Managing Energy Sector Distress
Karl Fryzel
Partner
karl.fryzel@lockelord.com
Boston
T: (617) 517-5577
Omer F. “Rick” Kuebel III
Partner
rkuebel@lockelord.com
New Orleans
T: (504) 558-5155
Bill Swanstrom
Partner
bswanstrom@lockelord.com
Houston
T: (713) 226-1143
Jonathan W. Young
Partner
jonathan.young@lockelord.com
Boston | Chicago
T: (617) 239-0367 | (312) 201-2662
Matthew V.P. McTygue
Partner
matt.mctygue@lockelord.com
Boston
T: (617) 239-0494
July 23, 2015
Managing Energy Sector Distress Program
July 23, 2015
TABLE OF CONTENTS
 TAB A: Powerpoint
 TAB B: Speaking Attorney Biographies
 TAB C: Managing Energy Sector Distress brochure
 TAB D: Additional Materials:

Chapter 33: Addressing the Current Financial Crisis from an Oil & Gas
Perspective: From Planning Issues Through Insolvency

CAUTION TO THE UNWARY: THE FALLOUT TO THE DRILLING
INDUSTRY FROM THE ATP BANKRUPTCY

Bankruptcy M&A: Acquiring Assets Through the Bankruptcy Process
Managing Energy Sector Distress
July 23, 2015
Atlanta | Austin | Boston | Chicago | Dallas | Hartford | Hong Kong | Houston | Istanbul | London | Los Angeles | Miami | Morristown | New Orleans
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© 2015 Locke Lord LLP
Introduction


Bill Swanstrom
Houston Partner, Co-chair of the
Energy Practice Group
Matthew V. P. McTygue
Boston Partner, Office Managing
Partner
2
Managing Energy Sector Distress
Jonathan W. Young
Partner, Boston | Chicago
Locke Lord LLP
T: 617-239-0367 | 312-201-2662
jonathan.young@lockelord.com
Omer F. “Rick” Kuebel III
Partner, New Orleans
Locke Lord LLP
T: 504-558-5155
rkuebel@lockelord.com
Karl Fryzel
Partner, Boston
Locke Lord LLP
T: 617-517-5577
karl.fryzel@lockelord.com
July 23, 2015
Atlanta | Austin | Boston | Chicago | Dallas | Hartford | Hong Kong | Houston | Istanbul | London | Los Angeles | Miami | Morristown | New Orleans
New York | Orange County | Providence | Sacramento | San Francisco | Stamford | Tokyo | Washington DC | West Palm Beach
© 2015 Locke Lord LLP
MANAGING ENERGY SECTOR DISTRESS
OUTLINE OF PRESENTATION
A.
Lessons Learned from Past Cycles & Observations
on Early Trends from the Current Cycle
B.
Management of Bankruptcy Process and
Counterparty Financial Risk
C.
Distressed Acquisitions –Process and Pitfalls
D.
Fiduciary Duties in Bankruptcy
E.
Key Tax Considerations
F.
Discussion / Q&A
4
1 Year Crude Oil Prices
(June 1, 2014 – June 1, 2015)
5
40 Years Crude Oil Prices (inflation adjusted)
6
“The Past is Prologue”
Lessons Learned / Early Trends by Sector
1. Upstream –ATP, new multiple filings, hot topics
2. Services –Rate Reduction Pressure, new
filings, hot topics
3. Midstream / Trading –Semcrude, Lehman,
covenants vs. contracts, and LNG
4. Downstream –Spinoffs, low margins / Lyondell
and collateral coverage defaults –Flying J
7
“Bankruptcy is Not a Spectator Sport”
Bankruptcy Process Management
1.
2.
Automatic Stay, Exceptions, and the “Twilight Zone”
First Day Motions / Orders - Shape Case on a Rocket Docket




3.
File Proof of Claim


4.
5.
DIP Financing / Cash Collateral Orders Impair 3rd Party Rights
Critical Vendor Status
Budget
503(b)(9) - Reclamation and Other Rights
BAR DATE / File Early
Evaluate Administrative Claim Stats
Plan Treatment, Confirmation & Distribution
Preference, Fraudulent Transfer, D&O Litigation &
Other “Chapter 5” Litigation
8
Catching the “Falling Knives”
Distressed Acquisitions
1.
Very Few “Stand Alone” Reorganizations

2.
Most of the “early” cases in this cycle are “Debt to Equity
Conversion” Plans or Liquidations.
“Plan” Acquisitions –Conversion of Debt to Equity





Balance Sheet Recapitalization through Plan
Pre-Petition Creditor (or Creditor Class) Converts to New Equity
Secured Debt –Assumed, Restructured, Replaced, Retired
Pay Administrative / Priority Claims
Special Treatment




Trade Debt
Contract Assumption
NOLs
Future Capital Needs
9
Pre-Petition Balance Sheet
Post Confirmation Balance Sheet
Assets:
$250,000,000
$250,000,000
Liabilities:
- Secured
- Bond
- Trade
- Other
- Tax
Total Liabilities
NEW WORTH
$60,000,000
$150,000,000
$25,000,000
$20,000,000
$10,000,000
$265,000,000
($15,000,000)
$50,000,000
$25,000,000
$20,000,000*
$10,000,000*
$105,000,000
$145,000,000
*Payment of secured, priority, and trade debt may be “financed” through plan process
10
Distressed Acquisitions (continued)
3.
Bankruptcy Sales: Liquidations (of Collateral)


Big Gap on “bid” vs. “ask” early in this cycle
Sale Motion / Order







Bid Procedures
Form APA –Asset Lists
“Stalking Horse” Protections
Bid Qualifications
Timing –Bids / Auction
Sale Order / Plan Requirement (Braniff concerns)
“Ugly” fights over process and sale proceeds
11
“Why Swim with the Sharks”
Distressed Acquisitions –Outside Bankruptcy
1.
Bankruptcy Process Risks include:



2.
3.
Bankruptcy Process Reward –free & clear assets
Roadblocks and Pitfalls

Secured Lenders and Release of Security Rights
Inchoate Liens
Undisclosed Liabilities
Contract Transfers

Litigation Risks –Successor Liability & Fraudulent Transfers



4.
High Cost of Administration
Timing Considerations
Uncertainty in Bidding Process
Debt Extension/Forbearance & Liquidity Solutions
12
Fiduciary Duties in Bankruptcy
Jonathan W. Young
Partner, Boston | Chicago
Locke Lord LLP
T: 617-239-0367 | 312-201-2662
jonathan.young@lockelord.com
July 23, 2015
Atlanta | Austin | Boston | Chicago | Dallas | Hartford | Hong Kong | Houston | Istanbul | London | Los Angeles | Miami | Morristown | New Orleans
New York | Orange County | Providence | Sacramento | San Francisco | Stamford | Tokyo | Washington DC | West Palm Beach
© 2015 Locke Lord LLP
I. Lay of the Land in Delaware



Directors’fiduciary duties flow to the corporation and the
corporation’s shareholders. When corporation is insolvent,
creditors can also sue, but they can only sue directors
indirectly on behalf of corporation. Creditors do not have a
direct cause of action.
Duty of Care: Directors must inform themselves of material
and relevant information that is reasonably available to them
and act with “requisite care” before making a business
decision. They must scrutinize such information with a
“critical eye.”
Duty of Loyalty: Directors must put the interests of the
corporation and its stockholders ahead of the director’s own
personal interests which are not shared generally by the
stockholders. Includes Duty of Good Faith.
14
I. Lay of the Land in Delaware

Compliance with duties of care and loyalty determines applicability of
“Business Judgment Rule” (“BJR” )

Compliance → directors protected by BJR: deferential standard of
review in which Delaware courts generally refrain from
unreasonably imposing themselves upon the business and affairs
of a corporation. Court simply looks to see if decision was rational
in the sense of being one logical approach to advancing
corporation’s objectives.

Non-Compliance → “Entire Fairness” review: when BJR rebutted;
challenged transaction is reviewed not under BJR standard, but
under “entire fairness.” Directors must establish to the court’s
satisfaction that transaction was the product of both (i) fair dealing
and (ii) fair price.

Entire Fairness subjects directors to much greater level of scrutiny.

How it can be triggered.

Strategies to avoid entire fairness review.
15
II. Delaware Update: The Vertin Decisions



Two recent opinions from the Delaware Chancery Court (not
the Delaware Supreme Court) in the Vertin cases illuminate
these issues. The players:
Athilon Capital Corp. → Offered credit derivative products.
Guidelines restricted investments to short-term, low risk
securities. Insolvent in wake of 2008 financial crises.
EBF & Associates → purchased Athilon’s equity and various
classes of debt, including junior subordinate notes. Replaced
four of five directors. Three directors were former or current
EBF employees. Obtained permission to amend guidelines to
pursue riskier investments. Board pursued high-risk strategy.
16
II. Delaware Update: The Vertin Decisions

Quadrant Structured Products Company: acquired senior
subordinated and subordinate notes from Athilon after EBF
takeover; sued directors and EBF, alleging breach of duty of
loyalty for:
 failing to defer interest payments made to EBF on
underwater junior subordinated notes
 causing Athilon to pay excessive service fees and license
fees to an EBF affiliate
 adopting a high-risk investment strategy that benefited
EBF, instead of winding up business and returning value
to more senior creditors.
17
III. Vertin I: 102 A.3d 155

Defendants’motion to dismiss. Granted in part in denied in part.

Holding: Plaintiffs stated claim for counts related to failing to defer interest
payments and payment of excessive fees stated claims for breach of fiduciary
duty.


“Entire Fairness,” not “Business Judgment,” applied: Allegation that Athilon
insolvent. EBF on both sides of transactions that transferred value to
shareholder EBF at the expense of the corporation and its residual
claimants.

Going forward, defendants have burden to prove “entire fairness” of
transaction.
Holding: Count relating to adopting high-risk strategy did not state claim for
breach of fiduciary duties.

Delaware law does not require directors to shut down corporation’s
business when business is insolvent → task is to continue the attempt to
maximize the economic value of the firm.

