Chapter 11 Proceedings |
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| Chapter 11 Proceedings | CHAPTER 11 PROCEEDINGS Restructuring Support Agreement
On November 13, 2020, the Debtors commenced the Chapter 11 Cases as described in Note 1 above. To ensure ordinary course operations, the Debtors have obtained approval from the Bankruptcy Court for certain "first day" motions, including motions to obtain customary relief intended to continue ordinary course operations after the Petition Date. In addition, the Debtors have received authority to use cash collateral of the lenders under the DIP Credit Facility.
On November 13, 2020, the Debtors entered into a restructuring support agreement with (i) over 95% of the lenders (the “Consenting RBL Lenders”) party to the Pre-Petition Revolving Credit Facility, dated as of December 27, 2013, by and among the Company, as borrower, each of the lenders party thereto, the Bank of Nova Scotia, as administrative agent and issuing bank, the joint lead arrangers and joint bookrunners, the co-syndication agents, and the co-documentation agents and (ii) certain holders (the “Consenting Noteholders,” and, together with the Consenting RBL Lenders, the “Consenting Stakeholders”) holding over two-thirds of the Company’s (a) 6.625% senior notes due 2023, issued under that certain Indenture, dated as of April 21, 2015, (b) 6.000% senior notes due 2024, issued under that certain Indenture, dated as of October 14, 2016, (c) 6.375% senior notes due 2025, issued under that certain Indenture, dated as of December 21, 2016, and (d) 6.375% senior notes due 2026, issued under that certain Indenture, dated as of October 11, 2017 (collectively, the “Unsecured Notes”), each by and among the Company, the subsidiary guarantors party thereto, and UMB Bank, N.A. as successor trustee.
The RSA outlines the key elements and actions the Company plans to take as part of Chapter 11 process, including equitizing a significant portion of its prepetition indebtedness and rejecting or renegotiating certain contracts which will result in a materially improved balance sheet and cost structure. The RSA contains certain covenants on the part of each of Gulfport and the Consenting Stakeholders, including commitments by the Consenting Stakeholders to vote in favor of the Plan and commitments of Gulfport and the Consenting Stakeholders to negotiate in good faith to finalize the documents and agreements
governing the Restructuring. The RSA also places certain conditions on the obligations of the parties and provides that the RSA may be terminated upon the occurrence of certain events, including, without limitation, the failure to achieve certain milestones and certain breaches by the parties under the RSA. One such condition is the requirement to obtain sufficient savings on certain midstream obligations (as set forth in the RSA) through rejection of such contracts and/or renegotiation of their terms.
Although Gulfport intends to pursue the Restructuring in accordance with the terms set forth in the RSA, there can be no assurance that Gulfport will be successful in completing a restructuring or any other similar transaction on the terms set forth in the RSA, on different terms, or at all.
Plan of Reorganization
The Restructuring contemplated under the RSA will be pursued by Gulfport pursuant to a prearranged joint plan of reorganization (the “Plan”). Capitalized terms used under this heading titled “Joint Prearranged Chapter 11 Plan of Reorganization” but not otherwise defined herein shall have the meaning given to such terms in the Plan. The Plan can be found as an exhibit to this Form 10-K.
