Davis Polk is advising an ad hoc group of secured term loan lenders in connection with the chapter 11 restructuring of California Resources Corporation (“CRC”) and certain of its subsidiaries. On July 15, 2020, CRC filed voluntary chapter 11 petitions in the United States Bankruptcy Court for the Southern District of Texas. Shortly before filing, the ad hoc group, CRC and one of its other stakeholders, ECR Corporate Holdings L.P. (a subsidiary of Ares Management LLC), executed a restructuring support agreement with CRC. The restructuring support agreement contemplates (1) a $1.133 billion DIP financing loan, comprised of a $483 million senior DIP facility led by CRC’s existing senior RBL agent, J.P. Morgan, and a $650 million junior DIP facility provided by members of the ad hoc group, (2) $650 million of committed new-money exit investment, comprised of a $450 million equity rights offering backstopped by the ad hoc group and a $200 million exit second-lien term loan, approximately 80% of which will also be provided by the ad hoc group and (3) a settlement agreement between Ares, certain subsidiaries of CRC, and a joint venture entity, Elk Hills Power, LLC, pursuant to which Ares’ interests in Elk Hills Power, LLC will be contributed to CRC in exchange for debt and equity in reorganized CRC. 

The senior and junior DIP financing, which was approved on an interim basis by the bankruptcy court at CRC’s “first day” hearing held on July 17, 2020, will refinance CRC’s existing senior RBL facility in its entirety and provide ongoing liquidity for CRC’s chapter 11 cases. The Ares settlement agreement was also approved on an interim basis at the hearing. The chapter 11 plan contemplated by the restructuring support agreement will provide for a full equitization of CRC’s funded debt (other than the DIP financing), with approximately 93% of the reorganized equity and 93% of the rights offering subscriptions provided to holders of CRC’s first-lien, first-out term loan class. As of July 17, 2020, the ad hoc group held approximately 85% of CRC’s $1.3 billion first-lien, first-out term loan, 60% of CRC’s $1.0 billion first-lien, second-out term loans, 30% of its $1.8 billion in outstanding second-lien notes and 15% of its $244 million in outstanding unsecured notes.

CRC is an oil and gas company headquartered in California, and is the state’s largest oil and natural gas producer. At the time of filing, CRC had more than $5 billion in funded secured and unsecured debt obligations.

The Davis Polk restructuring team includes partners Damian S. Schaible and Angela M. Libby, counsel Josh Sturm and associate Jonah A. Peppiatt. The finance team includes partner Kenneth J. Steinberg and counsel Jon Finelli. The corporate team includes partner Evan Rosen. The litigation team includes partner Benjamin S. Kaminetzky and counsel Marc J. Tobak. The tax team includes partner Lucy W. Farr. All members of the Davis Polk team are based in the New York office.

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