CHAPTER 12 DISTRESSED ASSETS AND COMPANIES--FINANCING ISSUES
| Jurisdiction | United States |
(Feb 2010)
DISTRESSED ASSETS AND COMPANIES--FINANCING ISSUES
Winstead PC
Dallas, Texas
Charles A. Beckham, Jr.
Haynes & Boone L.L.P.
Houston, Texas
Charles Carroll
FTI Consulting
Dallas, Texas
David R. Payne
D. R. Payne and Associates
Oklahoma City, Oklahoma
Phillip Lamberson is with the firm of Winstead PC in Dallas has extensive and varied experience in all areas of bankruptcy and out of court workouts. Phil's experience includes representing debtors, trustees, lenders and lender groups, indenture trustees, bondholders and bondholder groups, unsecured creditors, creditor committees, lessors, landlords, purchasers and postpetition lenders. Phil represents secured creditors in all areas of bankruptcy and workout, including DIP financing and cash collateral issues, plan negotiation and surcharge issues. He handles all aspects of unsecured creditor representation, including proof of claim issues, plan negotiation and assumption and rejection of leases and contracts. He also regularly represents unsecured creditor committees. Phil represents purchasers of assets from bankruptcy debtors, including negotiating, drafting and obtaining court approval of purchase documents. He aids both panel and private trustees in all aspects of case administration, including claim objections and avoidance litigation. Phil also prosecutes and defends all types of bankruptcy litigation, including avoidance litigation, insider litigation, contract disputes and business tort claims. He has extensive appellate experience, including several arguments to the U.S. Courts of Appeals.
Charles A. Beckham, Jr. is with the firm of Haynes & Boone L.L.P. in Houston and has more than twenty-five years experience helping a broad spectrum of clients with bankruptcy and insolvency problems. He has worked on a variety of transactions and represented secured lenders, unsecured creditors, debtors and trustees in a variety of industries including numerous oil and gas, power and energy related bankruptcies. He has also represented numerous debtors and creditors with cross-border bankruptcy and insolvency problems in Mexico. Mr. Beckham is recognized by Chambers USA as one of the leading practitioners in Texas for bankruptcy, 2005-2009, and as one of the Best Lawyers in America - Bankruptcy & Creditor/Debtor Rights (Woodward / White, Inc., 2010). He has been listed in The Best Lawyers in America for more than 10 years. He has also been recognized as a Top 100 Texas Super Lawyer and Top 100 Houston Super Lawyer - Bankruptcy & Creditor/Debtor Rights, 2003-2009. He has lectured in various forums on, among other, derivative exposure and counterparty insolvency and financial market protections under United States Bankruptcy Code Amendments.
Charles Carroll is a senior managing director in FTI's Corporate Finance practice and is based in Dallas. Mr. Carroll has provided business restructuring, corporate finance, and lender services. His engagement experience includes business diagnostics and strategic plan development, capital structure review, cash management, corporate overhead review and reduction implementation, debt negotiations and repayment strategies, financial statement analysis, financial projection development, valuation (including liquidation analysis), bankruptcy preparation, and plan of reorganization formation and negotiation. During his tenure, Mr. Carroll has represented the senior lenders of a major international power producer with over $10 billion in short- and long-term debt; advised the lending group of a $1.5 billion textile company that was one of the leading makers of bed and bath products in America; and represented a 75-member lending group of a $3 billion nursing home operator before and during the Chapter 11 process. He has experience in many industries, including construction, energy, financial services, healthcare, manufacturing, mining, entertainment and retail. Mr. Carroll's notable engagements include American Plumbing & Mechanical (AMPAM), Club Corp, Discovery Zone, Encompass Services Corporation, GasMark, Global Power Equipment Group, Integrated Electrical Services (IES), Midcon Offshore, Minorplanet Systems, NR Marine, Orthodontic Centers of America (OCA), Pillowtex, Q-Entertainment (Q-Zar), Quality Beverage, Reliant Energy, and Sun Healthcare. Further, he has provided significant advice in the retail industry, including matters with Bruno's, Fiesta Supermarkets, 50-Off Stores, Homeland Stores, Stanley Stores and a global video store chain. Mr. Carroll has provided expert witness testimony on issues ranging from plan of reorganization development and feasibility to interest rates and loan to value analysis on real estate. He has also advised on the application of Fresh Start accounting (SOP 90-7) to companies emerging from bankruptcy and was part of a national AIRA task force to suggest revisions and clarifications of the accounting standard to