Below is a summary of the treatment that the stakeholders of the Company would receive under the Plan:
•each Holder of an Allowed Other Secured Claim shall receive, at the option of the applicable Debtor and with the consent of the Required Consenting Stakeholders (such consent not to be unreasonably withheld): (a) payment in full in Cash of its Allowed Other Secured Claim; (b) the collateral securing its Allowed Other Secured Claim; (c) Reinstatement of its Allowed Other Secured Claim; or (d) such other treatment rendering its Allowed Other Secured Claim unimpaired in accordance with section 1124 of the Bankruptcy Code;
•each Holder of an Allowed Other Priority Claim shall receive treatment in a manner consistent with section 1129(a)(9) of the Bankruptcy Code;
•each Holder of an Allowed RBL Claim shall receive, at the option of each such Holder, either (a) its Pro Rata share of the Exit RBL/Term Loan A Facility, if such Holder elects to participate in the Exit RBL/Term Loan A Facility or (b) its Pro Rata share of the Exit Term Loan B Facility, if such Holder does not elect to participate in the Exit RBL/Term Loan A Facility (including by not making any election with respect to the Exit Facility on the ballot);
•each Holder of an Allowed General Unsecured Claim against Gulfport Parent shall receive in full and final satisfaction of such Claim, its Pro Rata share of the Gulfport Parent Equity Pool; provided, however, that once the Holders of Notes Claims receive distributions of 94% of the New Common Stock (prior to and not including any dilution by the Management Incentive Plan or any conversion of New Preferred Stock into New Common Stock) in the aggregate on account of their Notes Claims against all Debtors, the Holders of Notes Claims shall waive any excess recovery on account of their Pro Rata share of the Gulfport Parent Equity Pool until Holders of Allowed General Unsecured Claims against Gulfport Parent have received New Common Stock with a value sufficient to satisfy their Allowed General Unsecured Claims against Gulfport Parent in full (based on Plan Value);
•each Holder of an Allowed General Unsecured Claim against Gulfport Subsidiaries shall receive in full and final satisfaction of such Claim, its Pro Rata share of: (a) the Gulfport Subsidiaries Equity Pool; (b) the Rights Offering Subscription Rights; and (c) the New Unsecured Notes;
•each Holder of an Allowed Notes Claim against Gulfport Parent shall receive, in full and final satisfaction of such Claim, its Pro Rata share of the Gulfport Parent Equity Pool; provided, however, that once the Holders of Notes Claims receive distributions of 94% of the New Common Stock (prior to and not including any dilution by the Management Incentive Plan or any conversion of New Preferred Stock into New Common Stock) in the aggregate on account of their Notes Claims against all Debtors, the Holders of Notes Claims shall waive any excess recovery on account of their Pro Rata share of the Gulfport Parent Equity Pool until Holders of Allowed General Unsecured Claims against Gulfport Parent have received New Common Stock with a value sufficient to satisfy their Allowed General Unsecured Claims against Gulfport Parent in full (based on Plan Value); provided further, however, distributions to any Holder of a Notes Claim against Gulfport Parent shall be subject to the rights and terms of the Notes Indentures and the rights of the Notes Trustee to assert the Notes Trustee Charging Lien;
•each Holder of an Allowed Notes Claim against Gulfport Subsidiaries shall receive, in full and final satisfaction of such Claim, its Pro Rata share of the: (i) Gulfport Subsidiaries Equity Pool, (ii) Rights Offering Subscription Rights, and (iii) New Unsecured Notes; provided, however, distributions to any Holder of a Notes Claim against Gulfport
Subsidiaries shall be subject to the rights and terms of the Notes Indentures and the rights of the Notes Trustee to assert the Notes Trustee Charging Lien;
•each Intercompany Claim shall be cancelled in exchange for the distributions contemplated by the Plan to Holders of Claims against and Interests in the respective Debtor entities and shall be considered settled pursuant to Bankruptcy Rule 9019;
•each Holder of an Intercompany Interest shall receive no recovery or distribution and shall be Reinstated solely to the extent necessary to maintain the Debtors’ prepetition corporate structure for the ultimate benefit of the Holders of New Common Stock and New Preferred Stock; and
•all Existing Interests (i.e. equity) in Gulfport Parent and all Allowed Section 510(b) Claims, if any, shall be cancelled, released, extinguished, and of no further force or effect.
DIP Credit Facility
Pursuant to the RSA, the Consenting RBL Lenders have agreed to provide the Company with a senior secured superpriority debtor-in-possession revolving credit facility in an aggregate principal amount of $262.5 million consisting of (a) $105 million of new money and (b) $157.5 million to roll up a portion of the existing outstanding obligations under the Pre-Petition Revolving Credit Facility. The proceeds of the DIP Credit Facility may be used for, among other things, post-petition working capital, permitted capital investments, general corporate purposes, letters of credit, administrative costs, premiums, expenses and fees for the transactions contemplated by the Chapter 11 Cases and payment of court approved adequate protection obligations. In the current period, the Company incurred $3.0 million of fees related to the arrangement and funding of the DIP Credit Facility. The DIP Credit Facility was approved by the Bankruptcy Court on a final basis on December 18, 2020. See Note 6 for additional information.
