ATPG Senior 11.875% 2nd Lien Bonds (fka ATPG.GE)

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By Peg Brickley ATP Oil & Gas Corp. (ATPAQ) has overcome some opposition to the proposed sale of its deep-water drilling assets to its lenders, with a deal that provides $1.8 million to cover the costs of wrapping up the company's bankruptcy case. The official committee of unsecured creditors bargained for the cash to fund continued Chapter 11 efforts if the sale of the driller's most valuable assets to secured lenders led by Credit Suisse Group AG (CS) is ultimately approved.

A hearing continues before Judge Marvin Isgur in the U.S. Bankruptcy Court in Houston. Judge Isgur hasn't yet said whether he will approve the deal. The bulk of the sale price, $690 million, is in the form of a "credit bid," or offer to extinguish bankruptcy loans drawn down by ATP as it struggled through a difficult bankruptcy. Hurt by the drilling moratorium that followed the 2010 Deepwater Horizon drilling disaster, ATP was plagued by a series of operational issues after filing for Chapter 11 bankruptcy protection in August 2012. Missed business targets translated into tighter and tighter terms on bankruptcy financing.

Banks marched ATP to the bankruptcy auction block, where they defeated competitors with a credit bid. ATP says the deal with secured lenders is worth $1.4 billion or more, when liabilities that the buyers are taking on are factored in. The alternative to the sale is liquidation, ATP says. Judge Isgur said Friday he is "worried" about ATP's environmental liabilities, which will fall largely on regulators and on prior owners of the drill sites. In addition to the $1.8 million so-called "wind-down budget" for the Gulf of Mexico driller, lenders agreed to pay more than $44 million to federal ocean energy regulators to cover the cost of decommissioning wells left behind after the proposed sale, lawyers told a bankruptcy judge Thursday. That payment relieves ATP of the burden of being assessed as much as $153 million, a claim that would eat up far more than the scant cash that will be in the bankruptcy coffers, assuming the sale is approved, according to evidence ATP provided during Friday's court session. The environmental cleanup contribution and the provision of a bankroll for final bankruptcy costs are new additions to the lender takeover proposal, negotiated over weeks when ATP struggled to get the deal in front of the judge without too much opposition.

The unsecured creditor panel said lenders could not be permitted to take ATP's valuable Clipper and Telemark deepwater oil drilling operations, leaving behind nothing but abandoned wells and mounting environmental liabilities. In response to that criticism, lenders are providing about $100 million in cash to cushion ATP's final days, said Mayer Brown LLP's Charles Kelley, attorney for the company, at Thursday's hearing in the U.S. Bankruptcy Court in Houston. Lenders are also setting aside $55 million in cash to pay suppliers and contractors that worked on the Clipper and Telemark projects, and they have claims that trump the rights of secured lenders. So-called mechanics and materialmans liens are high-priority claims that may be senior even to the bankruptcy loans that the Credit Suisse group is trading in for ATP's producing wells. (Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com) Write to Peg Brickley at [e-mail]