Protection of Business Judgment Rule applies. Plaintiffs did not rebut by
alleging “dual fiduciary” role of directors, because riskier strategy for
enterprise did not create a conflict under Delaware law. Claims dismissed.
18
III. Vertin I: 102 A.3d 155

Takeaways:
 Directors of insolvent corporations are not required to
liquidate in order to protect creditors. Directors can
continue to try to maximize value of enterprise, even if
strategy is risky. If strategy is rational, BJR protection will
remain intact.
 But, if corporation insolvent, directors at great risk if they
transfer value to controlling shareholder or affiliate. Seek
professional advice before doing so.
19
IV. Vertin II



Same set of facts and actors, but only considering the counts
that survived Vertin I –i.e., the counts related to breach of
loyalty for making junior subordinated interest payments, and
for paying excessive fees to professionals controlled by EBF.
Procedural disposition: Defendants’motion for summary
judgment.
Defendants’argument: Plaintiff does not have standing to sue
derivatively because corporation is no longer insolvent.
Plaintiff must also show that corporation had no reasonable
prospect of returning to insolvency –i.e., that the corporation
was “irretrievably insolvent.”
20
IV. Vertin II

Holding: In Delaware, it is true creditors are vested with derivative
standing only when the corporation is insolvent. But the timeframe
for evaluating insolvency for standing purposes is at the moment
when the derivative suit is filed.

Creditors do not have an ongoing obligation to show that corporation
was insolvent, or irretrievably insolvent, during the entire course of
the litigation.

Balance-Sheet Insolvency: “Corporation is insolvent under the test
when it ‘has liabilities in excess of a reasonable market value of
assets held.’”

Not a “bright-line rule based on GAAP figures”

It “takes into account the realities of the business world in which
corporations incur significant debt in order to seize business
opportunities.”
21
IV. Vertin II

Takeaways: In addition to the above, the opinion offered a
refresher course on the state of Delaware fiduciary duty law:
 There is no legally-recognized “zone of insolvency” that
implicates fiduciary duty claims. Only insolvency itself
affects whether creditors have standing.
 Creditors never have direct standing to sue directors.
When corporation is insolvent, creditors only have indirect
standing –i.e., they may sue on behalf of the corporation.
 Delaware law does not recognized “deepening insolvency”
cause of action. Directors cannot be held liable for
continuing to operate an insolvent corporation if they in
good faith believe that the corporation will reach
profitability.
22
V. Fiduciary Duties in the Context of Energy Industry Distress

Dynegy

Produced and sold electric energy, capacity and ancillary services

On the eve of a 2011 bankruptcy filing, engaged in a complicated series of affiliate spinoffs
and asset restructuring

Independent examiner appointed who concludes that there is strong likelihood that the
transactions were fraudulent transfers and that breach of fiduciary claims could be asserted
against the directors of various affiliates

Dynegy objects arguing that the debtor and its affiliates were solvent

Parties settle dispute and agree to new cash distribution scheme




Reports further that parent stripped an operating unit of its value for the benefit of shareholders
Additional arguments made that the transfers were for fair value
Parent files for bankruptcy as part of settlement and returns assets to creditors
Takeaway

Directors and parent companies are potentially liable for breaches of fiduciary duties and
intercompany transfers, respectively.


Though the Dynegy parties settled, the independent examiner demonstrated that there
were an abundance of credible legal arguments to support litigation of the dispute.
Even if Delaware does not recognize creditor standing within the “zone of insolvency,”
actions by directors and controlling affiliates are certainly scrutinized more closely as the
company approaches insolvency.”
23
V. Fiduciary Duties in Energy Industry

Enron

An older decision (September 2003) that still may have relevance in the
current cycle. Texas bankruptcy judge permits breach of fiduciary claims to
withstand motions to dismiss by Ken Lay and Northern Trust



Issue is who is a fiduciary for purposes of ERISA and what duties are
owed by ERISA plan fiduciaries and trustees when a company
experiences financial distress and the threat of a decline in share price
Standard of care

“Two Hat” Doctrine – a fiduciary may wear many hats but only one at a
time, when making decisions relating to an ERISA plan the fiduciary
must act only in such a way that places the financial interests of plan
participants and beneficiaries first and foremost

Expanding Duty to Disclose

Must satisfy the prudent man standard and diversify investments
Takeaway

Duty is to plan participants regardless of the status of the company.
24
V. Fiduciary Duties in Energy Industry

Edison Mission

California-based energy development firm and holding company

Filed chapter 11 in N.D. IL in 2012

The creditor's committee objects to significant transfers made to Edison’s parent
company, Edison International, in the months before the bankruptcy case

US Trustee also objects to compensation and bonus scheme for managers and other
key employees

Edison appoints independent directors who were experienced restructuring
professionals to investigate transfers and the compensation issues

Bankruptcy judge approves compensation scheme over objection of the US Trustee


Argue that the parent exercised “abusive domination and control” over Edison
Takeaway

The use of an independent special committee to make and execute
restructuring plans can increase the likelihood that courts would uphold the
actions taken

Private equity sponsors must be cautious to observe corporate formalities, and
to authorize through appropriate corporate action all actions taken to address
restructuring and insolvency issues
25
VI. Impact on Private Equity Sponsors



In the context of financial distress of insolvency, disappointed
bondholders and trade creditors have shown an increasing
willingness to target equity sponsors in an attempt to augment
their recoveries.
We have seen instances in which private equity funds / equity
sponsors have been held liable for liabilities of portfolio company:
ERISA
 Seminal case in this space: Sun Capital Partners III LP et al.
v. New England Teamsters & Trucking Indus. Pension Fund,
(1st Cir. July 24, 2013)
 Holding: Private equity sponsor held jointly and severally
liable for pension fund withdrawal liability under ERISA.
26
VI. Impact on Private Equity Sponsors

WARN Act

Many cases:

D’Amico v. Tweeter Opco, LLC (In re Tweeter Opco, LLC), 453 B.R.
534 (Bankr. D. Del. 2011)

Holding: holding asset management company liable for WARN Act
violations of portfolio company.

In re Jevic Holding Corp., 492 B.R. 416 (Bankr. D. Del. 2013)

Holding: Private equity sponsor not liable for its portfolio company’s
alleged violations of the WARN Act

“Single Employer” Test: US Department of Labor (DOL) regulations
have set out five factors to be considered when evaluating the “single
employer” doctrine with respect to WARN Act liability: (i) common
ownership; (ii) common directors and/or officers; (iii) de facto exercise
of control; (iv) unity of personnel policies emanating from a common
source; and (v) dependency of operations.
27
VII. Recent Cases Raising These Issues

Caesars

Debtor agreed to appointment of independent examiner to investigate
restructuring and intercompany transfers

Debtor has moved the court to grant a stay protecting the nondebtor
parent from suits by creditors



Argue that such suits would bankruptcy the parent and jeopardize
the parent’s pledged contribution
Various creditors and noteholders object to the extraordinary relief

Argue de facto discharge from any liability

Argue no effect on the bankruptcy case and the notes are
receiving too little of a distribution
The court is set to rule on the request on July 22

Possible Takeaway - May have far reaching implications on
the ability of noteholders and other non first position
creditors to attack parent companies/equity sponsors.
28
VII. Recent Cases Raising These Issues

Colt

Debtors proposed 363 sale to equity sponsors and file DIP Motion

Ad hoc group of notes objects claiming that the equity sponsors have control of
debtor, certain board members of the debtor were not independent


Debtors, lenders and creditors committee negotiate a consensual Final DIP
Order


Parties claims that the agreement is more equitable
BUT equity sponsor drops out as stalking horse bidder


Allege sale won’t receive maximum value and that debtors are hostile to
any bidder other than the equity sponsor
Tells the court that the objecting noteholders now have too much control in
the bankruptcy cases and an absolute veto right with respect to the plan
process
Key Consideration - What level of direction or control triggers the higher
level of scrutiny resulting in potential liability as the Debtor moves from
financial distress to insolvency?
29
VII. Recent Cases Raising These Issues

Energy Futures (Aurelius civil suit in N.D. Tex. 13-cv-1173)

Holding - The court dismissed a derivative suit brought by bondholders of an
insolvent Texas company against corporate directors accused of causing the
company to squander $725 million by making allegedly sweetheart, low-interest
loans to a related company largely owned by, and under the management of,
the same directors.


The court threw out the lawsuit without even considering the merits of the
case because it found that the creditors of a still-operating Texas
corporation can never sue for breach of fiduciary duty. According to the
court, “[r]eview of Texas law indicates that creditors have never been given
the right to sue for breach of fiduciary duty” until after the company has
ceased operations.
Takeaway - A corporate debtor’s state of incorporation matters. Many states
do not share Delaware’s relatively liberal attitude toward creditor suits for breach
of directors’fiduciary duties (must be derivative suits and when debtor insolvent
per Gheewhala and the Vertin cases). Some states will not permit them under
any circumstance. Others, like Texas, impose such tight restrictions on creditor
suits as to render them of limited utility.
30
VIII. Energy Companies Reacting to
Recent Variability in Oil/Energy Prices

Energy XXI Ltd.