Executory Contracts
Subject to certain exceptions, under the Bankruptcy Code, the Company may assume, assign, or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Company from performing its future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Counterparties to rejected contracts or leases may assert unsecured claims in the Bankruptcy Court against the Company's estate for such damages. Generally, the assumption of an executory contract or unexpired lease requires the Company to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease with the Company, including where applicable a quantification of the Company's obligations under any such executory contract or unexpired lease of the Company, is qualified by any overriding rejection rights it has under the Bankruptcy Code.
Potential Claims
The Company has filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of the Company and each of its subsidiaries, subject to the assumptions filed in connection therewith. These schedules and statements may be subject to further amendment or modification after filing. Certain holders of pre-petition claims that are not governmental units were required to file proofs of claim by the deadline for general claims, which was set by the Bankruptcy Court as January 26, 2021. Governmental units are required to file proof of claims by May 12, 2021, the deadline that was set by the Bankruptcy Court.
As of February 25, 2021, the Debtors have received approximately 2,200 proofs of claim for an aggregate amount of approximately $12.5 billion. The Company will continue to evaluate these claims throughout the Chapter 11 process and recognize or adjust amounts in future financial statements as necessary using the best information available at such time. Differences between amounts scheduled by the Company and claims by creditors will ultimately be reconciled and resolved in connection with the claims resolution process. In light of the expected number of creditors, the claims resolution process may take considerable time to complete and likely will continue after the Company emerges from bankruptcy.
Financial Statement Classification of Liabilities Subject to Compromise
The accompanying audited consolidated balance sheet as of December 31, 2020, includes amounts classified as liabilities subject to compromise, which represent liabilities the Company anticipates will be allowed as claims in the Chapter 11 Cases.
These amounts represent the Company's current estimate of known or potential obligations to be resolved in connection with the Chapter 11 Cases, and may differ from actual future settlement amounts paid. Differences between liabilities estimated and claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process. The Company will continue to evaluate these liabilities throughout the Chapter 11 process and adjust amounts as necessary. Such adjustments may be material.
Liabilities subject to compromise includes amounts related to the rejection of various executory contracts. Additional amounts may be included in liabilities subject to compromise in future periods if additional executory contracts and/or unexpired leases are rejected. The nature of many of the potential claims arising under the Company's executory contracts and unexpired leases has not been determined at this time, and therefore, such claims are not reasonably estimable at this time and may be material. Damages related to rejected contracts are accounted for after they have been approved for rejection by the Bankruptcy Court.
The following table summarizes the components of liabilities subject to compromise included on the Company's audited consolidated balance sheet as of December 31, 2020:
Interest Expense
The Company has discontinued recording interest on debt instruments classified as liabilities subject to compromise as of the Petition Date. The contractual interest expense on liabilities subject to compromise not accrued in the consolidated statements of operations was approximately $15.3 million from the Petition Date through December 31, 2020.
Reorganization Items, Net
The Company has incurred and will continue to incur significant expenses, gains and losses associated with the reorganization, primarily the write-off of unamortized debt issuance costs, debt and equity financing fees, adjustments to allowed claims and legal and professional fees incurred subsequent to the Chapter 11 filings for the restructuring process. The amount of these items, which are being incurred in reorganization items, net within the Company's accompanying audited consolidated statements of operations, are expected to significantly affect the Company's statements of operations. The Company has incurred adjustments for allowable claims related to its legal proceedings and executory contracts approved for rejections by the Bankruptcy Court, with additional adjustments possible in future periods.
The following table summarizes the components in reorganization items, net included in the Company's audited consolidated statements of operations for the year ended December 31, 2020:
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