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Bankruptcy: ATP, DIP Lenders At Odds Over Budget, Look For Path Forward
Alan Zimmerman, Contributor
ATP Oil & Gas’ DIP lenders say they have reached an impasse with the company’s management over a budget for, in the first instance, maintaining the company’s operations pending the closing of the DIP lenders’ purchase of ATP’s Gulf of Mexico assets, and subsequently for the company’s post-closing wind-down, but despite escalating rhetoric on both sides, the extent to which the dispute at this time threatens the transaction itself is unclear.
On the one hand, in a notice filed with the bankruptcy court on June 10, the DIP lenders declared the DIP facility in default, a move that would have, among other things, prevented the company from using the cash collateral it holds to pay any of its expenses. According to court documents, the DIP lenders terminated the DIP facility due to “the inability (or unwillingness) of the debtor to propose a reliable and appropriate budget for the use of cash collateral going forward.”
But on the other hand, the DIP lenders also said in a June 12 bankruptcy court filing that despite the company’s “apparent lack of commitment to the sale process,” and their concern that the company “will be unable to propose a workable, reliable budget,” the lenders “continue to believe that” the asset sale is the “best outcome” for the company and that they “remain willing to agree” to a budget. Indeed, in the filing the DIP lenders said they would agree to a two-week budget to extend the company’s use of cash collateral “in order to permit a final opportunity to come to an agreed budget that can take this case through the sale and a wind-down.”
For its part, the company called the DIP lenders’ actions “heavy-handed tactics in the middle of difficult negotiations over a prospective wind-down budget,” adding that it has “worked diligently and in good faith to negotiate and procure a budget that will allow the debtor to close the sale and fund the payment of necessary administrative expenses during the pre-closing period, and provide some possibility of confirming a Chapter 11 plan.”
Meanwhile, a status conference that is scheduled for 1:30 p.m. CDT this afternoon at the Houston bankruptcy court may provide some needed clarity to the situation. And as reported, a hearing to approve the proposed asset sale is scheduled for June 20, after being twice delayed, first from May 31 and next from June 4, respectively.
According to a statement the DIP lenders filed with the bankruptcy court yesterday ahead of the status conference, the lenders say they have been working toward a June 28 closing of the asset sale, but reached an impasse with the company in negotiating a cash collateral budget due to the lenders’ “fundamental lack of confidence in the [company’s] budget estimates,” and their “concern with the decisions being made by debtor’s management, including the debtor’s chief restructuring officer, as to the best uses for debtor’s available cash (and whether such decisions are based on maximizing the value of the debtor’s assets or on other interests that may not be an appropriate basis to drive decisions on these important matters).”
As an example, the lenders cited a budget the company proposed on June 4 that deferred payment of $20 million related to the company’s “Clipper” project in the Gulf of Mexico, “risking further delays and vendor issues relating to this important project,” while also proposing to pay lease operating and other costs with respect to the “Gomez” project, which the DIP lenders described as “a property that has been shut-in since the end of April, produced no value to the estate for months prior to the shut-in and is the subject of a pending motion for abandonment by the debtor.”
As another example, the lenders cited the company’s proposed budget to pay $22 million in lease operating expenses, but the company’s corresponding inability to “directly tie this amount back to any specific payables.”
For its part, in a response to the DIP lenders’ statement the company also filed yesterday with the bankruptcy court, ATP said that the lenders’ assertion that the company “has been unable and/or unwilling to propose a reliable and appropriate wind-down budget … simply is not the case.”
Rather, the company said, its “good faith efforts” to produce a budget “have been undermined by the DIP agent’s and DIP lenders’ desire to postpone closing – although not the approval of the sale itself – for a period of up to two months.” Indeed, the company said it was only told about this closing delay earlier this week.
The company did not specifically state, however, what date the lenders said they wanted to close the deal, and whether it was later than June 28, as the lenders said in court documents.
In any event, the company said that proposed delay in closing the deal, and the DIP lenders’ “inability…to finalize the terms of the asset-purchase agreement, place the debtor in a difficult position to forecast future expenses.”
The company noted in the filing that it would not “respond to the many accusations and personal attacks” allegedly leveled against it by the DIP lenders, but added that the bankruptcy court should not “misconstrue its silence as agreement.” The company said it would be prepared to respond at the status conference if asked about the lenders’ alleged “unfounded accusations, ” underlining the rift between the two sides.
Notwithstanding the bad blood, however, one fact asserted by the DIP lenders in its June 12 statement went uncontested by the company, and it may turn out to be the key consideration that drives the case. Other than the DIP lenders’ $691 million credit and cash bid (see “ ATP’s DIP lenders top asset auction with $691M credit/cash bid,” LCD News, May 7, 2013), ATP received only three other qualified bids for its assets out of 70-100 or so potential purchasers contacted by the company, but none of those bids, in the DIP lenders’ words, “contemplated the purchase of all of the debtor’s assets [or] … provided any significant value to the estate.” – Alan Zimmerman
