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UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION
In re:
CASE NO. 17-35835
CASTEX ENERGY PARTNERS, L.P., ET AL.1,
Chapter 11
Debtors.
(Joint Administration Requested) (Emergency Hearing Requested)
DEBTORS’EMERGENCY MOTION FOR INTERIM AND FINAL ORDERS (I) AUTHORIZING THE DEBTORS TO OBTAIN POSTPETITION SENIOR SECURED SUPERPRIORITY FINANCING; (II) AUTHORIZING THE DEBTORS’USE OF CASH COLLATERAL PURSUANT TO 11 U.S.C. § 363(C); (III) GRANTING ADEQUATE PROTECTION PURSUANT TO 11 U.S.C. § 361; AND (IV)SCHEDULING A FINAL HEARING PURSUANT TO BANKRUPTCY RULE 4001(c)
THIS MOTION SEEKS ENTRY OF AN ORDER THAT MAY ADVERSELY AFFECT YOU. IF YOU OPPOSE THE MOTION, YOU SHOULD IMMEDIATELY CONTACT THE MOVING PARTY TO RESOLVE THE DISPUTE. IF YOU AND THE MOVING PARTY CANNOT AGREE, YOU MUST FILE A RESPONSE AND SEND A COPY TO THE MOVING PARTY. YOU MUST FILE AND SERVE YOUR RESPONSE WITHIN 21 DAYS OF THE DATE THIS WAS SERVED ON YOU. YOUR RESPONSE MUST STATE WHY THE MOTION SHOULD NOT BE GRANTED. IF YOU DO NOT FILE A TIMELY RESPONSE, THE RELIEF MAY BE GRANTED WITHOUT FURTHER NOTICE TO YOU. IF YOU OPPOSE THE MOTION AND HAVE NOT REACHED AN AGREEMENT, YOU MUST ATTEND THE HEARING. UNLESS THE PARTIES AGREE OTHERWISE, THE COURT MAY CONSIDER EVIDENCE AT THE HEARING AND MAY DECIDE THE MOTION AT THE HEARING. EMERGENCY RELIEF HAS BEEN REQUESTED. IF THE COURT CONSIDERS THE MOTION ON AN EMERGENCY BASIS, THEN YOU WILL HAVE LESS THAN 21 DAYS TO ANSWER. IF YOU OBJECT TO THE REQUESTED RELIEF OR IF YOU BELIEVE THAT THE EMERGENCY CONSIDERATION IS NOT WARRANTED, YOU SHOULD FILE AN IMMEDIATE RESPONSE. A HEARING WILL BE CONDUCTED ON THIS MATTER ON OCTOBER 18, 2017 AT 2:30 P.M. IN COURTROOM 400, UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS, 515 RUSK STREET, HOUSTON, TEXAS 77002. REPRESENTED PARTIES SHOULD ACT THROUGH THEIR ATTORNEY. 1
The Debtors have concurrently filed a Motion for Order Under Bankruptcy Rule 1015(b) Directing Joint Administration of Chapter 11 Cases seeking the joint administration of the above-captioned Castex Energy Partners, L.P. case with the case Castex Energy 2005, L.P. (17-35837), Castex Energy II, LLC (17-35838), Castex Energy IV, LLC (17-35839) and Castex Offshore, Inc. (17-35836 ). The address of the Debtors is Three Allen Center, 333 Clay Street, Suite 2900, Houston, Texas 77002. Page 1 of 35
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NOW INTO COURT, through undersigned counsel, come the Debtors, who move this Court for the entry of an Interim DIP Order, in substantially the form attached hereto as Exhibit A (the “Interim DIP Order”), and a Final DIP Order (the "Final DIP Order" and, together with the Interim DIP Order, the “DIP Orders”), under sections 105, 361, 362, 363(c), 363(e), 364(c), 364(d), 364(e), and 507 of the Bankruptcy Code, Rules 2002, 4001, 6004 and 9014 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) and Rules 2002-1, 4001-1(b), 4002-1(i) and 9013-1 of the Local Bankruptcy Rules of the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Local Rules”): (i) authorizing the Debtors to (a) obtain postpetition financing on a super-priority, secured basis and (b) use cash collateral, (ii) granting (a) liens and super-priority claims and (b) adequate protection to certain prepetition lenders, (iii) modifying the automatic stay, (iv) scheduling a final hearing and (v) granting related relief (the “Motion”).
In support of this Motion, the Debtors have filed
contemporaneously herewith the Declaration of Avinash D’Souza in support of this Motion (the “D’Souza Declaration”), which is attached hereto as Exhibit C, and the Attorney Checklist Concerning Motions and Order Pertaining to Use of Cash Collateral and Post-Petition Financing (“Attorney Checklist”), which is attached hereto Exhibit D. In further support of this Motion, the Debtors respectfully represent as follows: Jurisdiction and Venue 1.
This Court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157 and
1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409. 2.
The statutory bases for the relief requested herein are sections 105(a), 363, 364,
1107 and 1108 of title 11 of the United States Code (11 U.S.C. §§ 101 et seq., as amended, the “Bankruptcy Code”). Page 2 of 35
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Background 3.
The Debtors, affiliates of one another (i) engage in the exploration, development,
production and acquisition of oil and natural gas properties located along the southern coasts of Louisiana and Texas and onshore Louisiana (Castex Energy Partners, L.P.), (ii) hold legal title and act as designated operator of federal offshore leases (Castex Offshore, Inc.), (iii) owns Castex Energy Partners, L.P. and Castex Offshore, Inc. (Castex 2005, L. P.), and (iv) act as general and small interest limited partners of certain of the Debtors (Castex Energy II, LLC and Castex Energy IV, LLC). 4.
On the date hereof (the “Petition Date”), each of the Debtors commenced a case
by filing a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Debtors are continuing in possession of their properties and are managing their businesses, as debtors in possession, pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 5.
An official committee of unsecured creditors has yet to be appointed in these
Chapter 11 cases. Further, no trustee or examiner has been requested or appointed in any of these Chapter 11 cases. 6.
In support of this Motion, the Debtors rely on the Declaration of Aaron Killian,
Vice President and Chief Financial Officer of the Castex Debtors, In Support of the Chapter 11 Petitions and First-Day Motions (the “First Day Declaration”). 7.
