Endeavour International Corp Attempts to Dismiss Bankruptcy Case

On Sept. 14, Endeavour International Corp., an oil and gas exploration company, announced that it had submitted a bid to have its Chapter 11 bankruptcy case thrown out. According to Law 360, the move came as part of a “structured dismissal” under which Endeavour will transfer the bulk of its business assets to a group of senior bondholders in a debt-for-equity swap. The company’s unsecured creditors have criticized the new plan because they claim it is heavily slanted toward the top-ranking senior bondholders and overseas affiliates.

The original Chapter 11 bankruptcy plan

The company filed for Chapter 11 bankruptcy protection in October 2014 citing more than $1.2 billion in debt in court documents, according to a Dow Jones Bankruptcy News report. At the time, Endeavour’s liquidity was shrinking and its balance sheet was over-leveraged, so it worked with its creditors to develop a reorganization plan. The pre-negotiated agreement called for Endeavour to quickly pass through the bankruptcy process as it would eliminate the company’s $568 million debt load and free up more than $50 million in fresh capital. However, due to the collapse of crude oil prices from $90 per barrel at the time of the deal to $45, Endeavour decided to pursue selling off its assets in an auction.

The newly proposed plan

The new plan would call for Endeavour to give all of its U.K. assets, which account for the majority of its business, to its senior bondholders. Endeavour would trade majority shares in the company to these top-ranking debt holders in exchange for wiping out its liabilities. This new agreement was reached between the parties outside of the courtroom.

The structured dismissal is a tactic for Endeavour to end its lengthy stay in bankruptcy. However, the new deal has come under scrutiny by the company’s unsecured creditors because it would enable Endeavour to get the benefit of Chapter 11 bankruptcy protection to halt further lawsuits from creditors from a financing agreement reached prior to its bankruptcy filing. These creditors argue that the new deal would prevent them from recapturing any of their outstanding debts, which are claimed to be approximately $400 million, according to court documents. In turn, these unsecured creditors have filed a Chapter 7 bankruptcy case with the court against the company to appoint a trustee to oversee all of Endeavour’s remaining assets.

The newly proposed deal and the dismissal of the Chapter 11 bankruptcy case are contingent upon approval from the court.

Chapter 7 bankruptcy in Endeavour’s future

The attorneys for the unsecured creditors stated that these companies do not want to dismiss the case, but to push Endeavour into Chapter 7 bankruptcy protection. This would force Endeavour to liquidate its assets with the proceeds going to the unsecured creditors. Further, a trustee would be appointed to manage Endeavour’s assets and distribute them to all of the creditors in accordance with Bankruptcy Code priorities.

However, Endeavour’s senior bondholders who are listed in the newly proposed deal objected to that request. Attorneys for the senior creditors argued that after the debt-for-equity exchange, there will no assets remaining for a court-appointed trustee to oversee.

Endeavour has buyers lined up

As part of the newly proposed deal, Endeavour will not only give up control of its U.K. assets, but it has secured buyers for its remaining U.S. assets as well. Its oil and natural gas assets in Colorado will be sold to Augustus Energy Partners LLC for $7.85 million and its shale reserves in both the Marcellus region of Pennsylvania and the Haynesville region of Louisiana for $1.8 million to Energy Reserves Group LLC. Both sales are predicated upon court approval.

Significance of the case

Endeavour’s case was significant because it was the first major oil and gas company to file for Chapter 11 bankruptcy protection. After a massive debt accumulation and amid rapidly declining prospects, its bankruptcy period was prolonged too far. Several other energy companies have faced similar circumstances: Since October 2014, at least 19 energy companies have filed for Chapter 11 bankruptcy protection, including Quicksilver Resources, Sabine Oil & Gas and Hercules Offshore, Saratoga Resources, Dune Energy, American Eagle Energy, Cal Dive International and Boomerang Tube.

Are you a creditor in a bankruptcy?  Have you been sued by a bankrupt?  If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.