the FASB and SEC. Mr. Carroll has advised on SOP 90-7 issues to Camelot Music, Discovery Zone, Delphi, Eddie Bauer, KB Toys, Levitz and Minorplanet Systems. Prior to joining FTI, Mr. Carroll worked in the U.S. division of PricewaterhouseCoopers' (PwC) Business Recovery Services group. Before that, he worked in PwC's Assurance and Business Advisory Services group performing audits of financial services clients, including securities brokers and dealers, mortgage companies and life insurance companies. Prior to joining PwC, Mr. Carroll was a financial analyst for a national real estate development and management firm. Mr. Carroll holds an M.A. in accounting from the University of Texas at Austin and a B.S. in finance from Southwest Texas State University. While at the University of Texas, he received the Most Outstanding Student Award for the Class of 1992. Mr. Carroll also attended the Washington Campus Program at Georgetown University. He is a certified insolvency and restructuring advisor, certified public accountant and a certified turnaround professional. Mr. Carroll is a member of the Texas Society of Certified Public Accountants, Turnaround Management Association, Texas-Ex Student Association and the Association of Insolvency and Restructuring Advisors.
David R. Payne is Firm Managing Director of D. R. Payne and Associates, Inc. To every engagement, he brings over 20 years of experience in accounting, appraisal, management and consulting, in both private industry and the public sector. Before organizing the firm, Mr. Payne was a partner in the Consulting Group of the international accounting firm of KPMG Peat Marwick. Mr. Payne also serves as Director and Principal of Business Valuators & Appraisers as well as Turnaround Professionals, sister organizations specializing in appraisal and business management services, respectively. He has served as interim chief executive officer or financial officer during turnarounds and restructurings, court appointed trustee and receiver, as well as expert witness in matters of appraisal and damage assessments. Mr. Payne earned his B.S. in Accounting from Oklahoma Christian University in 1980. He has advanced his professional education through a number of specialized seminars, courses and certifications, including the following: Accredited Senior Appraiser (ASA) in Business Valuations; Certified Turnaround Professional (CTP) and Certified Insolvency and Restructuring Advisor (CIRA). He was among the first 100 professionals to be certified as a CTP and one of the 80 charter members certified as CIRA. His extensive organizational affiliations include the American Institute of Certified Public Accountants (AICPA); the American Society of Appraisers (ASA - former local chapter president); the Turnaround Management Association (TMA); the Association of Insolvency Restructuring Advisor Examiners (AIRA - current national board member); and the Association of Certified Fraud Examiners (CFE).
I. OUT OF COURT/PRE-BANKRUPTCY ISSUES
Restructuring and/or replacing the debt financing for distressed exploration and production companies ("E&P Companies") and their counterparts in other extractive industries with depletable reserve-based assets can be more challenging and may require modified approaches compared to more traditional financing alternatives undertaken in other industries. Specifically, issues surrounding the degree of control requested and demanded by lenders over the borrower's operations, exploration and development activities coupled with the level of debt amortization required to protect the lenders' interest in the depletable collateral leads many distressed E&P Companies to nothing more than an orderly sale. Restructuring and/or financing the E&P Company to enable the borrower, its management and its equity holders (or some portion thereof) to remain in control poses significant financial and legal hurdles. These issues have returned to the forefront of the restructuring and insolvency professions commencing with the volatility and sharp increases in oil prices through July 2008 and the ensuing precipitous decline in hydrocarbon prices during late 2008 and throughout 2009. Not since the nineteen eighties, have so many financial and legal issues involving the priorities and rights of parties in the assets of energy companies been present.
A. Borrowing Base Redetermination
Many small cap, mid cap and family owned E&P Companies have been financed through shorter termed reserve-based lending facilities. This type of funding typically involves semi-annual (spring and fall) processes to re-evaluate, re-assess, re-price and redetermine the borrowing base. Declines in borrowing base levels which commenced during the fourth quarter of 2008 have created a liquidity crisis at many borrowers.
Generally speaking, there are no comprehensive published formulas to determine a borrowing base. While standards and methods are generally accepted in...
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