As more fully described in this Motion and the First Day Declaration, several
factors have severely affected the Debtors’ financial condition and near-term liquidity, precipitating the commencement of these chapter 11 cases and requiring the Debtors to seek immediate access to the Debtors’ proposed DIP Facility (as defined below). The proposed postpetition financing will, among other things, provide funding necessary to allow the Debtors to continue operating without material disruption to their businesses during the chapter 11 cases, Page 3 of 35
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all in an effort to effectuate confirmation of a plan of reorganization and achieving effectiveness of such plan. 8.
As set forth in the D’Souza Declaration, the DIP Facility was preceded by a
competitive marketing process designed to secure postpetition financing on the best available terms. D’Souza Dec. ¶¶ 12 and 17. The Debtors determined early on that obtaining postpetition loan(s) on a priming basis ahead of the Debtors current Credit Facility (as defined below) would not be possible given the requirements of section 364(d), and therefore could only seek take-out funding or subordinate funding for DIP purposes. The proposal submitted by the DIP Lenders (as defined below) was determined by the Debtors and their advisors to be the most advantageous, with the most favorable economics and terms. The DIP Facility was the product of an extensive arm’s-length negotiation with the DIP Lenders, and, because the Debtors could obtain no proposal for postpetition funding, no competing proposal provided the Debtors with a similarly beneficial set of comprehensive terms. Id. ¶¶ 18-21. 9.
As a result, by this Motion the Debtors seek authorization to obtain postpetition
financing pursuant to the terms set forth in this Motion, the DIP Credit Agreement (as defined below) and the DIP Orders. Concise Statement Pursuant to Bankruptcy Rule 4001 and the United States Bankruptcy Court for the Southern District of Texas Procedures for Complex Chapter 11 Cases 10.
By this Motion, the Debtors request the entry of an interim order, substantially in
the form of the proposed Interim DIP Order: (a) authorizing the Debtors to obtain a postpetition revolving credit facility in the
aggregate principal amount of up to $15,000,000 (the “DIP Facility”, all extensions of credit under the DIP Facility, the “DIP Loans”), and to otherwise incur all of the Debtors’ obligations and indebtedness arising under or in connection with the DIP Documents, the Interim DIP Order and the DIP Loans (the “DIP Obligations”) on the terms and conditions set forth in the Interim DIP Order and the DIP Credit Agreement (substantially in the form attached to the Interim DIP Order as Exhibit 1, and as hereafter amended, supplemented or otherwise modified, the “DIP Credit Agreement”, and together with all other Page 4 of 35
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agreements, documents and instruments executed and delivered in connection with the DIP Credit Agreement, as hereafter amended, supplemented or otherwise modified, the “DIP Documents”), among the DIP Borrower, each Debtor that guarantees the DIP Obligations (collectively, the “DIP Facility Guarantors”), the lenders thereto from time to time (collectively, together with the other Secured Parties (as defined in the DIP Credit Agreement), the “DIP Lenders”), and Capital One, National Bank Association, as administrative agent for the DIP Lenders (in such capacity, the “DIP Agent”); (b) authorizing the Debtors to execute and deliver the DIP Credit Agreement and the
other DIP Documents to which they are a party and to perform their respective obligations thereunder and such other and further acts as may be necessary or appropriate in connection therewith; (c) authorizing the Debtors to (a) use the cash collateral (as such term is defined in
section 363(a) of the Bankruptcy Code, the “Cash Collateral”) pursuant to section 363 of the Bankruptcy Code, subject to the Budget, attached hereto as Exhibit B, and all other legal, valid, binding, perfected, enforceable, first priority (in each case, subject to permitted exceptions under the Prepetition Credit Agreement) liens on and security interests in the Debtors’ real or personal property constituting Collateral (as defined in the Prepetition Credit Agreement, and hereinafter referred to as the “Prepetition Collateral”) and (b) provide adequate protection to the Prepetition Secured Parties under the Prepetition Credit Agreement and the Prepetition Documents; (d) granting adequate protection to DIP Lenders; (e) subject to entry of the Final DIP Order, granting adequate protection liens on the
proceeds and property recovered in respect of the Debtors’ claims and causes of action (but not on the actual claims and causes of action) arising under sections 544, 545, 547, 548, and 550 of the Bankruptcy Code or any similar state or federal law (collectively, the “Avoidance Actions”); (f) modifying the automatic stay imposed by section 362 of the Bankruptcy Code to
the extent necessary to implement and effectuate the terms and provisions of the Interim DIP Order and the Final DIP Order; (g) subject to entry of the Final DIP Order, except to the extent of the Carve-Out,
waiving all rights to surcharge any Prepetition Collateral or Collateral under sections 506(c) or 552(b) of the Bankruptcy Code or any other applicable principle of equity or law; (h) holding an interim hearing to consider the relief sought in the Motion and entry of
the proposed Interim DIP Order; and (i) scheduling a final hearing to consider entry of the Final DIP Order.
11.
The follow is a summary of the material terms of the Interim DIP Order: Page 5 of 35
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DIP Loan Facility Borrower Fed. R. Bankr. P. 4001(c)(1)(B) DIP Credit Agreement § 1.01 Guarantors Fed. R. Bankr. P. 4001(c)(1)(B) DIP Credit Agreement § 1.01
DIP Agent Fed. R. Bankr. P. 4001(c)(1)(B)
Castex Energy Partners, L.P., a Texas limited partnership (“CEP” or the “Borrower”), as debtor and debtor in possession in a chapter 11 case (the “Borrower Case”) commenced under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in [the United States Bankruptcy Court for the Southern District of Texas, Houston Division] (the “Bankruptcy Court”). The obligations of the Borrower under the DIP Loan Facility shall be guaranteed by Castex Energy II, LLC (the “General Partner”), Castex Energy 2005, L.P. (“Castex 2005”), Castex Energy IV, LLC (“Castex IV”), and Castex Offshore, Inc. (“COI,” together with the General Partner, Castex 2005, and Castex IV, the “Guarantors,” and together with CEP, the “Debtors” or the “Loan Parties”), each of which will be a debtor and a debtor in possession in chapter 11 cases filed contemporaneously and jointly administered with the Borrower Case in the Bankruptcy Court (together with the Borrower Case, the “Cases”). Capital One, National Association, as administrative agent and collateral agent (in such capacities, the “DIP Agent”).