Operates primarily in the Gulf of Mexico

Heavily leveraged itself with debt in 2014 in order to complete an acquisition

Weighing possible changes to capital structure but awaiting the outcome of certain
asset sales

Some affiliates are in danger of violating covenants on their revolving credit facilities
which outline a total leverage ratio maximum


May refinance notes related to this transaction
Swift Energy Company

Attempting to maintain liquidity by reducing capital budget in response to lower
commodity prices

Revised budget reflects 70% to 75% decrease in spending as compared with 2014
spending

Royal Dutch Shell, BP and ConocoPhillips are all reducing budgets

Other responses include entering into joint ventures and selling noncore assets
31
Key Tax Considerations
Karl Fryzel
Partner, Boston
Locke Lord LLP
T: 617-517-5577
karl.fryzel@lockelord.com
July 23, 2015
Atlanta | Austin | Boston | Chicago | Dallas | Hartford | Hong Kong | Houston | Istanbul | London | Los Angeles | Miami | Morristown | New Orleans
New York | Orange County | Providence | Sacramento | San Francisco | Stamford | Tokyo | Washington DC | West Palm Beach
© 2015 Locke Lord LLP
Tax Considerations

Cancellation of Debt Income

Tax Issues in Acquiring Distressed Debt

Net Operating Loss Limitations

Equity or Phantom Equity Incentive Interests
33
Cancellation of Debt Income


If a creditor forgives all or part of a debt, the
debtor generally recognizes COD income
Key exceptions to COD Income:




Discharge occurs in bankruptcy
Discharge occurs while taxpayer is insolvent
Certain debt for equity exchanges
Exclusions because of bankruptcy or insolvency
will reduce the tax attributes, e.g., NOLs, of the
taxpayer
34
Cancellation of Debt Income:
Corporations vs. Partnerships

Bankruptcy or Insolvency Exception:


A corporate debtor has no COD income if the
corporation is in bankruptcy or insolvent
For partnerships, bankruptcy and insolvency
exceptions apply at the partner level


Each partner recognizes its allocable portion of
the COD income
Only if the partner is in bankruptcy or insolvent
will the exclusion apply
35
Cancellation of Debt Income:
Corporations vs. Partnerships

Debt for Equity Exchange (Corporate Debtor):

If a shareholder contributes corporation’s own debt,
debtor is treated as having satisfied debt with an
amount of money equal to the shareholder’s
adjusted basis in the debt


Shareholder-creditor does not recognize gain or loss
and increases basis in stock by their basis in debt
If a debtor corporation issues stock to a creditor in
satisfaction of its debt, debtor is treated as having
satisfied debt with an amount of money equal to the
stock’s FMV

In some situations, creditor may recognize gain or
loss on the exchange
36
Cancellation of Debt Income:
Corporations vs. Partnerships

Debt for Equity Exchange (Partnership Debtor):

Debtor partnership is treated as having satisfied
debt with an amount of money equal to the FMV
of the partnership interest

Non-recognition transaction for creditor; deferral
of any loss
37
Cancellation of Debt Income:
Corporations vs. Partnerships (Example)





Owner owns 100% of Company
Company has Note payable to
Owner of $1,000 and Owner has
$1,000 basis in Note
Owner contributes Note to
Company and receives equity
worth $300, the total FMV of
Company
If Company is a corporation, there
is no COD income
If Company is a partnership, COD
income recognized of $700 with no
bad debt deduction
Owner
Note
payable
of $1,000
100%
Management
Entity
1%
99%
Company
38
Tax Issues in Acquiring Distressed Debt

In certain cases, acquirer may be required to
recognize taxable income with no cash (or
insufficient cash) to pay tax (i.e., phantom
income)



Original Issue Discount (OID) and Market
Discount rules
Loan Modification
Foreclosures
39
Tax Issues in Acquiring Distressed Debt:
Original Issue Discount vs. Market Discount

OID rules apply where Note is issued with a
stated interest rate less than the applicable
federal rate (AFR) or PIK interest

OID rules require lender to recognize interest
income over the term of the Note

Purchaser of Note steps into seller’s shoes
40
Tax Issues in Acquiring Distressed Debt:
Original Issue Discount vs. Market Discount



Market discount applies to purchase of existing
debt
The excess of face amount of Note over the
purchaser’s basis in the Note is treated interest
equivalent
Discount accrues on a straight line basis over
remaining life of Note unless taxpayer elects
constant yield accrual


Allows taxpayer to defer more of the market discount
recognition
Unlike OID, market discount is taken into income as
payments are made
41
Tax Issues in Acquiring Distressed Debt:
Loan Modification



“Significant modification” of debt after
acquisition could trigger exchange treatment
If basis is less than the face amount of the
Note, income recognition required
What is a “significant modification?”


Treasury Regulations contain a number of
bright-line tests and safe harbors
Analysis requires all modifications to be viewed
in the aggregate
42
Tax Issues in Acquiring Distressed Debt:
Foreclosures –Creditor’s Consequences

Gain or loss recognized on difference between
FMV of property and basis in Note

Not uncommon to pay less for Note than FMV
of collateral to compensate for foreclosure risks
(e.g., bankruptcy, legal costs, etc.)

Gain on foreclosure sale can often be ordinary
income
43
Tax Issues in Acquiring Distressed Debt:
Foreclosures –Debtor’s Consequences

Foreclosure on property is considered
exchange to the extent of FMV of property

Gain or loss recognized on difference between
FMV of property and basis in assets

If FMV of property is less than the amount of
the debt, and if the deficiency is forgiven, the
debtor recognizes COD income equal to the
deficiency (subject to possible exceptions)
44
Net Operating Loss Limitations:
Corporations Outside of Bankruptcy

Following an “ownership change” , corporation’s use
of pre-change NOLs are limited



Ownership change occurs if one or more
shareholders who own at least 5% before or after a
transfer increase their ownership by more than 50
percentage points
Annual NOLs limited to value of the corporation preownership change times the “long-term tax-exempt
rate” (2.74% as of July, 2015)
If corporation does not continue operations for at
least two years post-change, none of the NOLs can
be utilized post-change (retroactive to first postchange tax year)
45
Net Operating Loss Limitations:
Corporations In Bankruptcy

NOL limitations are relaxed for corporations reorganizing under
Title 11




Shareholders and creditors of corporation prior to the change in
ownership must own stock after the change possessing at least 50%
of the voting power and economic value of the corporation
Creditors must generally have held debt at least 18 months prior to
bankruptcy filing or debt must have arisen out of ordinary course of
business of the debtor
NOL carryforward does not include any interest paid or accrued in the
3 taxable years prior to and the taxable year in which the
reorganization occurs
A second ownership change within 2 years following reorganization
will cause the corporation to lose ability to utilize any NOLs postchange (retroactive to first post-change tax year)
46
Net Operating Loss Limitations
Shareholders
100%
Creditors
$3,000,000
Corporation
FMV = $1,000,000
NOLs = $5,000,000




Assume Creditors convert debt to equity representing 75% of
the stock of Corporation
Ownership change occurs
Annual NOLs limited to $27,400 per year
If Corporation is in bankruptcy, no annual NOL limitation is
applicable
47
Equity or Phantom Equity
Incentive Interests



Incentive interest holders may hold equity or
phantom equity that is so far underwater they
lose motivation
In many cases, new classes of incentive
interests can be created that have thresholds
based off of the distressed value
Must be careful in structuring new equity or
phantom equity to ensure that immediate
taxable income (and possible penalties) will not
be recognized by management
48
Q&A
Karl Fryzel
Partner, Boston
T: 617-517-5577
karl.fryzel@lockelord.com
Rick Kuebel
Partner, New Orleans
T: 504-558-5155
rkuebel@lockelord.com
Matthew V. P. McTygue
Partner, Boston
T: 617-239-0494
matt.mctygue@lockelord.com
Bill Swanstrom
Partner, Houston
T: 713-226-1143
bswanstrom@lockelord.com
Jonathan W. Young
Partner, Boston | Chicago
T: 617-239-0367 | 312-201-2662
jonathan.young@lockelord.com
Attorney Advertising.
Locke Lord LLP disclaims all liability whatsoever in relation to any materials or information provided. This presentation is provided solely for educational and informational purposes.
It is not intended to constitute legal advice or to create an attorney-client relationship. If you wish to secure legal advice specific to your enterprise and circumstances in connection
with any of the topics addressed we encourage you to engage counsel of your choice.
© 2015 Locke Lord LLP
49
Karl P. Fryzel
Karl P. Fryzel
Partner
Karl Fryzel is Co-Chair of the Firm's Tax Department and a member of
the Private Equity & Venture Capital Group. His practice includes all
aspects of tax planning for corporations, partnerships, limited liability
companies and individuals engaged in business and investment
activities. Karl has been listed as both a Massachusetts "Super Lawyer"
since 2004, and a New England Super Lawyer since 2007 in the area of
Tax Law by Thomson Reuters and Boston Magazine. He has also been listed
among The Best Lawyers in America in the area of Tax Law since 2007 and
Litigation and Controversy - Tax since 2012.
Karl handles the tax aspects of venture capital and private equity
financings, corporate and partnership restructurings, mergers and
acquisitions, general advice in acquiring, holding and disposing of real
estate, the formation of investment funds, executive compensation and
preparation of tax disclosure materials in private and public offerings of
partnership and corporate securities, including investment partnerships
and real estate investment trusts.
He has particular experience in advising tax-exempt organizations; in
structuring leasing transactions; international tax planning of inbound and
outbound corporate and real estate transactions and offshore investment
funds; tax planning of debt restructurings for creditors and debtors; tax
disputes in administrative and judicial proceedings; and representation of
institutional investors and developers of low-income housing credit
projects.
After law school, Karl was an attorney-advisor in the IRS Office of Chief
Counsel in Washington, D.C. where he drafted international tax
regulations and legislation. He also served as an attorney-advisor in the
Appellate Section of the Tax Division, U.S. Department of Justice, where
he briefed and argued over 50 cases in the U.S. Courts of Appeal and the
U.S. Supreme Court. Following his years of government service, Karl has
spent over 30 years in private practice in Boston.
Representative Experience
 Assisted numerous venture capital, private equity and hedge funds in
organizing new funds and making investments in portfolio
companies.
 Guided numerous public and private companies through tax-free
acquisitions in the United States and in cross-border transactions.
111 Huntington Avenue
Boston, Massachusetts 02199-7613
Direct Dial: 617-517-5577
Direct Fax: 888-325-9020
karl.fryzel@lockelord.com
Practices
Private Equity and Venture Capital
International
Tax
Energy
Health Care
Nonprofits
Tax Controversy
Start-up Companies
Corporate
Technology, Media and
Telecommunications
Corporate & Partnership Tax
Affordable Housing & Community
Development
Industry Groups
Energy
Technology, Media and
Telecommunications
Education
J.D., Georgetown University Law
Center, 1976
A.B., summa cum laude, Boston
College, 1973
Phi Beta Kappa
London School of Economics and
Political Science
1971-1972
Bar Admissions
Massachusetts
Court Admissions
U.S. Tax Court
U.S. Court of Appeals for the First
Circuit
Selected Attorneys | 1 |
Karl P. Fryzel
 Advised several REIT’s and mutual funds concerning the tax aspects
of organization and operations.
 Structured sale-leasebacks and leveraged leases of real estate and
equipment in transactions valued at over one billion dollars.
 Assisted healthcare organizations and museums in forming joint
ventures with for-profit enterprises.
 Handled numerous IRS and Massachusetts tax audits through the
appeals and settlement process, and in court, including cases
involving national tax shelter audit teams.
Professional Affiliations and Awards
 Member, American Bar Association - Tax Section
 Member, Boston Bar Association - Tax Section
 Member, Boston Tax Forum
Publications & Presentations
 Co-Author, "Locke Lord QuickStudy: Tax Code Amendments








