (emphasis below as appearing in the objection): "As part of the Bidding Procedures Motion, the Debtor’s Prepetition Collateral Agent, Angelo, Gordon Energy Servicer, LLC (the ‘Administrative Agent’), agreed to serve as Stalking Horse Bidder and negotiated Stalking Horse Agreements with the Debtor with respect to two defined asset packages:

  • (a) the Shelby Assets . . . for [which] the Stalking Horse Bidder [agreed to] credit bid . . . $26 million (the ‘Shelby Credit Bid’); and
  • (b) the Boswell Unit . . . for [which] the Stalking Horse Bidder [agreed to] credit bid . . . $10 million (the ‘Boswell Credit Bid,’ together with the Shelby Credit Bid, the ‘Stalking Horse Bids’).

The Bidding Procedures provide that ‘Only Qualified Bidders may participate in the bidding process’ and further provide that: (iii) To become a Qualified Bidder, by the Bid Deadline, a potential bidder must . . . submit to the Debtor an unqualified and binding bid in an amount of total consideration that is equal to or exceeds $26,390,000 for the Shelby Package and/or $10,150,00 for the Robertson/Leon Package (which amounts are equal to the Stalking Horse Bids in the amounts of $26,000,000 and $10,000,000, respectively, plus the Initial Bid Increment (defined below) . . . . A . . . bid . . . on a different combination of assets from the combinations of assets in the Stalking Horse Agreements may, in the Debtor’s business judgment, with the consent of the Stalking Horse Bidder (such consent not to be unreasonably withheld) and in consultation with the Consultation Parties, be deemed a Qualified Bid if it otherwise complies with all of the provisions of this paragraph except for part (iii) above.’ 

On June 25, 2019, the Debtor notified the Administrative Agent that it had received a bid that with respect to a combination of the Debtor’s assets including the Robertson/Leon Package and certain additional assets that are not part of either the Robertson/Leon Package or the Shelby Package….The Administrative Agent alerted the Debtor that (i) because this bid includes assets (and liabilities) which are not part of the Robertson/Leon Package (and are not even part of the Assets covered in the Bidding Procedures Motion) it is, therefore, not a Qualified Bid absent the Administrative Agent’s consent and (ii) it does not consent to deeming this bid a Qualified Bid."

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