DIP Credit Agreement § 1.01 DIP Lenders Fed. R. Bankr. P. 4001(c)(1)(B) DIP Credit Agreement § 1.01
DIP Facility Fed. R. Bankr. P. 4001(c)(1)(B) DIP Credit Agreement §§ 1.01, 2.01 and 2.02 Interest Fed. R. Bankr. P. 4001(c)(1)(B) DIP Credit Agreement §§ 1.01, 2.08, 2.10 and 11.09
Certain or all of the Prepetition Lenders (each in its capacity as a lender under the DIP Facility, a “DIP Lender” and collectively the “DIP Lenders,” and together with the DIP Agent, the “DIP Secured Parties”). “Required DIP Lenders” shall mean, as of any date of determination, DIP Lenders holding more than 50% of the sum of all loans and commitments under the DIP Facility. A senior secured superpriority debtor in possession revolving credit facility in an aggregate principal amount of up to $15 million (the “DIP Facility”). Loans under the DIP Facility (the “DIP Loans”) shall be made available to the Borrower subject to applicable conditions to borrowing under definitive documentation governing the DIP Facility (the “DIP Loan Documents”). DIP Loans will bear interest at 9.00% per annum plus the LIBOR Rate. The “LIBOR Rate” shall mean, for any interest period of one, two, or three months, the rate per annum equal to the London Interbank Offered Rate or a comparable or successor rate, which rate is approved by the DIP Agent, as published on the applicable Bloomberg screen page (or such other commercially available source providing such quotations as may be designated by the DIP Agent from time to time) at approximately 11:00 a.m., London time, two business days prior to the commencement of such interest period, for dollar deposits (for delivery on the first day of such interest period) with a term equivalent to such interest period, subject to customary change of circumstance provisions; provided that the LIBOR Rate shall in no event be less than 1.00% per annum. Such interest shall be payable at the end of the relevant interest period. During the continuance of an Event of Default, DIP Loans will bear interest at an additional 2.00% per annum.
Fees Fed. R. Bankr. P.
Upfront Fee: each DIP Lender shall receive its pro rata share of an upfront fee equal to 2.5% of the aggregate commitments under the DIP Facility, earned and Page 6 of 35
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4001(c)(1)(B)
payable in cash upon entry of the Interim Order.
DIP Credit Agreement §§ 2.09 and 2.10
DIP Agent Fees: as set forth in the Agent Fee Letter.
Maturity
The “Maturity Date” is the six-month anniversary of the date on which the Debtors commence the Cases (the “Petition Date”).
Fed. R. Bankr. P. 4001(b)(1)(ii) and (c)(1)(B) DIP Credit Agreement, § 1.01 DIP Termination Date Fed. R. Bankr. P. 4001(b)(1)(ii) and (c)(1)(B) DIP Credit Agreement, §§ 1.01 and 10.06
The date of the earliest to occur of the following (the “DIP Termination Date”): the Maturity Date; thirty (30) days after the entry of the Interim Order (or such later date as the DIP Agent and the Required DIP Lenders may approve in writing in their sole discretion) if the Final Order has not been entered prior to the expiration of such period; the substantial consummation (as defined in section 1101 of the Bankruptcy Code and which for purposes hereof shall be no later than the “effective date” thereof) of a plan of reorganization filed in the Cases that is confirmed pursuant to an order entered by the Bankruptcy Court; the consummation of a sale of all or substantially all of the assets of the Loan Parties (including pursuant to section 363 of the Bankruptcy Code or a chapter 11 plan); and the acceleration of the DIP Loans and the termination of the commitments with respect to the DIP Facility in accordance with the DIP Loan Documents (including upon the occurrence and during the continuance of an Event of Default). “Interim Order” means an order of the Bankruptcy Court in form and substance satisfactory to the DIP Agent and the Required DIP Lenders in their sole discretion, which order shall have been entered not later than three (3) business days following the Petition Date (or such later date as the DIP Agent and the Required DIP Lenders may agree in their sole discretion). “Final Order” means a final non-appealable order of the Bankruptcy Court in form and substance satisfactory to the DIP Agent and the Required DIP Lenders in their sole discretion authorizing the DIP Facility, the DIP Liens, the DIP Superpriority Claims, the Adequate Protection Liens, and the Adequate Protection Claims on a final basis. “DIP Orders” means, collectively, the Interim Order and the Final Order.
Use of Proceeds Fed. R. Bankr. P. 4001(c)(1)(B) DIP Credit Agreement Recitals and § 6.11 Collateral and Priority; Liens on Avoidance Actions
The loan proceeds of the DIP Facility shall be used by the Borrower to (i) pay certain costs of administering the Cases, including all accrued professional fees as of the Effective Date subject to and pending Bankruptcy Court approval, (ii) fund the working capital needs, capital improvements, and other general corporate purposes of the Loan Parties, (iii) make the payments provided for in the DIP Orders, in each case subject to compliance with the DIP Budget, and (iv) maintain a minimum balance of unrestricted Cash and Cash Equivalents 2 of the Borrower. DIP Superpriority Claims. The DIP Agent, for the benefit of the DIP Secured Parties, shall have, effective as of the Petition Date, with respect to the Debtors,
2
Cash and Cash Equivalents are defined, with respect to each Loan Party, as unrestricted cash measured on a book basis (i.e., cash net of the impact of outstanding checks written out of the Debtors’ Operating Bank Accounts, and, with respect to COI, exclude revenue held for distribution from COI’s Revenue Account to third parties for royalties and certain other interests). Page 7 of 35
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Fed. R. Bankr. P. 4001(c)(1)(B)(i), (ii) DIP Credit Agreement §§ 1.01, 2.16, 5.21, 5.33 and 7.01
