Penn Virginia files for Chapter 11

July 2016 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Independent oil and gas company Penn Virginia Corporation announced that it and certain of its subsidiaries have filed voluntary petitions for relief under Chapter 11 of the US Bankruptcy Code.

The petitions, filed in the United States Bankruptcy Court for the Eastern District of Virginia, Richmond Division, are intended to facilitate the deleveraging of their consolidated balance sheet through a prearranged restructuring that will reduce the firm’s long-term debt by more than $1bn.

Alongside the Chapter 11 filing, Penn Virginia has also announced its entry into a restructuring support agreement with holders of 87 percent ($1.03bn) of its near $1.20bn in total funded-debt obligations.

“This is an important step forward for Penn Virginia,” said Edward B. Cloues, II, chairman and interim chief executive of Penn Virginia. “Once the restructuring is implemented, the Company will have substantially less debt and a much stronger balance sheet. We will be in a better position to navigate the current industry environment and leverage the value of our underlying assets and operational expertise.”

Subject to the approval of the Court, Penn Virginia has received a commitment for $25m in debtor-in-possession (DIP) financing from its RBL lenders which, when combined with cash reserves and cash from operations, is expected to provide liquidity throughout the Chapter 11 process. In addition, Penn Virginia has obtained a commitment for up to $128m in exit financing from its RBL lenders, led by Wells Fargo as agent, as well as a $50m rights offering that is backstopped and supported by certain senior unsecured noteholders.

“Like many other exploration and production companies, Penn Virginia has been significantly affected by the recent and continued dramatic decline in oil and natural gas prices,” admitted Mr Cloues. “We believe using the Chapter 11 process is the most efficient way to achieve our financial objectives and deleverage our balance sheet. The ongoing commitment from our valued business partners and hard-working employees is a testament to the strength of our organisation, and we sincerely appreciate their loyalty and support.”

As part of its ‘first day’ motions, Penn Virginia has asked the Virginia Court for authorisation to generally continue its ongoing employee compensation and benefit programmes without change or interruption. Additionally, the firm has filed a ‘Plan of Reorganisation and Disclosure Statement’, which incorporate the terms of the restructuring agreement and other commitments made by the RBL lenders and the supporting noteholders.

Incorporated in the Commonwealth of Virginia in 1882 and with its headquarters and corporate office located in Radnor, Pennsylvania, Penn Virginia Corporation is engaged in the exploration, development and production of oil, NGLs and natural gas in various domestic onshore regions of the United States, with a primary focus in the Eagle Ford Shale in South Texas.

Acting as financial adviser to Penn Virginia during the Chapter 11 is Jefferies, with Alvarez & Marsal acting as restructuring adviser (R. Seth Bullock of Alvarez & Marsal is serving as chief restructuring officer). Kirkland & Ellis LLP is acting as legal counsel to Penn Virginia in connection with the debt restructuring, PJT Partners is acting as financial adviser and Milbank, Tweed, Hadley & McCloy LLP is acting as legal adviser to the ad hoc committee of noteholders. Lastly, Opportune LLP is acting as financial adviser and Bracewell LLP is acting as legal adviser to Wells Fargo (as agent) and the RBL lenders.

Looking to the future, a bullish Mr Cloues said: “Importantly, the Chapter 11 announcement provides Penn Virginia with an expedited plan to emerge from this process with committed financing, a new money investment, and a clear path to future production and success.”

Penn Virginia anticipates emerging from Chapter 11 by the end of the summer.

Fraser Tennant