PE-backed Samson Resources files for bankruptcy

December 2015 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Following a lengthy battle with financial difficulty, private equity owned oil & gas producer Samson Resources has filed for a pre-arranged Chapter 11 bankruptcy.

According to a statement announcing the filing, Samson, which is owned by KKR & Co, will hand control of its operations over to a group of its lenders. The change of ownership will eliminate the approximately $4.1bn in cash KKR and its partners invested in the company since it was acquired in 2011. Samson and co-investors Japanese trading company Itochu and the Californian pension fund invested $4bn into the company when they acquired the business in a $7.2bn deal.

A group led by Silver Point Capital LP, Cerberus Capital Management LP and Anschutz Investment Co. agreed to cancel the almost $1bn of debt Samson owes them in exchange for ownership of the firm. The group also pledged to use as much as $485m to pay down first-lien debt and provide liquidity. Samson has indicated that the investment by lenders may be further increased, under certain circumstances, by $35m to further improve liquidity. The company’s plan still requires the approval of the court and is dependent on a vote from creditors. According to Samson, 68 percent of the company’s junior lenders support the reorganisation. However, the company’s restructuring deal still faces strong opposition from lower-ranking, unsecured creditors.

KKR led a $7.2bn leveraged buyout of Samson in 2011. The combination of the considerable debt piled onto Samson by the LBO and the recent collapse in energy prices made the firm’s position untenable. Accordingly, Samson had no choice but to file for bankruptcy protection.

The company’s filing sees it become the largest victim of the slump in energy prices. Though Samson is by no means the only victim, the company noted in August that it intended to file for bankruptcy protection in mid-September, joining a number of other firms in the oil & gas space. In a short space of time Samson, Quicksilver Resources and Sabine Oil & Gas Corp all filed for Chapter 11 protection. Hercules Offshore Inc also filed for bankruptcy protection over the summer, another victim of the energy sector’s collapse.

Philip Cook, chief financial officer of Samson Resources, said: “Oil & gas companies across the United States and around the world are feeling the pressure from the downward spiral in commodity prices, and the fate of many of these companies is yet to be determined. Access to capital is the lifeblood of exploration and production companies. With increasing leverage because of a constant need for capital, together with the recent rising cost of capital in the industry, operating in the current environment has been – and likely will remain – challenging.” To that end, there is an expectation within the oil & gas space that there may well be plenty more filings in the coming months.

Samson filed for bankruptcy protection in the United States Bankruptcy Court for the District of Delaware, and has filed a motion to allow it to continue to operate normally throughout the Chapter 11 process. As such, employee wages will continue to be paid and existing employee benefit programs will continue as normal. Samson will also continue to pay royalties to mineral owners under the current terms of existing agreements.

“The steps we are taking will allow our company to maximise future opportunities and compete more effectively with significantly less debt on our balance sheet,” said Randy Limbacher, the outgoing chief executive of Samson, in a statement announcing the filing. “We are confident the successful restructuring will have long-term benefits for our employees, vendors and business partners and are committed to upholding our commitments to these stakeholders as we work to achieve our financial goals. We fully expect to operate our business as usual throughout this process and to emerge as a financially stronger company.”

Though at the time of filing Samson’s restructuring appeared to be cut and dry, in late October the company told the bankruptcy court in Delaware that its restructuring deal with lenders was in jeopardy, given the continued volatility in the commodities space. Samson’s legal team, including Joshua Sussberg of Kirkland & Ellis LLP, told the court that the continuing fall in natural gas prices had jeopardised the restructuring support agreement the debtor struck with more than two-thirds of junior lenders shortly before it filed for Chapter 11 protection. As a result, the company was negotiating the possibility of reworking the deal.

Given that Samson’s bankruptcy was believed to be a pre-packaged deal, this development has surprised many. With Mr Limbacher leaving the company in December following his resignation, and many other executives potentially following him out the door, the future for Samson looks grim.

Richard Summerfield