Davis Polk is advising an ad hoc group of secured first-lien, last out (“FLLO”) term loan lenders (the “Ad Hoc Group”) in connection with the chapter 11 restructuring of Chesapeake Energy Corporation and certain of its subsidiaries. Sidley Austin represented MUFG Union Bank, one of the largest creditors in the case.
On June 28, 2020, Chesapeake filed its voluntary chapter 11 petitions in the United States Bankruptcy Court for the Southern District of Texas. Shortly before the filing, holders of Chesapeake’s debt holding approximately 100% of the revolving credit facility loans, approximately 87% of the FLLO term loans, approximately 60% of the second-lien notes, and approximately 27% of the unsecured notes executed a restructuring support agreement with Chesapeake. Also on June 28, 2020, members of the Ad Hoc Group and certain other parties signed a backstop commitment agreement in respect of a $600 million equity rights offering.
The Restructuring Support Agreement contemplates that Chesapeake’s FLLO term loan lenders will receive a distribution of 76% of reorganized Chesapeake’s new common equity, subject to dilution by the rights offering, and the right to purchase 63.75% of the new common stock to be issued pursuant to the rights offering. Holders of Chesapeake’s second-lien notes will receive 12% of the new common stock, the right to purchase 11.25% of the new common stock to be issued pursuant to the rights offering, and new warrants to purchase additional common stock at agreed exercise prices. Chesapeake’s unsecured noteholders will exchange their debt for 12% of the equity issued by the reorganized company and new warrants to purchase additional common stock at an agreed exercise price. The revolving credit facility lenders will roll their existing commitments into the company’s $2.5 billion exit financing facilities.
On June 29, 2020, Chesapeake obtained all of the “first day” relief it sought, including interim approval of a debtor-in-possession financing facility that will provide $925 million in new money loans and a roll up of in excess of $750 million of Chesapeake’s revolving credit facility loans during the case.
Chesapeake is a publicly-traded oil and natural gas company headquartered in Oklahoma City, Oklahoma, and is one of the largest oil and gas exploration and production companies in the United States.
The Davis Polk restructuring team included partners Damian S. Schaible (Picture) and Darren S. Klein, counsel Aryeh Ethan Falk, associates Daniel Rudewicz, Jacob Weiner and Mohini P.B. Rarrick. The finance team includes partner Kenneth J. Steinberg and counsel Christian Fischer. The corporate team includes partner Stephen Salmon and associate Bryan M. Quinn. The litigation team includes partner Benjamin S. Kaminetzky and associate Caroline Stern.
The Sidley team included Restructuring partners Jennifer C. Hagle, Duston K. McFaul, Dennis M. Twomey, Energy partner Brian E. Minyard, and Insurance partner Ellen P. Pesch.
Involved fees earner: Aryeh Ethan Falk – Davis Polk & Wardwell; Christian Fischer – Davis Polk & Wardwell; Benjamin Kaminetzky – Davis Polk & Wardwell; Darren Klein – Davis Polk & Wardwell; Bryan Quinn – Davis Polk & Wardwell; Mohini P.B. Rarrick – Davis Polk & Wardwell; Daniel Rudewicz – Davis Polk & Wardwell; Stephen Salmon – Davis Polk & Wardwell; Damian Schaible – Davis Polk & Wardwell; Kenneth Steinberg – Davis Polk & Wardwell; Caroline Stern – Davis Polk & Wardwell; Jacob Weiner – Davis Polk & Wardwell; Jennifer Hagle – Sidley Austin LLP; Duston McFaul – Sidley Austin LLP; Brian Minyard – Sidley Austin LLP; Ellen Pesch – Sidley Austin LLP; Dennis Twomey – Sidley Austin LLP;