Replies to post #116207 on Lehman Brothers Financial SA (LEHNQ)

[cottonisking]

In EV Energy Partners Bankruptcy, why did the Debtors close the bankruptcy first, followed by the distribution of HRST new shares and warrants?



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In the EV Energy Partners (EVEP) bankruptcy (Case No. 18-10814), the Debtors utilized a "prepackaged" Chapter 11 restructuring, which commonly involves the Court confirming the plan first, followed by the "Effective Date" where the bankruptcy formally closes, and immediately afterward, new securities—such as Harvest Oil & Gas (HRST) shares and warrants—are distributed.
The distribution of Harvest Oil & Gas shares and warrants occurred after the bankruptcy closing because the creation and valuation of the new entity were legally contingent upon the final, non-appealable confirmation of the reorganization plan.
Kroll
Kroll
+1
Here is why this sequence was followed:
1. Legal and Operational "Effective Date"
Finality of Plan: The court confirmed the plan on May 17, 2018, but the "Effective Date" (when the restructuring was officially consummated) did not occur until June 4, 2018.
Creation of New Securities: The new equity in "Harvest Oil & Gas Corp" (formerly EVEP) could not be legally issued until the old Master Limited Partnership (MLP) was cancelled and the new corporation was officially formed upon the closing of the bankruptcy.
Condition Precedent: The distribution of new shares and warrants was part of the final, consummated plan that required all conditions precedent (such as loan restructuring, legal approvals) to be satisfied before the new assets could be distributed.
SEC.gov
SEC.gov
+4
2. Debt-for-Equity Swap Mechanics
Swapping Value: The restructuring was designed to wipe out over $355 million in debt by converting it into new equity. This required the old debt to be discharged by the court first.
"Effective Date" Distribution: Once the bankruptcy closed and the company emerged (emerged as Harvest Oil & Gas), the new shares were distributed to the creditors (who received 95% of the new entity) and existing unitholders (who received 5% plus warrants).
GlobeNewswire
GlobeNewswire
+3
3. Transition from MLP to Corporation
Entity Conversion: EVEP needed to transition from a Master Limited Partnership to a corporation, which required new corporate governance and, consequently, new shares to be distributed.
Tax Considerations: As noted in the filings, the restructuring involved "Cancellation of Debt Income" (CODI) due to the MLP structure, and the timing of the distribution and closing was crucial for tax reporting purposes for investors.
Marcellus Drilling News
Marcellus Drilling News
+2
Following this sequence ensured that creditors and stakeholders received their new shares and warrants in the reorganized company, Harvest Oil & Gas, immediately after it legally existed and began trading over-the-counter.