their estates, and all of their assets and properties, a superpriority administrative expense claim in each of the Cases (or any successor cases upon the conversion of the Cases to cases under chapter 7 of the Bankruptcy Code or in any other proceeding related to the foregoing, such cases or proceedings, “Successor Cases”) pursuant to section 364(c)(1) of the Bankruptcy Code with priority over all other administrative expenses pursuant to the Bankruptcy Code (including the kinds specified in or arising or ordered pursuant to sections 105(a), 326, 328, 330, 331, 503(b), 506(c), 507, 546(c), 552(b), 726, and 1114 of the Bankruptcy Code or otherwise, whether or not such expenses or claims may become secured by a judgment lien or other nonconsensual lien, levy, or attachment), which superpriority claims of the DIP Agent and DIP Secured Parties shall be subordinate only to the Carve-Out (the “DIP Superpriority Claims”). The DIP Superpriority Claims shall be against each Debtor on a joint and several basis, and shall be payable from and have recourse to all assets and properties of each of the Debtors. Except for the Carve-Out, the DIP Superpriority Claims shall not be made subject to or pari passu with any claim granted or created in any of the Cases or any Successor Cases and shall be valid and enforceable against the Debtors, their estates, and any successors or assigns thereto, including, without limitation, any trustee appointed in any of the Cases or any Successor Cases. DIP Liens. The DIP Agent, for the benefit of the DIP Secured Parties, shall have, effective as of the Petition Date, with respect to the Debtors, their estates, and all of their assets and properties, the following liens (collectively, the “DIP Liens”): a first priority, priming security interest in and lien pursuant to section 364(d)(1) of the Bankruptcy Code on all encumbered DIP Collateral (the “Section 364(d)(1) Liens”), which Section 364(d)(1) Liens shall be senior to any existing liens or claims, subject only to (i) the Carve-Out, (ii) valid, perfected, and non-avoidable liens on property of a Debtor that are in existence on the Petition Date, other than the Prepetition Liens, and (iii) valid and nonavoidable liens on property of a Debtor that are perfected subsequent to the Petition Date as permitted by section 546(b) of the Bankruptcy Code (the foregoing clauses (ii) and (iii) being referred to collectively as the “Permitted Prior Liens”); a first priority security interest in and lien pursuant to section 364(c)(2) of the Bankruptcy Code on all unencumbered DIP Collateral (the “Section 364(c)(2) Liens”), which Section 364(c)(2) Liens shall be subject only to the Carve-Out; and a junior security interest and lien pursuant to section 364(c)(3) of the Bankruptcy Code on all DIP Collateral that is subject to a Permitted Prior Lien (the “Section 364(c)(3) Liens”), which Section 364(c)(3) Liens also shall be subject to the Carve-Out. None of the DIP Liens shall (i) be subject to or pari passu with any lien or security interest that is avoided and preserved for the benefit of the Debtors’ estates under section 551 of the Bankruptcy Code, (ii) be subject to or pari passu with any lien securing an intercompany claim of any Debtor or any subsidiary or affiliate of any Debtor, (iii) be subject to sections 510, 549, or 550 of the Bankruptcy Code, or (iv) be subject to, subordinated to, or made pari passu with any other lien or security interest under sections 361, 363, or 364 of the Bankruptcy Code or otherwise. DIP Collateral. The DIP Liens of the DIP Agent, for the benefit of the DIP Secured Parties, constitute liens on and security interests in the following (collectively, the “DIP Collateral”): all of the Debtors’ now owned and hereafter acquired real and personal property, tangible and intangible assets, prepetition and postpetition assets, and rights of any kind or nature, wherever located, including, without limitation, all oil and gas properties (including “Oil and Gas Properties” as defined in the Prepetition Credit Agreement and any as-extracted collateral, goods, fixtures, and hydrocarbons related thereto), goods, accounts receivable, other rights to Page 8 of 35
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payment, cash, inventory, general intangibles, contracts, servicing rights, swap and hedge proceeds and termination payments, servicing receivables, securities, equity interests, chattel paper, real property leaseholds, fixtures, machinery, equipment, deposit accounts, patents, copyrights, trademarks, trade names, rights under license agreements and other intellectual property, commercial tort claims, claims and causes of action arising under section 549 of the Bankruptcy Code, and all other claims and causes of action of any kind or nature (other than the Debtors’ claims and causes of action arising under sections 544, 545, 547, 548, and 550 of the Bankruptcy Code, collectively, the “Avoidance Actions”); the products, rents, offspring, profits, and proceeds of each of the foregoing; and the proceeds and property recovered in respect of Avoidance Actions. Notwithstanding anything to the contrary, in no event shall any “Building” or “Manufactured (Mobile) Home” (each as defined in the applicable Flood Insurance Regulations) constitute DIP Collateral, and no Building or Manufactured (Mobile) Home shall be encumbered by the DIP Liens. As used herein, “Flood Insurance Regulations” shall mean (i) the National Flood Insurance Act of 1968, (ii) the Flood Disaster Protection Act of 1973, (iii) the National Flood Insurance Reform Act of 1994 (amending 42 U.S.C. § 4001, et seq.), and (iv) the Flood Insurance Reform Act of 2004, in each case as now or hereafter in effect (or any successor statute thereto), including any regulations promulgated thereunder. Optional Prepayments DIP Credit Agreement § 1.01, 2.05 and 7.14 Mandatory Prepayments DIP Credit Agreement § 1.01, 2.05 and 7.14
The Borrower shall have the right at any time and from time to time to prepay any DIP Loans in whole or in part, subject to LIBOR breakage.
Mandatory prepayment provisions shall include the following: The net cash proceeds from any non-ordinary course asset sale by a Loan Party [or any of its subsidiaries], whether pursuant to section 363 of the Bankruptcy Code or otherwise outside the context of an Approved Plan (defined below), shall be used to repay the DIP Loans and shall ratably and permanently reduce commitments under the DIP Facility. If, on the last Business Day of each calendar week, the aggregate amount of Cash and Cash Equivalents of the Borrower and the other Loan Parties 3 exceed $10.0 million, then on the next Business Day the Borrower shall prepay the DIP Loans in an amount equal to such excess.