Proposed to Facilitate Foreign Investment in REITs and U.S.
Commercial Properties," Locke Lord LLP, May 15, 2015
Co-Author, "Locke Lord QuickStudy: Proposed Regulations Issued
on MLP Qualifying Income," Locke Lord LLP, May 7, 2015
Co-Author, "Locke Lord QuickStudy: New UK Rules on Disguised
Investment Management Fees," Locke Lord LLP, April 28, 2015
Co-Author, "Edwards Wildman Client Advisory: Supreme Court
Holds that Severance Payments Constitute Wages under FICA,"
March 27, 2014
Co-Author, "Edwards Wildman Client Advisory - First Circuit Holds
That Private Equity Fund is a Trade or Business Subject to Potential
ERISA Control Group Liabilities; Broader Tax Consequences
Possible," July 2013
Co-Author, "Edwards Wildman Client Advisory - The New York
Attorney General and Management Fee Waivers," September 2012
Co-Editor, "Advising a Massachusetts Business," Massachusetts
Continuing Legal Education, Inc., First Edition, No. 2120361B00,
September 2011
Co-Author, "Client Advisory - Additional Massachusetts Life Sciences
Tax Incentives Authorized by 2012 State Budget Bill," September
2011
Co-Author, "Client Advisory - IRS Releases Additional FATCA
Guidance," April 2011
Selected Attorneys | 2 |
Karl P. Fryzel
 Co-Author, "ACO Update: IRS Issues Guidance on the Participation






of Tax-Exempt Organizations in the Medicare Shared Savings
Program Through Accountable Care Organizations," April 7, 2011
Co-Author, "Client Advisory - IRS Announces New Voluntary
Disclosure Program for Offshore Bank Accounts," February 2011
Contributing Author, "The Case for LLCs for Venture Capital
Financings," Venture Capital Review, 2011
Speaker, "LLCs Demystified," presented by MCLE, Boston, March
16, 2009
Speaker, "New Proposed Tax Preparer Regulations and Enhanced
Circular 2340 Enforcement," presented by MCLE, Boston,
November 25, 2008
Co-Presenter, "Track B - Fund Investment Issues," 6th Annual
Private Equity Tax Practices 2007, Boston, June 19-21, 2007
Presenter, "Choice of Entity," Corporate Practice-MCLE BasicsPlus
Series, Boston, November 19, 2005
Selected Attorneys | 3 |
Omer F. "Rick" Kuebel, III
Omer F. "Rick" Kuebel, III
Partner
Rick Kuebel has extensive experience in oil, gas, and energy related
bankruptcies and corporate restructuring solutions. Rick has represented
numerous energy companies in business litigation or arbitration matters
and regulatory disputes involving oil and gas exploration, development,
transportation, refining and marketing.
Rick has acted as counsel in numerous commercial and regulatory
disputes arising from offshore exploration prospects including Macondo,
Atlantis, Thunder Horse, Petronius, Who Dat, Mad Dog, West Delta and
the Cook Inlet.
Additionally, he provides counseling for real and mineral property
transactions, including acquisitions, development, finance, joint
operations, and divestitures and represents creditors in commercial
collection litigation, property litigation, enforcement of security rights,
and bankruptcy litigation.
He has represented a number of major energy companies in energy or
energy-related industry restructurings and bankruptcies, including
Lyondell Basell, SemCrude, Flying J, Enron (North America), Getty
Petroleum Marketing, EOTT, ATP, Panaco, Contour Energy, TDC
Energy, Watson Energy, TransTexas Oil and Gas, Forcenergy, WRT,
Alma and Equinox, Rand Energy, NARCO, AP Green, Farmland
Industries, PG&E, Babcock and Wilcox, Bethlehem Steel, and Friede
Goldman Halter. In addition, he has formed or represented unsecured
creditor committees in several reorganizations for companies such as
Evans Industries, the Fairgrounds, WRT Energy, Jitney Jungle,
Delchamps, Forcenergy, Friede Goldman Halter, Orion Refining, Lundy
Enterprises, Valentine Paper and WFA (West Feliciana Paper Mill).
601 Poydras Street
Suite 2660
New Orleans, Louisiana 70130
Direct Dial: 504-558-5155
Direct Fax: 504-558-5200
rkuebel@lockelord.com
Practices
Bankruptcy, Restructuring &
Insolvency
Energy
Energy Litigation
Energy/Environmental
Oil & Gas
Energy
Industry Groups
Energy
Education
J.D., Loyola University School of
Law, New Orleans, 1992
B.A., Economics, Tulane University,
1986
Bar Admissions
Louisiana, 1992
Court Admissions
Professional Affiliations and Awards
 Named to Louisiana Super Lawyers by Law & Politics magazine (2008




2015)
Advisory Board Member, Institute for Energy Law
Member, American Bankruptcy Institute
Member, Turnaround Management Association
Named, The Best Lawyers in America, Bankruptcy and Creditor-Debtor
Rights Law
Recognized for Bankruptcy/Restructuring in Chambers USA, America's
Leading Lawyers for Business (2010-2014)
U.S. District Court for the Southern
District of Texas
U.S. District Court for the Eastern
District of Louisiana
U.S. District Court for the Middle
District of Louisiana
U.S. District Court for the Western
District of Louisiana
U.S. Court of Appeals for the Fifth
Circuit
U.S. District Court for the Southern
District of New York (pro hac vice)
U.S. District Court for the District of
Delaware (pro hac vice)
Selected Attorneys | 4 |
Omer F. "Rick" Kuebel, III
 Named, Top Lawyer in New Orleans, Bankruptcy Section, New
Orleans Magazine (2009-2014)
Publications & Presentations
U.S. District Court for the Northern
District of Texas
U.S. District Court for the Southern
District of Mississippi (pro hac vice)
 Speaker, "Caution to the Unwary: The Fallout to the Drilling Industry





from the ATP Bankruptcy," 2014 IADC Contracts & Risk
Management Conference, October 15, 2014
Bankruptcy Faculty, "RMMLF Short Course on Federal Offshore Oil
& Gas Leasing and Development," January 24, 2013
Co-Author, "Locke Lord QuickStudy: Fifth Circuit Holds Payments
Under Electric Requirements Contract Exempt from Preference
Avoidance," August 21, 2012
Co-Author, "Locke Lord QuickStudy: Stern v. Marshall," June 27,
2011
Panelist, "Bankruptcy Issues for Today’s Litigators," Institute for
Energy Law 61st Annual Oil and Gas Law Conference, February 18,
2010
Author, "Decommissioning/Plugging and Abandonment Liabilities in
Bankruptcy: What Priority Should It Be Afforded?," January 18, 2006
Selected Attorneys | 5 |
Matthew V. P. McTygue
Matthew V. P. McTygue
Partner
Matt McTygue practices private equity and commercial finance law and is
the Office Managing Partner of the Firm’s Boston office. Matt has
extensive experience representing private equity and venture capital firms,
investors, commercial lenders and private companies in a broad range of
business and financing transactions, including leveraged buyouts, mergers
and acquisitions, private equity financings, senior, subordinated and
venture debt financings, restructurings and recapitalizations and general
corporate matters. Matt works with companies, investors and lenders in a
variety of industries, including Energy, Healthcare, Life Sciences and
Technology, Media and Telecommunications.
Matt serves on the Board of the Greater Boston Chamber of Commerce
and serves as Co-Chair of both the Diversity and Inclusion Section of the
Boston Bar Association and the Boston Bar Association High School
Summer Jobs Program, which places city public high school students in
legal office internships each summer. Matt is also a Fellow of the Boston
Bar Foundation and the Massachusetts Bar Foundation and has served on
the Massachusetts Bar Foundation Grant Advisory Committee. Matt has
served on the boards of directors and fundraising committees of local
non-profit organizations, including GLAD, Transition House and the
New England Shelter for Homeless Veterans.
Representative Experience
111 Huntington Avenue
Boston, Massachusetts 02199-7613
Direct Dial: 617-239-0494
Direct Fax: 617-227-4420
matt.mctygue@lockelord.com
Practices
Debt Finance
Energy
Private Equity and Venture Capital
Mergers and Acquisitions
Corporate
Technology, Media and
Telecommunications
Health Care
Oil & Gas
Life Sciences
Consumer Products, Retail and
Franchise
Industry Groups
 senior secured credit facilities for a molecular diagnostics laboratory
Energy
Technology, Media and
Telecommunications
Life Sciences
Consumer Products, Retail and
Franchise
 middle market revolving credit facility for a residential security alarm
Education
Notable Debt Finance Experience
Matt has represented senior and mezzanine lenders, public and private
companies and private equity sponsors in connection with:




