Sundance Energy files for Chapter 11

May 2021 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

May 2021 Issue

Another victim of market volatility and the ongoing impact of coronavirus (COVID-19), onshore independent oil and natural gas company Sundance Energy, along with its affiliates, has filed for voluntary Chapter 11 bankruptcy protection.

As part of the Chapter 11 process, Sundance has entered into a restructuring support agreement (RSA) that provides for a debt-for-equity exchange, eliminating over $250m of funded debt obligations – allowing it to focus on core competencies without the burden of servicing significant debt levels. In addition, Sundance has filed a customary motion seeking to implement equity trading procedures in an effort to preserve the value of its tax attributes.

Throughout the bankruptcy process, the company expects to operate as usual, with employees, vendors, royalty owners and other trade creditors being paid in full.

With the support of its lenders, implementation of the RSA will enable the company to quickly and efficiently recapitalise its balance sheet and reorganise as a private entity with no material impact on the majority of its creditors.

Furthermore, Sundance has secured commitments from certain of its term loan lenders for at least $45m in debtor-in-possession (DIP) financing that, along with normal operating cash flows and the consensual use of cash collateral, will fund normal-course operations and reorganisation expenses.

Upon emergence from Chapter 11, Sundance’s recapitalised balance sheet will include $137.5m of funded indebtedness, comprising a senior secured reserve-based revolving credit facility, a senior secured second out term loan, and, if necessary, a senior secured third out term loan. The company will also have new common equity interests issued in exchange for DIP financing claims and term loan claims.

Sundance, of course, is one of many oil & gas companies to have been hit by declining cashflows and liquidity in recent years. According to Haynes and Boone, 46 exploration and production companies and 61 oilfield service companies filed for Chapter 11 bankruptcy over the last year – the most since the 142 bankruptcies filed during the last major oil downturn in 2016.

“Sundance has faced numerous challenges in the last few years resulting in declining cash flow and liquidity that have only been exacerbated by the unprecedented COVID-19 pandemic and volatility in the market price of crude oil and natural gas,” said Eric McCrady, chief executive of Sundance. “As a result, we are taking decisive action to address these challenges and deleverage our balance sheet to best position our business for sustained future success.”

Founded in 2005, Sundance has an extensive track record of successfully acquiring, developing and operating unconventional assets. The company has 57 employees at its corporate headquarters in Denver, Colorado and a field office in Tilden, Texas.

Sundance is being represented during the Chapter 11 process by Latham & Watkins LLP, Hunton Andrews Kurth LLP, Miller Buckfire & Co., LLC and FTI Consulting Inc.

Mr McCrady concluded: “We are grateful for the support of our lenders throughout this process and anticipate that the consensus already achieved will simplify our path through Chapter 11 and enable us to emerge with a strengthened financial structure.”

Fraser Tennant