Conditions Precedent to Each Borrowing Fed. R. Bankr. P. 4001(c)(1)(B) DIP Credit Agreement Article IV
On the funding date of each DIP Loan— the aggregate amount of Cash and Cash Equivalents of the Borrower and the other Loan Parties, shall not, immediately after giving effect to such requested funding, exceed $10.0 million; there shall exist no default or event of default under the DIP Loan Documents; the representations and warranties of the Loan Parties therein shall be true and correct in all material respects (or in the case of representations and warranties with a “materiality” qualifier, true and correct in all respects) immediately prior to, and after giving effect to, such funding; the making of such DIP Loan shall not violate any requirement of law and shall not be enjoined, temporarily, preliminarily or permanently; the making of any DIP Loan shall not result in the aggregate outstandings under the DIP Facility exceeding the lesser of (i) the amount authorized by the Interim Order or the Final Order, as applicable, and (ii) the available
3
[Note to Castex: “Cash and Cash Equivalents” excludes COI’s revenue held for distribution to third parties from COI’s revenue account; see prior footnote.] Page 9 of 35
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commitments under the DIP Facility; and the Interim Order or Final Order, as the case may be, shall be in full force and effect and shall not have been vacated, reversed, or stayed in any respect or, except as expressly permitted by the DIP Loan Documents, modified or amended in any manner, with the Loan Parties in compliance with such DIP Orders. Other funding conditions and conditions governing the effectiveness of the DIP Facility on interim and final bases shall be set forth in definitive documentation. Covenants
Usual and customary for financings of this type, including:
Fed. R. Bankr. P. 4001(c)(1)(B)
Affirmative Covenants: Financial statement and other reporting (including without limitation weekly cash reporting); notices of events of default, material adverse effects, and similar events; payment of obligations; preservation of existence; maintenance of properties; maintenance of insurance; compliance with laws (including environmental laws); maintenance of books and records; inspection rights; use of proceeds; compliance with the Budget; pledges of equity in new subsidiaries; issuance of guaranties by new subsidiaries; provision of further assurances; maintenance and approval of the cash management system (including execution of control agreements and maintaining accounts with the DIP Agent); certain bankruptcy matters; continued retention of restructuring advisor and/or financial advisor reasonably satisfactory to the DIP Agent (it being agreed that A&M and Evercore, respectively, are reasonably satisfactory to the DIP Agent); monthly lender calls; bi-weekly update calls for DIP Agent and its advisors; delivery of such other information with respect to the Loan Parties and their respective subsidiaries as any of the DIP Secured Parties may reasonably request.
DIP Credit Agreement Articles VI and VII
Negative Covenants: Limitations on the following: incurrence of liens; incurrence of indebtedness; making of investments, loans, and advances; mergers, consolidations, acquisitions, and other fundamental changes; ; dispositions; dispositions; dividends, distributions, and other restricted payments; changes in business; transactions with affiliates; burdensome agreements; use of proceeds; amendments of organizational documents and material contracts; accounting changes; prepayments of indebtedness; sale/leaseback transactions; swap contracts; gas imbalances, take-or-pay, or other prepayments; use of bank accounts; certain bankruptcy matters. Financial Covenants Fed. R. Bankr. P. 4001(c)(1)(B)
Minimum Liquidity: minimum unrestricted Cash and Cash Equivalents of CEP of $4 million, tested on a weekly basis.
DIP Credit Agreement § 7.11 Hedging
Certain DIP Lenders will work with the Debtors to implement a comprehensive DIP hedging program until the occurrence of the Termination Date for a minimum of 80% PDP gas hedged. The DIP Lenders’ liens and claims arising under DIP hedging arrangements shall be pari passu with the DIP Loans and other obligations under the DIP Facility (i.e., such pari passu DIP hedging claims shall be superpriority administrative expense claims secured by the DIP Collateral but subject to limitations on voting and payment priorities substantially similar to those in effect under the Prepetition Credit Agreement).
Events of Default
Usual and customary for financings of this type, including the occurrence of one or more of the following (each, an “Event of Default”):
Fed. R. Bankr. P. 4001(b)(1)(B) and (c)(1)(B)(iii) DIP Credit Agreement Article VIII
failure to pay any principal, interest, fee, or any other amount of any DIP Loan as and when due and payable; failure to observe or perform covenants, subject to a grace period for certain affirmative covenants; Page 10 of 35
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inaccuracy of any representation or warranty; cross-defaults under material indebtedness (including the occurrence of an early termination date pursuant to a swap agreement); entry of any one or more postpetition judgments, individually or in the aggregate, in excess of $500,000 or entry of any one or more non-monetary postpetition judgments that have, or could reasonably be expected to have, individually or in the aggregate, a material adverse effect; ERISA events reasonably expected to result in liability of more than $500,000 in any year; any change of control; failure to observe or perform any material provision of an organizational document; invalidity of the DIP Loan Documents; breach or invalidity of the Interim Order or Final Order; (i) invalidity of liens granted with respect to the DIP Facility in the priority set forth in the DIP Orders, or (ii) invalidity, disallowance, or extinguishment of all obligations under the DIP Facility (the “DIP Obligations” or lack of superpriority status of such DIP Obligations); filing of any motion by any Loan Party seeking modification of the Interim Order or Final Order without prior written consent or altering the payments made to the DIP Secured Parties; filing of any motion by any Loan Party to dismiss or convert the Cases to cases under chapter 7, or the occurrence of such dismissal or conversion; appointment of a trustee or examiner with expanded powers; payment or granting of adequate protection in excess of $500,000 without prior written consent; entry of an order modifying the automatic stay with respect to assets having a value in excess of $500,000; entry of an order precluding the DIP Secured Parties and/or the Prepetition Secured Parties from “credit bidding”; or failure to satisfy any of the plan milestones set forth under “Plan Milestones” below. Upon the occurrence and continuance of any Event of Default, (i) the DIP Agent shall, at the written request of, or may, with the written consent of, the Required DIP Lenders, (A) deliver a notice to the Borrower of the Event of Default, (B) declare the commitments to be terminated, whereupon such commitments shall be terminated, (C) declare the DIP Loans then outstanding to be due and payable in whole or in part, and thereupon the principal of the DIP Loans so declared to be due and payable, together with accrued interest thereon and all fees and other DIP Obligations, shall become due and payable immediately, in each case, without presentment, demand, protest, notice of intent to accelerate, notice of acceleration, or other notice of any kind, all of which shall be waived by each Loan Party, and (D) terminate the DIP Facility; and (ii) upon two Business Days’ written notice to the Borrower from the DIP Agent (acting on the written request of the Required DIP Lenders in their sole and absolute discretion), the automatic stay of section 362 of the Bankruptcy Code shall be terminated without any further order of the Bankruptcy Court and without the need for filing any motion for relief from the automatic stay or any other pleading, for the purpose of permitting the DIP Lenders to do any of the following: (A) direct the DIP Agent to foreclose on the DIP Collateral and (B) enforce all of the DIP Lenders’ rights under the DIP Loan Page 11 of 35
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Documents. Plan Milestones Fed. R. Bankr. P. 4001(c)(1)(B)(vi) DIP Credit Agreement § 6.29
On or before the date that is 20 calendar days from the Petition Date, the Debtors shall file (i) a plan of reorganization, which shall be in form and substance acceptable to the DIP Agent and the Required DIP Lenders (the “Approved Plan”), (ii) a disclosure statement for the Approved Plan, which shall be in form and substance acceptable to the DIP Agent and the Required DIP Lenders (the “Approved Disclosure Statement”), and (iii) a motion for entry of an order approving the Approved Disclosure Statement and establishing solicitation procedures for the Approved Plan (the “Disclosure Statement Order”), which motion and order shall be in form and substance acceptable to the DIP Agent and the Required DIP Lenders. On or before the date that is 65 calendar days from the Petition Date, the Bankruptcy Court shall have entered the Disclosure Statement Order, which order shall be in form and substance acceptable the DIP Agent and the Required DIP Lenders. On or before the date that is 145 calendar days from the Petition Date, the Bankruptcy Court shall have entered an order confirming the Approved Plan (the “Confirmation Order”), which order shall be in form and substance acceptable to the DIP Agent and the Required DIP Lenders. On or before the date that is 25 days from entry of the Confirmation Order, the Approved Plan shall become effective.
