Rick Kuebel, Co-Chair of Locke Lord’s Bankruptcy, Restructuring and Insolvency Practice Group and a Partner in the Firm’s New Orleans office, provided insight throughout a Law360 article on the increased difficulties in brokering a restructuring deal for oil and gas companies following the historic oil price crash. Kuebel said the debt-to-equity swaps that dominated the previous bankruptcy wave (2015-2018) frequently included either a restatement of existing senior secured debt or the ability to add new debt or an exit facility to allow the restructured companies to borrow more money. He noted, “We'll see those (balance sheet restructurings) particularly for the larger independent companies. There are a few of them that are out there on the various watchlists that are probably pretty likely candidates for that.”
Kuebel also said E&P companies that own more “paper” reserves than reserves that are currently and consistently producing oil and gas may have trouble persuading lenders to sign on to a prepackaged bankruptcy. “It's particularly challenging to grapple with reserves that aren't producing, reserves that require a lot of capex to develop, or reserves that are in basins that have relatively higher lifting costs,” Kuebel said, referring to capital expenditures.
He also addressed the challenges for prepackaged bankruptcies, saying some companies will have less time than others. He continued, “If you've got short-term maturities and short-term redeterminations of your borrowing bases, those companies may not have the latitude to wait and see. They may run out of cash beforehand, or potentially have to depart with cash for some debt service payments that will really shorten their cash runway.”
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