We are advising an ad hoc group of lenders who will receive equity under the plan the court confirmed after a 13-day trial

Davis Polk is advising an ad hoc group of secured first-lien, last out term loan lenders in connection with the chapter 11 restructuring of Chesapeake Energy Corporation and certain of its subsidiaries. On January 13, 2021, following a 13-day trial, the United States Bankruptcy Court for the Southern District of Texas confirmed Chesapeake’s fifth amended plan of reorganization, overruling the objections of the official committee of unsecured creditors and other parties.

At the confirmation hearing, the creditors’ committee urged the Court to deny confirmation and grant the committee derivative standing to challenge the liens and subsidiary guarantees of the term loan lenders and Chesapeake’s second-lien noteholders. The creditors’ committee argued that the December 2019 liability management exercise in which the term loan and second-lien notes debt was incurred constituted a fraudulent transfer, and that a substantial portion of the mortgages securing the term loan and second-lien notes were avoidable preferences. In confirming the Plan, the Court denied the creditors’ committee’s request for standing and approved full releases of the consenting term lenders and consenting second-lien noteholders.

The confirmed Plan provides Chesapeake’s term loan lenders with 76% of reorganized Chesapeake’s new common stock on a pre-new money basis. Holders of Chesapeake’s second-lien notes will receive 12% of the new common stock along with new warrants to purchase additional stock at agreed exercise prices. Holders of Chesapeake’s unsecured notes will equitize their debt and receive, along with other general unsecured creditors, 12% of reorganized Chesapeake’s new common stock and new warrants to purchase additional stock at an agreed exercise price. Chesapeake’s revolving credit facility lenders will roll their existing commitments into the company’s $2.5 billion exit facilities.

Members of the ad hoc group and certain other parties also agreed to fully backstop a $600 million new-money rights offering. Chesapeake’s term loan lenders received the right to purchase 63.75% of the new common stock to be issued pursuant to the rights offering. Holders of Chesapeake’s second-lien notes received the right to purchase 11.25% of the new common stock to be issued in the rights offering. The remaining 25% will be allocated directly to the backstop parties.

Chesapeake is a publicly-traded oil and natural gas company headquartered in Oklahoma City, Oklahoma and is one of the largest oil and gas exploration and production companies in the United States.

The Davis Polk restructuring team includes partners Donald S. Bernstein, Damian S. Schaible and Darren S. Klein, counsel Aryeh Ethan Falk and associates Daniel Rudewicz and Jacob Weiner. The litigation team includes partner Benjamin S. Kaminetzky and counsel Marc J. Tobak. The corporate team includes partner Stephen Salmon and associate Bryan M. Quinn. Members of the Davis Polk team are based in the New York and Northern California offices.

Copy link to share post