DIP Budget
The DIP Budget shall consist of the following.
Fed. R. Bankr. P. 4001(c)(1)(B)
Initial Budget: A 13-week cash flow forecast, containing line items of sufficient detail to reflect the Loan Parties’ projected receipts and disbursements for the 13week period commencing on the Petition Date, in form and substance acceptable to the DIP Agent and the Required DIP Lenders.
DIP Credit Agreement Recitals and §§ 1.01, 4.01, 6.25 and 7.23
DIP Budget Reporting; Authorized Variance Fed. R. Bankr. P. 4001(c)(1)(B) DIP Credit Agreement §§ 6.25 and 7.23
Budget Updates: On or before 5:00 p.m. (Houston time) on the last Tuesday (or, if such Tuesday is not a business day, the immediately succeeding business day) of each rolling four-week period (each such date, a “Reporting Date,” and each such four-week period, a “Budget Period”), the Debtors may provide the DIP Agent with an updated rolling 13-week cash flow forecast of the Debtors [and their subsidiaries] substantially in the form of the Budget (each such forecast, in the event it proposes to modify the Budget then in effect, a “Proposed Budget”), which Proposed Budget, upon written approval by the DIP Agent with the consent of the Required DIP Lenders, shall become the Budget effective as of the first Monday following such written approval (the “Budget Effective Date”), and each such Budget shall run from its respective effective date through the Sunday prior to the Budget Effective Date of the next Budget, provided, however, that unless and until the DIP Agent with the consent of the Required DIP Lenders shall have approved in writing any Proposed Budget or any other proposed modification to the Budget then in effect, the Debtors shall still be subject to and be governed by the terms of such Budget then in effect in accordance with the terms of the Interim Order or Final Order, as applicable. On or before 5:00 p.m. (prevailing New York time) on the first Wednesday (or, if such Wednesday is not a business day, the immediately preceding business day) following each Reporting Date (each such Wednesday, a “Testing Date”), the Debtors shall provide the DIP Agent with a report of receipts and disbursements and a reconciliation of actual expenditures and disbursements with those set forth in the Budget for the immediately preceding Budget Period, which report and reconciliation shall be presented in the same form as the Budget (i.e., with directly corresponding line items and variances for each on a line item by line item basis) and otherwise in form and detail reasonably satisfactory to the DIP Agent. The Debtors shall provide, and make their representatives and advisors available to representatives and advisors of the DIP Agent to discuss, qualitative explanations Page 12 of 35
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with respect to the foregoing. On or before 5:00 p.m. (prevailing New York time) on the first Wednesday (or, if such Wednesday is not a business day, the immediately preceding business day) of each calendar week, the Debtors shall provide the DIP Agent a weekly report of receipts and disbursements and a reconciliation of actual expenditures and disbursements with those set forth in the Budget for the prior week, which report and reconciliation shall be presented in the same form as the Budget (i.e., with directly corresponding line items and variances for each on a line item by line item basis) and otherwise in form and detail reasonably satisfactory to the DIP Agent. The Debtors shall provide, and make their representatives and advisors available to representatives and advisors of the DIP Agent to discuss, qualitative explanations with respect to the foregoing. As of any Testing Date, for the immediately preceding Budget Period, the Loan Parties shall not allow the aggregate actual expenditures by the Debtors for “Total Disbursements” (as designated in the Budget, but excluding payments to the DIP Secured Parties pursuant to the DIP Loan Documents and payments to any Prepetition Secured Parties as adequate protection pursuant to the DIP Orders (collectively, the “Excluded Disbursements”)) to exceed the aggregate amount budgeted therefor in the Budget for such period by more than fifteen percent (15%) of the budgeted amount (such amount, plus any permitted Carry Forward (as defined below), the “Authorized Variance”); provided, however, that the Debtors are authorized to use Cash Collateral and pay expenses of the estates for unpaid budgeted items in a Budget Period within the immediately succeeding Budget Period but not after the earlier to occur of (i) the conclusion of such immediately succeeding Budget Period and (ii) the occurrence of the Budget Effective Date for any Proposed Budget modifying the Budget then in effect (thus authorizing the Debtors to “carry forward” projected expenses for a limited period of time) (such budgeted amounts and actual disbursements carried forward, the “Carry Forwards”). Use of Cash Collateral Fed. R. Bankr. P. 4001(c)(1)(B) DIP Credit Agreement Recitals and § 7.23
Stipulations on Prepetition Liens and Claims; Effect of Stipulations
The Debtors are authorized to use cash collateral (as such term is defined in section 363(a) of the Bankruptcy Code, “Cash Collateral”), subject to and as set forth in the DIP Budget, the Interim Order, the Final Order, and the DIP Loan Documents. In no event shall the Debtors be authorized to use Cash Collateral or the DIP Facility for any purpose or under any terms other than those set forth in the DIP Budget, the Interim Order, the Final Order, and the DIP Loan Documents. The Debtors are further authorized to use the other Prepetition Collateral during the period from the Petition Date through and including the DIP Termination Date in accordance with the terms and conditions of the Interim Order and Final Order. The Interim Order shall contain usual and customary stipulations regarding the validity, priority, and enforceability of the Prepetition Obligations, Prepetition Liens, and Prepetition Collateral. The Debtors’ stipulations shall be binding upon the Debtors, any subsequent trustee, responsible person, examiner with expanded powers, any other estate representative, and all parties in interest (and all of their respective successors in interest and assigns), subject to usual and customary challenge rights of parties in interest other than the Debtors.