company
royalty interest-based financings and other credit facilities and related
investments in life sciences companies for a lender
syndicated senior revolving credit and term loan facilities for a public
telecommunications company
multiple senior and mezzanine debt and equity financing transactions
for a lender to cloud computing & managed hosting services
companies
senior revolving and term loan facility transactions for a residential
and commercial security alarm business
J.D., Cornell Law School, 1996
Editor-in-Chief, Journal of Law and
Public Policy
B.A., cum laude, Denison University,
1992
Bar Admissions
Massachusetts, 1999
New Hampshire, 1996
Selected Attorneys | 6 |
Matthew V. P. McTygue
 royalty interest-based financing transactions for a life sciences and
biopharmaceuticals company
 senior and subordinated revolving and term financing of consumer
lending companies and collection agencies for a commercial lender
 restructuring of a manufacturing company’s credit facilities for a
commercial lender
 multiple leveraged buyout transactions involving senior and
mezzanine credit facilities across a broad range of industries,
including energy, healthcare, life sciences, manufacturing, oilfield
services and security alarm sales, installation and monitoring on behalf
of private equity funds and fundless sponsors
Notable Private Equity Experience
Matt has represented equity sponsors, investors and operating companies
in connection with leveraged buyouts, mergers, acquisitions and
recapitalizations, including:
 growth equity financing of a molecular diagnostics laboratory
 the acquisition of an oilfield services company specializing in chemical











treatment and technical services for oilfield applications
a buyout and of a leading supplier of liquid and gaseous oxygen and
nitrogen generators and water treatment systems for the military,
medical, and oil & gas markets
the sale of a technology research and consulting firm
the sale of a service provider to the industrial asset management
industry
the leveraged buyout of a company in the life settlements industry
the leveraged buyout of an industrial process instrumentation
company
the leveraged buyout of a microbiology company by a life sciences
tools company
the leveraged buyout of a leading publisher of business-to-business
magazines, tabloids, newsletters and online resources in the health
and safety, industrial hygiene, ergonomic, environmental, healthcare,
security, home technology and water & wastewater industries
the sale of a media and technology trade show business by an
independent technology research and consulting firm
the acquisition of a publisher of award-winning business-to-business
magazines and other publications for the automotive industry
the leveraged buyout of a variety of companies in the oilfield services
and supplies industry
the leveraged buyout of multiple security alarm monitoring businesses
Selected Attorneys | 7 |
Matthew V. P. McTygue
 venture debt financings and royalty interest financings for a variety of
companies in the technology and life sciences industries
 venture capital financings for a variety of New England businesses by
a community development fund
Community Involvement
Matt serves on the Board of the Greater Boston Chamber of Commerce
and serves as Co-Chair of both the Diversity and Inclusion Section of the
Boston Bar Association and the Boston Bar Association High School
Summer Jobs Program, which places city public high school students in
legal office internships each summer. Matt is also a Fellow of the Boston
Bar Foundation and the Massachusetts Bar Foundation and has served on
the Massachusetts Bar Foundation Grant Advisory Committee. Matt has
served on the boards of directors and fundraising committees of local
non-profit organizations, including GLAD, Transition House and the
New England Shelter for Homeless Veterans. Matt is a member of the
Firm’s advisory committee and the Boston office diversity and pro bono
committees, and previously served as the chair of the Boston office
diversity committee, the co-chair of the Firm’s technology committee and
a member of the hiring committee.
Professional Affiliations and Awards
 Member, American Bar Association
 Member, Massachusetts Bar Association
 Member, Boston Bar Association
 Member, New Hampshire Bar Association
 Member, Cornell Club of Boston
Publications & Presentations
 "Edwards Wildman Client Advisory - Benefits Corporations:
Entrepreneurship with a Conscience?," August 2012
Selected Attorneys | 8 |
Bill Swanstrom
Bill Swanstrom
Partner
Bill Swanstrom serves as co-chair of the Firm's Energy Practice
Group. Bill has over 25 years of experience working with energy
companies in their significant acquisition, divestiture, project development
and finance activities. He also has substantial experience in energy private
equity transactions, representing both investors and companies. He is a
regular speaker and writes on energy M&A and project development
issues. Bill is recognized in Chambers USA as "an incredibly talented
lawyer who is an excellent resource for clients."
Representative Experience
 Represented Cleco Corporation in its $4.7 billion acquisition by a









North American investor group.
Represented OFS Energy Fund in the sale of Vision Oil Tools to
BEA Logistics Services LLC, a wholly-owned subsidiary of B/E
Aerospace, Inc.
Represented The Energy & Minerals Group in its formation of a joint
venture to develop midstream infrastructure in the Utica Shale.
Represented Helix Energy Solutions Group in the $620 million sale of
its oil and gas subsidiary to Talos Energy.
Represented Martin Midstream Partners L.P. in its $275 million sale
of East Texas and Northwest Louisiana natural gas gathering and
processing assets to CenterPoint Energy.
Represented Eagle Rock Energy Partners, L.P. in its acquisition of
processing plants and a 2,500 mile gathering system from BP America
Production Company.
Represented Crestwood Midstream Partners LP in its $900 million
acquisition of Quicksilver Gas Services, a publicly-traded master
limited partnership, its $338 million acquisition of midstream assets
from Frontier Gas Services, LLC, and its $377 million acquisition of
midstream assets from Antero Resources.
Represented High Sierra Energy, LP in its merger with NGL Energy
Partners LP.
Represented The Energy & Minerals Group, a large energy private
equity fund, in a $700 million joint venture with MarkWest Energy
Partners to develop gathering and processing assets in the Marcellus
Shale and in its subsequent $2 billion sale of its interest to MarkWest
Energy.
Represented Veolia in its sale of its marine services division to
Brasbunker.
2800 JPMorgan Chase Tower
600 Travis
Houston, Texas 77002
Direct Dial: 713-226-1143
Direct Fax: 713-229-2518
bswanstrom@lockelord.com
Practices
Corporate
Energy
Alternative & Renewable Energy
Electric Power Industry
Energy Trading/Marketing
International Energy
LNG
Midstream/Pipeline
Refining/Petrochemical
Global Investment
Mergers and Acquisitions
Private Equity and Venture Capital
International
International Corporate &
Commercial Transactions
International Energy & Project
Finance
Energy
Industry Groups
Energy
Education
J.D., with high honors, The University
of Texas School of Law, 1988
Chancellors,
Order of the Coif,
Texas Law Review
B.A., summa cum laude, English and
Economics, Southern Methodist
University, 1984
Phi Beta Kappa
Bar Admissions
Texas, 1988
Selected Attorneys | 9 |
Bill Swanstrom
 Represented Zephyr Gas Services (a portfolio company of Dorado) in












its $185 million sale to Regency Energy Partners.
Representing major integrated energy company in its development of
one of the largest proposed wind farms in the world.
Represented NATCO in its $800 million stock-for-stock merger with
Cameron.
Acting as project counsel in representing the Rockies Express joint
venture in developing the largest gas pipeline built in the U.S. in the
last 25 years.
Represented a large domestic electricity generation company in a
series of power plant sales totaling approximately 1,500 MW in
generation.
Represented PSI in its acquisition of gas processing assets from
Williams.
Worked with Caledonia Gas Storage in its sale to Iberdrola.
Represented Parsons E&C (one of the largest U.S. engineering
companies in the energy business) in its $240 million sale to The
Worley Group, an Australian company in the same business. Have
continued to represent the combined company – WorleyParsons - in
a number of acquisitions both domestically and internationally.
Represented major energy company in its acquisition of 1,700 MW of
electricity generation assets in New York for purchase price in excess
of $1 billion.
Represented ONEOK in its $1.4 billion acquisition of Koch's NGL
assets.
Represented major international commodity company in its $150
million acquisition of TEPPCO's ownership interest in Mont Belvieu
Storage Partners, which owns significant NGL storage and
transportation assets.
Represented a major private equity fund in its acquisition and
subsequent sale of a Gulf Coast oilfield services company for over
$100 million.
Represented the largest independent gas storage company in the U.S.
in its recapitalization transaction with one of the world's largest
private equity funds.
Professional Affiliations and Awards
 Executive Committee, Greater Houston Energy Collaborative (part of
the Greater Houston Partnership)
 Co-Chair, Energy Policy Council, Greater Houston Partnership
 Recognized as one of the Top 5 M&A lawyers in Texas in Texas
Lawyer's 2012 Go-To Lawyer Guide
Selected Attorneys | 10 |
Bill Swanstrom
 Board of Directors, Institute for Energy Law
 Steering Committee, Houston Technology Center Energy Initiative
 Executive Committee, Global Energy Management Institute
 Board of Directors, Rice Alliance
 Member, University of Houston Energy Advisory Board
 Fellow, Texas Bar Foundation
 Member, Federal Energy Bar Association
 Member, Houston Bar Association
 Member, State Bar of Texas
 Recognized as One of the Top Mergers and Acquisitions Attorneys in
Texas by Chambers USA
 Recognized as Texas Super Lawyer by Texas Monthly Magazine
 Named, The Best Lawyers in America, Energy Law (2013-2015)
Publications & Presentations
 "Locke Lord's Bill Swanstrom Named to HBJ's '2014 Who’s Who in
Energy'," October 3, 2014
 Presenter, "Mexican Energy Reforms - Current Reforms Affecting









the Oil & Gas Industry," Locke Lord LLP CLE, September 23, 2014
"Energy Transactional Issues Focus of Law360 Q&A With Locke
Lord’s Bill Swanstrom," July 21, 2014
Speaker, "The Current Landscape for Master Limited Partnerships,"
Locke Lord LLP Energy Breakfast, September 17, 2013
Summit Chair, "Infocast 7th Annual Midstream Summit," February
26, 2013
Summit Chair, "Infocast Marcellus & Utica Infrastructure Summit,"
July 11-12, 2012
Moderator, "How to Overcome the Transportation Network
Bottlenecks of the Eagle Ford Shale," Eagle Ford Infrastructure
Finance & Development Summit, San Antonio, June 20-21, 2012
Moderator, "Eagle Ford, Permian, Avalon, Bone Springs and
Wolfcamp Session," 5th Annual Platts Midstream Development &
Management Conference, Houston, May 8-9, 2012
Moderator, "MLP Perspectives: New Developments, New
Opportunities," Infocast’s 6th Annual Midstream Summit, Houston,
February 1, 2012
Presenter, "Infrastructure REITs in the Energy Industry," Locke Lord
LLP CLE, January 12, 2012
Moderator, "Bakken Infrastructure Investment Opportunities for
Capital Providers," Infocast Bakken Infrastructure Finance &
Development Summit, Denver, October 24-26, 2011
Selected Attorneys | 11 |
Bill Swanstrom
 Presenter, "Infrastructure REITs in the Energy Industry," Locke Lord











