7:41 pm ET March 30, 2020 (Dow Jones) Print
By Andrew Scurria and Alexander Gladstone
Sanchez Energy Corp.'s top lenders have agreed to take a majority stake in the bankrupt oil-and-gas driller after collapsing oil prices wiped away their chances of being fully repaid, people familiar with the matter said.
The Houston company's top-ranking lenders reached a tentative deal to take majority control after Sanchez acknowledged it couldn't repay $200 million in bankruptcy loans that have kept it afloat during its chapter 11 proceedings, these people said.
The agreement, which is still being finalized, illustrates the pressure on American oil drillers as U.S. crude prices hit their lowest level since 2002. Bankruptcy loans, which enjoy top payment priority in corporate restructurings, are almost always repaid in full and in cash.
But Sanchez said last week it likely couldn't cover those obligations, much less lower-ranking debt, as the coronavirus pandemic and a global supply glut hammered the price of oil.
The proposed deal would preserve the company as a going concern and avert a liquidation, according to people familiar with the matter. Any restructuring terms require approval from the U.S. Bankruptcy Court in Houston, where Sanchez filed for protection from creditors last year.
Sanchez Chief Restructuring Officer Mohsin Meghji said the company is "hopeful it will get to a consensual plan arrangement on an accelerated time frame."
"The company believes this consensual plan would allow it to continue its business as usual and provide it the required liquidity to meet its ongoing obligations," he said.
Sanchez had been negotiating a restructuring proposal for close to $2.3 billion in debt when the coronavirus epidemic coupled with a price war between Saudi Arabia and Russia sent global crude prices into a tailspin, upending the company's business projections.
The pandemic's devastating impact on oil prices has upended the bankruptcy-exit strategies of two other drillers, EP Energy Corp. and Alta Mesa Resources Inc.
The bank administering Sanchez's chapter 11 financing package gave notice Friday of an alleged default under the loan terms after the company missed a deadline for filing a proposed path out of bankruptcy.
Sanchez couldn't pull together a restructuring plan because market turbulence has choked off sources of chapter 11 exit financing, leaving the company with no way to pay off its bankruptcy lenders in full, a person familiar with the matter said.
Sanchez has said the lenders' collateral rights over certain oil-and-gas leases are flawed, meaning their value should be freed up and redistributed among lower-ranking creditors. Under the deal with Sanchez, the lenders agreed those claims should be resolved after the chapter 11 plan is approved, another person familiar with the matter said.
If approved in court, the agreement would wrest control of Sanchez from its controlling family, which took the company public in 2011.
Alexander Gladstone contributed to this article.
Write to Andrew Scurria at andrew.scurria@wsj.com and Alexander Gladstone at alexander.gladstone@wsj.com
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