Adequate Protection Fed. R. Bankr. P. 4001(c)(1)(B) DIP Credit Agreement §§ 1.01 and 7.01
Adequate Protection Liens. As adequate protection, the Prepetition Agent, in accordance with sections 361, 363(e), and 364(d) of the Bankruptcy Code, shall be granted, for the benefit of the Prepetition Secured Parties, valid, binding, enforceable, and automatically perfected security interests and replacement liens (the “Adequate Protection Liens”) upon all of the Debtors’ right, title, and interest in any assets and properties of each of the Debtors, whether arising prepetition or postpetition, of any nature whatsoever, wherever located, in each case to secure the Prepetition Obligations against the diminution in the value, if any, of the Prepetition Collateral subsequent to the Petition Date, including any such Page 13 of 35
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diminution by reason of (i) the reduction of the Prepetition Collateral as a consequence of the priming by the DIP Obligations, (ii) depreciation, use, sale, loss, or decline in market value or otherwise of the Prepetition Collateral, and (iii) the sum of the aggregate amount of all Cash Collateral and the aggregate value of all non-cash Prepetition Collateral, which is applied in payment of the DIP Obligations or any other obligations other than the Prepetition Obligations. The Adequate Protection Liens shall be subject and subordinate to (A) the Carve-Out, (B) the DIP Obligations, the DIP Liens, and the DIP Superpriority Claims, and (C) the Permitted Prior Liens. The Adequate Protection Liens shall not (x) be subject to any lien or security interest that is avoided and preserved for the benefit of the Debtors’ estates under section 551 of the Bankruptcy Code, (y) subject to any intercompany claim, whether secured or unsecured, of any Debtor or any subsidiary or affiliate of any Debtor, or (z) be subordinated to or made pari passu with any other lien or security interest under sections 361, 363, or 364 of the Bankruptcy Code or otherwise except as expressly provided in the Interim Order, the Final DIP Order, and the DIP Documents. Adequate Protection Claims. Pursuant to section 507(b) of the Bankruptcy Code, the Prepetition Secured Parties, effective as of the entry of the Interim Order, shall be granted an allowed superpriority administrative expense claim in each of the Cases or any Successor Cases (collectively, the “Adequate Protection Claims”), for the diminution in the value, if any, of the Prepetition Collateral subsequent to the Petition Date, which claims shall only be junior to the DIP Superpriority Claims and the Carve-Out, but shall be senior to and have priority over any other administrative expense claims, unsecured claims, and all other claims against the Debtors or their estates in any of the Cases or any Successor Cases, at any time existing or arising, of any kind or nature whatsoever. The Adequate Protection Claims shall be against each Debtor on a joint and several basis, and shall be payable from and have recourse to all assets and properties of each of the Debtors. Except for the DIP Superpriority Claims and the Carve-Out, the Adequate Protection Claims shall not be made subject to, or pari passu with, any claim granted or created in any of the Cases or any Successor Cases and shall be valid and enforceable against the Debtors, their estates, and any successors or assigns thereto, including, without limitation, any trustee appointed in any of the Cases or any Successor Cases. Additional Adequate Protection. The Debtors shall be authorized and directed to pay all pre- and postpetition fees and expenses of the Prepetition Secured Parties as provided for under Section 11.04 of the Prepetition Credit Agreement. Adequate protection also shall include compliance with other covenants under the Prepetition Credit Agreement, including without limitation all reporting covenants. Carve-Out Fed. R. Bankr. P. 4001(c)(1)(B) DIP Credit Agreement §§ 1.01 and 5.33
The DIP Liens, the DIP Superpriority Claims, the Adequate Protection Liens, and the Adequate Protection Claims, shall be subject to the payment, without duplication, of the following fees and expenses (the amounts set forth below, together with the limitations set forth therein, collectively, the “Carve-Out”): all fees required to be paid to the Clerk of the court and to the Office of the United States Trustee under section 1930(a) of title 28 of the United States Code plus interest at the statutory rate (without regard to the Carve-Out Trigger Notice); all reasonable fees and expenses up to $25,000 incurred by a trustee under section 726(b) of the Bankruptcy Code (without regard to the Carve-Out Trigger Notice); allowed (regardless of whether allowed by the Court before or after delivery of a Carve-Out Trigger Notice), accrued, and unpaid fees and out-of-pocket expenses (“Allowed Professional Fees”) of each professional retained by order of the Court by the Debtors pursuant to sections 327, 328, or 363 of the Bankruptcy Code (the “Debtor Professionals”) and any official committee Page 14 of 35
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appointed in the Cases (each, a “Committee”) pursuant to section 328 or 1103 of the Bankruptcy Code (the “Committee Professionals,” and, together with the Debtor Professionals, the “Estate Professionals”) incurred on or prior to the date on which the DIP Agent delivers a Carve-Out Trigger Notice in aggregate accrued amounts for each such Estate Professional not in excess of the amounts set forth in the Budget for such Estate Professional through such date; and Allowed Professional Fees of Estate Professionals in an aggregate amount not to exceed $500,000 incurred after the first business day following delivery by the DIP Agent of the Carve-Out Trigger Notice, to the extent allowed at any time, whether by interim order, procedural order, or otherwise (the amounts set forth in this clause being the “Post-Carve-Out Trigger Notice Cap”). Allowed Professional Fees will only be payable upon entry of appropriate order(s) of the Bankruptcy Court authorizing payment of such Allowed Professional Fees. For purposes of the foregoing, the term “Carve-Out Trigger Notice” shall mean a written notice delivered by electronic mail (or other electronic means) by the DIP Agent to the Debtors, their counsel, the U.S. Trustee, and counsel to any Committee (if appointed), which notice may be delivered following the occurrence and during the continuation of an Event of Default, stating that the Post-Carve-Out Trigger Notice Cap has been invoked. Indemnification
Usual and customary for financings of this type.
Fed. R. Bankr. P. 4001(c)(1)(B)(ix) DIP Credit Agreement § 11.04 Releases, Waivers, and Limitations on Claims or Causes of Action
Usual and customary for financings of this type.
Fed. R. Bankr. P. 4001(c)(1)(B)(viii) DIP Credit Agreement § 11.04
Statement Regarding Significant Provisions 12.