LLP CLE, October 20, 2011
Moderator, "Private Equity and Investment Perspectives Regarding
Marcellus Infrastructure," Infocast Marcellus Infrastructure Finance
& Development Summit, Pittsburgh, October 3-5, 2011
Moderator, "Producer Requirements – What Midstream
Infrastructure is Needed and Where?," 4th Annual Platts Midstream
Development & Management Conference, Houston, May 12-13, 2011
Moderator, "Private Equity Perspectives on the Market," Infocast 5th
Annual Midstream Summit, Houston, March 1-3, 2011
Moderator, "M&A, JVs, and MLPs – Climate and Recent Activity,"
3rd Annual Platts Midstream Development & Management
Conference, Houston, May 20-21, 2010
Moderator, "Equity Investors’ Perspectives on Distressed Deals,"
Infocast Distressed Gas Asset Acquisition Symposium, Houston,
November 10, 2009
Moderator, "Wind Power—Regulatory, Infrastructure and Workforce
Issues," Texas/European Union Wind Energy Symposium, College
Station, Texas, October 27, 2009
Co-Author, "Private Equity Helps Projects Through Rough Patch,"
National Law Journal, October 26, 2009
Co-Author, "Client Alert: FERC Issues a Final Warning to Regulated
Transmission Companies Not in Compliance," October 28, 2008
Co-Author, "Client Alert: Energy Improvement and Extension Act of
2008," October 15, 2008
Moderator, "Private Equity’s Perspectives on Investment
Opportunities in Midstream Projects, including Pipelines, NGL,
Storage and LNG Terminals," Infocast Pipeline Renaissance Summit,
Houston, June 10-12, 2008
Presenter, "Texas Energy Policy: What Government Leaders Need to
Know," Locke Lord LLP CLE (Houston), February 21, 2008
Community Involvement
 Executive Committee and Board of Directors, Junior Achievement
 Board of Directors, Texas Business Hall of Fame
 Board of Directors, Society for the Performing Arts
Selected Attorneys | 12 |
Jonathan W. Young
Jonathan W. Young
Partner
Jonathan Young is a partner in the Bankruptcy, Restructuring and
Insolvency Department of Locke Lord, and a member of the Firm's
Executive Committee. He regularly advises investors, lenders, directors
and portfolio companies in connection with their rights and obligations
relative to financial distress, insolvency and bankruptcy situations. He also
advises trustees, receivers and other fiduciaries charged with reorganizing,
restructuring or liquidating financially distressed entities. Jonathan also
handles a wide range of complex commercial litigation matters—at both
the trial and appellate level—with a particular focus on insolvency,
bankruptcy and secured lending issues. While he has handled
engagements in a wide range of industries, he has particularly substantial
experience in advertising and media, technology and telecommunications,
audit and accounting and insurance. Jonathan has been included in the
Chambers USA listing of leading lawyers in the field of Restructuring and
Insolvency since 2013. In 2014 and 2015, he was also nominated to the
Illinois Super Lawyers list in the field of Restructuring and Insolvency.
Jonathan is AV rated by Martindale-Hubbell.
Jonathan’s current engagements include:
 Representing a major creditor and unsecured creditors committee







member in the Chapter 11 proceeding of NII Holdings, Inc.
Advising a media agency in connection with the Chapter 11
proceeding of THQ, Inc. and related litigation.
Advising and representing the Wisconsin-based receiver for Morgan
Drexen, Inc. in connection with the receivership and related litigation.
Representing the Litigation Trustee of the Comdisco Litigation Trust
in connection with post-confirmation litigation.
Representing a creditor and trading partner of the Debtor in the
Chapter 11 proceeding of RadioShack Corporation.
Defending a pending appeal in the United States Court of Appeals for
the First Circuit, considering the district court’s dismissal, on
jurisdictional grounds, of all claims asserted against the purchaser of a
Chapter 11 debtor’s assets
Advising a collateral agent in connection with the rights and remedies
triggered by a default under the credit facility for a
telecommunications company.
Advising a manufacturing company in connection with a potential
prepackaged Chapter 11 bankruptcy filing.
111 South Wacker Drive
Chicago, Illinois 60606
Direct Dial: 312-201-2662
Direct Fax: 855-595-1190
jonathan.young@lockelord.com
Practices
Bankruptcy, Restructuring &
Insolvency
Municipal Insolvency and Chapter 9
Bankruptcy
Consumer Products, Retail and
Franchise
Debt Finance
Banking & Finance
Private Equity and Venture Capital
Technology, Media and
Telecommunications
Industry Groups
Consumer Products, Retail and
Franchise
Technology, Media and
Telecommunications
Education
J.D., Northwestern University School
of Law, 1990
B.A., cum laude, Yale University,
1986
Bar Admissions
Illinois
Court Admissions
U.S. Supreme Court
Supreme Court of Illinois
U.S. Court of Appeals for the First
Circuit
U.S. Court of Appeals for the Second
Circuit
U.S. Court of Appeals for the Third
Circuit
Selected Attorneys | 13 |
Jonathan W. Young
Representative Experience
 Represented and defended six former directors and officers of
Tribune Company and its subsidiaries in connection with lawsuits
brought on behalf of Tribune’s bankruptcy estates in connection
with the 2007 leveraged buyout of the company. Claims asserted
include breach of fiduciary duty, fraudulent transfer and
avoidance of preferential transfers. In re Tribune Company et al.
(Bankr. D. Del.)(multi-district litigation pending in the Southern
District of New York).
 Represented and defended an equity holder of Chapter 11 Debtor
Greenwich Sentry, L.P. in connection with a lawsuit to recover
redemption payments made pursuant to the limited partnership
agreement. Claims asserted include unjust enrichment, mistaken
payment and constructive trust. Greenwich Sentry, L.P. v. Greer (D.
Del.)
 Defended a substantial servicer of bankruptcy claims in a putative
class action filed in the U.S. Bankruptcy Court for the Eastern
District of Wisconsin. The case addressed the level of due
diligence required in the secondary bankruptcy claims market
prior to filing or accepting an assignment of a proof of claim. The
case was ultimately settled on terms acceptable to all parties, with
no class certified. Knievel N. Porter et al. v. Resurgent Capital Services,
LLC. (E.D. Wis.)
 Represented one of the largest trade creditors in the Chapter 11
proceeding of General Motors Corporation. In re Motors
Liquidation Corporation. (Bankr. S.D.N.Y.)
U.S. Court of Appeals for the Sixth
Circuit
U.S. Court of Appeals for the
Seventh Circuit
U.S. Court of Appeals for the Eighth
Circuit
U.S. District Court for the Northern
District of Illinois
U.S. District Court for the Central
District of Illinois
U.S. District Court for the Northern
District of Indiana
U.S. District Court for the District of
Nebraska
U.S. District Court for the Eastern
District of Wisconsin
U.S. District Court for the Western
District of Wisconsin
Reported Decisions
 Continental Casualty Company v. SouthTrust Bank, N.A., 933 So.2d 337,




Ala. 2006
In re Pre-Press Graphics Co., Inc., 307 B.R. 65, N.D. Ill. 2004
Costello v. Haller, 2006 WL 1762131, N.D. Ill. 2006 (available on
Westlaw)
In re MEI Diversified, 106 F.3d 829, 8th Cir. 1997
People v. Goldsberry, 259 Ill. App. 3d 11, Ill. App. Ct. 1994
Professional Affiliations and Awards
 Named to Leading LawyersSM for Bankruptcy & Workout Law:
Commercial (2015)
 Member, American Bankruptcy Institute
 Treasurer, Member, Board of Directors, Chicago Committee on
Minorities in Large Law Firms
Selected Attorneys | 14 |
Jonathan W. Young
Publications & Presentations
 Panelist, "Privilege Issues in Bankruptcy: Do You Know Where the
Lines Are Drawn?," American Bar Association Roundtable, February
19, 2015
 Co-Author, "The Involuntary Witness," American Bankruptcy
Institute Journal, August 4, 2014
 Co-Author, "Redemption Song," The Deal, July 2, 2010
Selected Attorneys | 15 |
Managing Energy Sector Distress
BANKRUPTCY & RESTRUCTURING TEAM OFFERS LONG-TERM STRATEGIES
Locke Lord is one of the world’s preeminent energy law firms. Our extensive industry experience dates back to the opening of
the Firm’s Houston office in the early 1900s. As the industry evolved globally, Locke Lord has actively represented clients in all
aspects of the energy value chain.
Additionally, Locke Lord’s first-rate international team of bankruptcy, restructuring, insolvency and tax lawyers in offices around
the world provides experience and depth in virtually every aspect of energy bankruptcy matters. Our representations include oil
& gas companies, power plants, marine companies, drilling contractors and state senate committees. Our deep capabilities in
energy-related bankruptcies allow for extensive involvement in commercial collection litigation, property litigation, enforcement
of security rights, bankruptcy litigation, cancellation of indebtedness and related tax issues. Our team provides counseling for
distressed transactions, including distressed asset acquisitions and divestitures, joint operations, regulatory implications, tax
consequences and other financial and tax risks.
We are pleased to present our full spectrum of services to you. Our representations include:
• The Official Committee of Unsecured Creditors of WBH Energy, LP.
• Major secured creditors in Dune Energy.
• V
arious creditor interests in numerous oil and gas and energy related bankruptcies and reorganizations including counsel to
creditors or participation with Unsecured Creditors Committees in such matters as Buccanneer Energy, Dunhill Resources,
Panaco, TriUnion, Contour Energy, Kodiak, Cronus, Golden Oil, TDC Energy, Watson Energy, Babcock and Wilcox,
Forceenergy, WRT, BT Operating, Sun Drilling, Reichmann Oil and Gas, Heritage Standard, ATP Oil and Gas, Delta
Petroleum, Capco Inc., Lyondell Basell, SemCrude, Flying J, Enron (North America), Getty Petroleum Marketing, EOTT,
TransTexas Oil and Gas, Alma and Equinox, Rand Energy, NARCO, AP Green, Farmland Industries, PG&E, Bethlehem Steel,
Virgin Oil/Offshore and Friede Goldman Halter.
• T
he Official Committee of Unsecured Creditors of Friede Goldman Halter as special counsel related to all drilling
contract matters.
• C
ITGO Petroleum Corporation, the chairman of the Official Committee of Unsecured Creditors in the CIC Industries
bankruptcy.
• El Paso Electric Company in its Chapter 11 bankruptcy.
• Equity holders in Pacific Energy Chapter 11 bankruptcy.
• N
umerous power producers and swap contract counter-parties in connection with the Chapter 11 bankruptcy of Enron
Corporation and its affiliates.
• The Chairman of the Unsecured Creditors Committee in Pisces Energy Chapter 11 bankruptcy.
• Gazpromneft in the multi-billion dollar bankruptcy of the Yukos Oil Company and certain affiliates.
• Debtor in Possession in Krescent Energy Company.
• Debtor in Possession in Atoka Gas Gathering Company.
• A generator and major nuclear power plant participant in the Cajun Electric bankruptcy.
• The California State Senate Utility Committee in the California electricity crisis.
• Counsel for BP in formation of $20 billion dollar trust fund for Macondo claims.
GLOBAL REACH
OF LOCKE LORD
BANKRUPTCY & RESTRUCTURING TEAM
OFFERS LONG-TERM STRATEGIES
Atlanta
Austin
Boston
Chicago
Dallas
Hartford
• V
arious creditor interests in marine company bankruptcies and restructurings related to Superior
Offshore, Deep Marine, Torch, Inc., the Macondo Oil Spill Incident, GoodCrane Inc., MPF Inc. and
ODS International Inc.
• T
he Administrators of various UK subsidiaries of Enron in connection with cross-netting
agreements entered into pre-administration.
• M
ajor claimants for environmental losses in several schemes of arrangements for insolvent
London Insurance Market Companies.
• The successor litigation trustee in Coral Energy Chapter 11 bankruptcy.
Hong Kong
• Purchaser of assets in 363 sale in Osyka Chapter 11 bankruptcy.
Houston
• R
epresenting a major offshore drilling contractor with operations in the Gulf of Mexico in its
Chapter 11 case.
Istanbul
London
• C
ounseled and resolved a lawsuit brought by a Chapter 11 post-confirmation Litigation Trust
against a major energy company seeking over $1.3 billion as a purported fraudulent transfer.
Los Angeles
ABOUT THE FIRM
Miami
Locke Lord is a full-service, international law firm of 23 offices designed to meet clients’ needs
around the world. With a combined history of more than 125 years and a greatly enhanced domestic
and global footprint, Locke Lord is a worldwide leader in the middle market sector. Locke Lord
advises clients across a broad spectrum of industries while providing a wealth of experience through
its complex litigation, regulatory, intellectual property and transactional teams.
Morristown
New Orleans
New York
Orange County
KEY CONTACTS
Providence
Sacramento
San Francisco
Stamford
Tokyo
Philip Eisenberg
Partner
Houston
713-226-1304
peisenberg@lockelord.com
David Fischer
Partner
Chicago
312-201-2641
david.fischer@lockelord.com
Rick Kuebel
Partner
New Orleans
504-558-5155
rkeubel@lockelord.com
Bill Swanstrom
Partner
Houston
713-226-1143
bswanstrom@lockelord.com
David W. Wirt
Partner
Chicago
312-443-0256
dwirt@lockelord.com
Jonathan W. Young
Partner
Boston | Chicago
617-239-0367 | 312-201-2662
jonathan.young@lockelord.com
David Patton
Partner
Houston
713-226-1254
dpatton@lockelord.com
Washington DC
West Palm Beach
Practical Wisdom, Trusted Advice.
www.lockelord.com
Locke Lord LLP disclaims all liability whatsoever in relation to any materials or information provided. This brochure is provided solely for educational and
informational purposes. It is not intended to constitute legal advice or to create an attorney-client relationship. If you wish to secure legal advice specific
to your enterprise and circumstances in connection with any of the topics addressed, we encourage you to engage counsel of your choice. If you would
like to be removed from our mailing list, please contact us at either unsubscribe@lockelord.com or Locke Lord LLP, 111 South Wacker Drive, Chicago,
Illinois 60606, Attention: Marketing. If we are not so advised, you will continue to receive brochures. Attorney Advertising (072215).
© 2015 Locke Lord LLP
CAUTION TO THE UNWARY:
THE FALLOUT TO THE DRILLING INDUSTRY
FROM THE ATP BANKRUPTCY
Phil Eisenberg
Omer F. (Rick) Kuebel, III
October 15, 2014
INTRODUCTION
This presentation will include a discussion of:
a) how ATP arrived at the brink of bankruptcy;
b) the industry conditions that existed at the time;
c) the domino effect of the ATP Bankruptcy filing;
and
d) where industry will go from here
-2-
FINANCIAL RISKS
• No Payment or Delayed Payment for prepetition and post-petition services
• Loss or Impairment of Security Rights
a) Priming Liens
b) Loss of collateral and/or value on liens
c) Re-characterize ORRIs
-3-
FINANCIAL RISKS
• Litigation Expense/Exposure
a) Preference payments
b) Work or services provided
c) Inclusion in collateral litigation
• Critical Vendor Status
a) Service providers forced to work based on automatic
stay
-4-
BACKGROUND
• ATP acquired and developed properties with proven
undeveloped reserves in the Gulf of Mexico, North
Sea and Eastern Mediterranean Sea
• As of December 31, 2009, ATP had leasehold and
other interests in 62 offshore blocks and 104 wells of
which ATP was then operating a total of 93
• As of March 16, 2010, ATP owned an interest in 36
platforms, including two floating production facilities:
the ATP Innovator, located in the Gulf of Mexico at
ATP’s Gomez Hub, and the ATP Titan, also in the Gulf
of Mexico at ATP’s Telemark Hub
-5-
BACKGROUND
• On April 19, 2010, ATP raised $1.5 Billion
by selling unregistered private notes to
institutional investors
• The next day, April 20, 2010, the drilling
rig Deepwater Horizon exploded and sank
in the Gulf of Mexico fracturing the drill
pipe and creating the largest oil spill in
U.S. history
-6-
BACKGROUND
• In response, the U.S. Department of Interior
issued two moratoria that halted all drilling at
depths greater than 500 feet between May 6,
2010 and October 12, 2010 and then
instituted new rules and regulations
conditioned on additional testing, training and
compliance
• The moratoria and new rules effectively
halted all of ATP’s exploration and
development operations in the Gulf of Mexico
in 2010 and the six wells scheduled to be
drilled were postponed
-7-
BACKGROUND
• In addition to the timing delays from the moratoria, ATP
experienced operational difficulties when it began drilling
its wells and liquidity constraints from its ongoing capital
program, which included an offshore facility called the
“Octobuoy” destined for the North Sea and with regard to
its Clipper project
• In connection with the liquidity constraints, ATP granted
various Overriding Royalty and New Profits Interest on
its Gulf of Mexico projects. ATP offered to secure drilling
and other services through a grant of ORRIs
-8-
BACKGROUND
• On the face of its audited financials for the
quarterly period ending March of 2012, ATP
total assets scheduled at $3,638,399,000,
including $3,221,049,000 in net asset value
for oil and gas properties
• At the time, based on its net worth and
financial condition, ATP qualified with BOEM
as an exempt company with regard to
supplemental bonding requirements for
offshore decommissioning in the Gulf of
Mexico
-9-
BIG PICTURE FINANCIAL STRUCTURE
FOR ATP PRIOR TO BANKRUPTCY
• 1st lien debt ($366 million)
• 2nd lien noteholders ($1.5 billion)
• Various overriding royalty and net profits interests
(greater than $489 million)
• Exempt status from supplemental bonding for plugging
and abandonment (no supplemental bonds)
• Significant producing undeveloped reserves (both
approved producing and undeveloped @76 MMBOE in
the Gulf of Mexico and 42.9 MMBOE overseas)
-10-
ATP FILES FOR CHAPTER 11
BANKRUPTCY RELIEF
• In late summer 2012, ATP ran out of cash
before ATP could complete its Clipper project
and generate revenues necessary to remedy
its liquidity position and the first lienholders
would not advance additional funds without
additional protections to do so
• ATP filed for bankruptcy under Chapter 11 on
August 17, 2012
• As part of the bankruptcy filing, ATP obtained
what is known as Debtor-in-possession
financing, or what is colloquially called a DIP
loan
-11-
FINAL STRUCTURE AFTER
CHAPTER 11 FILING
• DIP Loan with rollup to finance ongoing
operations and Clipper project
• BOEM withdrawal of exempt status from
supplemental bonding
• Overriding Royalty and Net Profit Interests
asserting priority in payment
• Significant liens filed and insufficient cash to
fund all payments, including to Critical Vendors
-12-
THREE TO FOUR MONTHS INTO
BANKRUPTCY FOR ATP
• Time delay and significant cost overruns in
bringing Clipper project online
• Additional BOEM demands for supplemental
bonding including reassessment of exposure
for deepwater properties raising bonding needs
from $80 million to over $500 million
• Delayed sales process with insufficient interest
• Lawsuits filed by ATP to recharacterize ORRI
and Net Profits as financings that could be
rejected in bankruptcy instead of real rights
-13-
THE ONGOING BANKRUPTCY
PROCESS
• The DIP Lender was able to credit bid
and cherry picked viable ATP assets and
also kept a large deficiency claim
• BOEM allowed ATP to abandon its rights
to assets that were not being picked up
by the DIP Lender so plugging and
abandonment went to co-owners or
predecessors in title and ORRI and Net
Profit Interests on these properties were
wiped out
-14-
THE ONGOING BANKRUPTCY
PROCESS
• ATP converted from Chapter 11 reorganization
to Chapter 7 liquidation and presently has
limited funds
• Administrative Claimants are having increasing
difficulty being paid due to limited funds and
challenges to administrative status
• Lien claimants are being wiped out to the
extent not senior to first lien at time of DIP
financing
-15-
CONSIDERATIONS
• Focused financial and legal analysis
of counter parties
• Act like a bank in securing your rights
and verifying the priority of your
security
• Utilize bankruptcy protections such as
§ 365 executory contract assumption
and critical vendor status
-16-
Conclusion/Q&A
Phil Eisenberg (Houston)
peisenberg@lockelord.com
713-226-1304
Omer F. (Rick) Kuebel III (New Orleans)
rkuebel@lockelord.com
504-558-5155
Attorney Advertising.
Locke Lord LLP disclaims all liability whatsoever in relation to any materials or information provided. This
presentation is provided solely for educational and informational purposes. It is not intended to constitute
legal advice or to create an attorney-client relationship. If you wish to secure legal advice specific to your
enterprise and circumstances in connection with any of the topics addressed we encourage you to
engage counsel of your choice.
© 2014 Locke Lord LLP
-17-
Bankruptcy M&A: Acquiring Assets Through the
Bankruptcy Process
Courtney E. Barr
Aaron C. Smith
Contents
I. Introduction to Bankruptcy Chapters,
Terminology and Claim Types
A. Bankruptcy Chapters
B. Common Concepts and Terms
C. Absolute Priority Rule: Order of Payment of Claims
II. Acquiring Assets Out of Bankruptcy
A.
B.
C.
D.
E.
F.
Benefits of Acquiring Assets Out of Bankruptcy
Overview of Bankruptcy Sale Process
Submission of Bids & the Auction
Contract Assumption, Rejection, and Assumption and Assignment
Sale Hearing & Entry of the Sale Order
Post-Sale Hearing Issues
2
I. Introduction To Bankruptcy Chapters,
Terminology And Claim Types
A. Bankruptcy Chapters
1.
2.
Chapter 7 –Liquidation
Chapter 11 –Reorganization
B. Common Concepts and Terms
1.
2.
Automatic Stay
Cash Collateral Use
a)
b)
3.
Adequate Protection Requirement
Grant of Liens on Unencumbered Property to Protect Against Diminution in Value of Collateral
DIP Financing
a)
b)
c)
Grant of Administrative Claim Status
Lien on Unencumbered Assets
Junior Lien
3
I. Introduction To Bankruptcy Chapters,
Terminology And Claim Types
(cont.’d)
C. Absolute Priority Rule: Order of Payment of Claims
1.
No Claims in a Class are Paid Until Claims in Superior,
Higher Priority Classes are Paid in Full.
Classes of Claims
2.
•
•
•
•
•
Secured
Administrative
Priority Unsecured
General Unsecured
Equity
4
II. Acquiring Assets Out Of Bankruptcy
A. Benefits of Acquiring Assets Out of Bankruptcy
1.
2.
3.
4.
Ability to Coordinate with, and Bind, if Necessary, Various
Constituents
Transparency to the Process
Assets are Delivered to Buyer “Free & Clear” Pursuant to a
Federal Court Order
Ability of Buyer to “Cherry Pick” Favorable Executory
Contracts & Unexpired Leases
5
II. Acquiring Assets Out Of Bankruptcy
(cont’d.)
B. Overview of Bankruptcy Sale Process
1.
Auction is Typical, But a Bankruptcy Sale May Occur
Without an Auction
2. Auction Sales May Be Conducted With or Without a
Stalking Horse Purchaser
3. Timeline –Process Usually Requires a Minimum of 60 Days
a) Bid & Auction Procedures Approval
b) Due Diligence Period
c) Auction
d) Sale Hearing & Court Approval
6
II. Acquiring Assets Out Of Bankruptcy
(cont’d.)
5. Participating as a Stalking Horse vs. Non-Stalking
Horse at Auction
a) Stalking Horse has More Control Over the Sale Process
• Seat at the Table From the Beginning to Negotiate
APA & Bid Procedures, Including Bid Protections and
Time for Others to Conduct Due Diligence
• More Time to Conduct Due Diligence (subject to
Financial Considerations)
• Receives Updated, Current Reports about Operations
7
II. Acquiring Assets Out Of Bankruptcy
(cont’d.)
b) Downside: Stalking Horse Incurs Additional Costs
and Fees of Professionals Because of Its Involvement
from the Beginning of the Sale Process
8
II. Acquiring Assets Out Of Bankruptcy
(cont’d.)
C. Submission of Bids & the Auction
Step 1: Bidding & Auction Procedures are Approved
•
•
•
Bidding & Auction Procedures (“Bidding Procedures” )
are comprised in a single document.
Court Approval of the Bidding Procedures is Required,
after Notice and a Hearing (such approval is granted by
way of what is commonly referred to as the “Bidding
Procedures Order” ).
Certain Bid Protections & Perks are Offered to the
Stalking Horse: Break-Up Fee, Expense
Reimbursement, and Automatic Designation of Bid as a
“Qualified Bid.”
9
II. Acquiring Assets Out Of Bankruptcy
(cont’d.)
Step 2: Competing Bidder Must Meet the Requirements of
an “Acceptable Bidder” to Conduct Due Diligence of the
Debtor.
•
Items Required to Be Deemed an Acceptable Bidder
Eligible to Conduct Due Diligence of the Debtor:
a) Executed Confidentiality Agreement;
b) Non-Binding Indication of Interest; and
c) Preliminary Proof of Financial Capacity to Close a
Proposed Transaction
10
II. Acquiring Assets Out Of Bankruptcy
(cont’d.)
Step 3: Acceptable Bidders Must Submit a Qualified Bid to
Participate at the Auction. A Qualified Bid is:
•
•
•
•
•
•
•
Written & Irrevocable: Consists of an APA Executed by the
Competing Bidder in a Form Substantially Similar to the APA
Executed by the Stalking Horse.
Good Faith Deposit (typically 10% of the Proposed Purchase Price).
Demonstrated Financial Capacity.
Identity & Contact Information of Each Entity Participating in
Connection with the Submitted Bid.
Proof of Corporate Authority to Submit Bid and Close Possible
Transaction.
Consent to Bankruptcy Court Jurisdiction.
Minimum Cash Component of Qualified Bid Must Be Equal to or
Greater Than the Initial Overbid + Break-Up Fee + Expense
Reimbursement.
11
II. Acquiring Assets Out Of Bankruptcy
(cont’d.)
Step 4: Auction Occurs if a Qualified Bid (other
than the Stalking Horse Bid) is Received.
•
Conduct of Auction & What to Expect
•
•
When? Where? Who May Attend?
How? Bidding Procedures Govern the Conduct of the Auction.
a) Determination of Starting, or Floor Bid
b) Auction Commences & Subsequent, Higher Bids Meeting the Minimum
Bidding Increment Requirement are Submitted
c) Selection of Successful Bidder
d) Designation of Back-Up Bidder
Step 5: After Auction Concludes, Bankruptcy Court Will
Hold a Hearing to Consider the Proposed Sale and, if it is
Approved, Enter a Sale Order.
12
II. Acquiring Assets Out Of Bankruptcy
(cont’d.)
D. Contract Assumption, Rejection, and Assumption and
Assignment
1.
2.
Only “Executory Contracts” and Unexpired Leases are
Eligible for Rejection, Assumption, or Assumption and
Assignment
a) Executory Contract: Contracts where both parties to
the contract have unperformed obligations
Timeframe for Determining Which Executory Contracts &
Unexpired Leases to Assume/Reject
a) Chapter 7 –Generally, Within 60 Days of Filing of
Petition
b) Chapter 11 –Confirmation of a Plan
13
II. Acquiring Assets Out Of Bankruptcy
(cont’d.)
3. Non-Debtor Contract Counterparty Must Continue to
Perform Under the Executory Contract or Unexpired
Lease if No Prepetition Breach
4. Purchaser Input
5. Rejection
a)
b)
c)
Contract Rejection is Treated as a Prepetition Breach of the Contract
Results in “Rejection Damages Claim” , an Unsecured Claim against
Debtor’s Estate
Rejection Damages Claims are Paid with Estate Funds on a Pro Rata
Basis with Other General Unsecured Claims
14
II. Acquiring Assets Out Of Bankruptcy
(cont’d.)
6. Assumption
a)
b)
Must Assume Entire Contract
Must Cure All Defaults (“Cure Costs” )
7. Assumption & Assignment to Purchaser
a)
b)
c)
d)
Non-Assignability/Bankruptcy Default Provisions in
Contracts Void
Same Rules for Assumption Apply. Negotiation Point:
Payment of Cure Costs to be Borne by Debtor or
Purchaser
Assignment Requires Adequate Assurance of Future
Performance by the Assignee
Opportunity to Negotiate Better Terms
15
II. Acquiring Assets Out Of Bankruptcy
(cont’d.)
E. Sale Hearing & Entry of Sale Order
1.
Sale Hearing
•
Presentation of Case by Debtor’s Counsel
•
Business Judgment Test is Applied
•
Availability & Testimony of Fact Witnesses
2. Sale Order
•
Issued by Federal Bankruptcy Court
•
Binding Effect of Sale Order
F. Post-Sale Hearing Issues
•
Retention of Bankruptcy Court Jurisdiction Over Sale
Transaction.
16
QUESTIONS?
Courtney E. Barr
cbarr@lockelord.com
312-443-0653
Aaron C. Smith
asmith@lockelord.com
312-443-0460
Attorney Advertising.
Locke Lord LLP disclaims all liability whatsoever in relation to any materials or information provided. This presentation is provided solely for educational and informational purposes.
It is not intended to constitute legal advice or to create an attorney-client relationship. If you wish to secure legal advice specific to your enterprise and circumstances in connection
with any of the topics addressed we encourage you to engage counsel of your choice.
© 2013 Locke Lord LLP
17