The Interim DIP Order and Final DIP Order include certain of the provisions (the
“Significant Provisions”)4 identified in the Complex Case Procedures and summarized as follows: 4
Significant Provisions refer to those provisions that: (a) grant cross-collateralization protection (other than replacement liens or other adequate protection) to prepetition secured creditors; (b) deem prepetition secured debt to be postpetition debt or that use postpetition loans from a prepetition secured creditor to pay part or all of that secured creditor’s prepetition debt, other than as provided in section 552(b) of the Bankruptcy Code; (c) bind the bankruptcy estates or any parties in interest with respect to the validity, perfection, or amount of the secured creditor’s prepetition lien or debt or the waiver of claims against the secured creditor; (d) waive or limit the estate’s rights under section 506(c) of the bankruptcy code; (e) grant prepetition secured creditors liens on the debtor’s claims and causes of action arising under chapter 5 of the Bankruptcy Code; (f) impose deadlines for the filing of a plan or disclosure statement; and (g) grant an administrative claim. Page 15 of 35
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(a) Cross-Collateralization. The Interim and Final Orders do not provide for
“roll-up” or cross collateralization. (b) Validity, Perfection, and Amount of Prepetition Liens. The Interim and
Final Orders contain usual and customary stipulations regarding the validity, priority, and enforceability of the Prepetition Obligations, Prepetition Liens, and Prepetition Collateral. (a) 506(c) Waiver. The Interim and Final Orders waive each of the provisions
of section 506(c) and any claims under section 552(b) of the Bankruptcy Code as to the DIP Lenders, the Prepetition Secured Parties, the DIP Liens, the Adequate Protection Liens, and the Prepetition Liens. (b) Liens on Avoidance Actions. The Interim and Final Orders grant the DIP
Lenders liens on all claims and causes of action of any kind or nature arising under applicable non–bankruptcy law, together with causes of action under section 549 of the Bankruptcy Code (other than the Debtors’ claims and causes of action arising under sections 544, 545, 547, 548, and 550 of the Bankruptcy Code); the products, rents, offspring, profits, and proceeds of each of the foregoing; and the proceeds and property recovered in respect of Avoidance Actions. (c) Provisions Deeming Prepetition Debt to be Post Petition Debt.
The Interim and Final Orders have no provision deeming prepetition debt to be postpetition debt.
(d) Provisions Imposing Plan or Disclosure Statement Filing Deadlines.
The Interim and Final Orders include certain milestones for filing of a Plan and Disclosure Statement, entry of a Confirmation Order and occurrence of a Plan Effective Date. (e) Provisions Granting Administrative Claims. The DIP Agent is granted a
superpriority administrative expense claim in each of the Cases pursuant to section 364(c)(1) of the Bankruptcy Code with priority over all other administrative expenses pursuant to the Bankruptcy Code, which superpriority claims of the DIP Agent and DIP Secured Parties shall be subordinate only to the Carve-Out. Further, the Prepetition Secured Parties are granted an allowed superpriority administrative expense claim in each of the Cases as adequate protection for the diminution in the value, if any, of the Prepetition Collateral. Statement of Facts I.
Business Overview 13.
Castex Energy Partners, L.P. (”CEP”) is a non-operating working interest owner
in approximately 375 onshore oil and gas leases located in the State of Louisiana (the “Onshore Page 16 of 35
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Leases”). There are approximately 300 wells on the Onshore Leases (the “Onshore Wells”). Catex Energy, Inc. (“CEI”), a non-debtor and manager of CEP’s business under the Shared Services Agreement, operates approximately 20% of the Onshore Wells (representing 60% of net onshore production), pursuant to certain joint operating agreements. CEP also holds a seismic license and proprietary interests in certain seismic data, through a subsidiary, CTS-Castex, LLC, and is owner of fee land interests in Lafourche Parish, Louisiana, through a subsidiary, Castex Lafourche, LP. 14.
Castex Offshore, Inc. (“COI”) is a record title holder of approximately 50 oil and
gas leases (the “Offshore Leases”) located offshore the Gulf Coast of Louisiana and Texas. There are approximately 75 wells on the Offshore Leases (the “Offshore Wells”). COI also holds certain seismic and geographical data related to the Offshore Leases. 15.
The Debtors do not maintain their own employees and management, instead, the
Castex Debtors are parties to a shared services agreement with CEI dated March 4, 2009, pursuant to which CEI provides administrative, corporate, and support services to the Debtors in the ordinary course of business. CEI also holds certain seismic and geographical data related to the Onshore Leases and Offshore Leases pursuant to various license agreements. 16.
Castex Energy 2005, L.P. is the holder of one (1) seismic license covering certain
onshore and offshore properties. II.
Secured Financing Loan Structure 17.
CEP and Castex 2005 entered into that certain Second Amended and Restated
Credit Agreement dated as of July 17, 2013, by and among (among others) Castex 2005, CEP, COI, the several banks and other financial institutions or entities from time to time parties thereto (collectively, the “Prepetition Lenders”), Capital One Bank (USA) National Association, as administrative agent (in such capacity, together with any successor(s) thereto in such capacity, Page 17 of 35
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the “Administrative Agent”)5 and certain other parties (as heretofore amended or otherwise modified and as the same may be amended, modified, supplemented or restated from time to time including without limitation the “Fifteenth Amendment”, dated as of July 15, 2017 (the “2017 Amendment”, collectively, the “Credit Facility”); and defined terms used herein but not defined herein having the same meaning as in the Credit Facility). 18.
The Debtors currently have approximately Four Hundred Million ($400,000,000)
currently outstanding under the Credit Facility (the “Secured Debt”), which matured on July 17, 2017 (the “Maturity Date”). The Castex Debtors have been operating without an extension or a forbearance agreement with the Lenders since the Maturity Date. 19.
The Secured Debt is guaranteed by CELL II, CELL IV, COI and Castex 2005 and
is secured by a pledge on all of the partnership units of CEP, all of CEP’s interest in Castex Lafourche, LP, mortgages on virtually all of the Onshore and Offshore Leases, a pledge of the proceeds from the Apache Litigation, among other collateral. 20.
As of the Petition Date, the Debtors believe that they are current on their royalty
payments, but as royalties are paid upon receipt of production proceeds, amounts are due or will come due postpetition for royalties that accrued for at least the most recent full production month plus any partial production month prepetition. 21.
As of the Petition Date, the Debtors estimate that COI owes approximately $6
million for outstanding joint interest billings (“JIBs”) and costs related to Offshore Leases operated by third parties. 22.
As of the Petition Date, CEP owes COI (1) reimbursement of approximately $6
million for third party operator JIBs and (2) payment of approximately $3 million for JIBs on properties COI operates. As of the Petition Date, the Debtors estimate that CEP currently owes 5
Bank of America, N.A. resigned as administrative agent under the Credit Facility effective July 13, 2017 and was replaced with Capital One Bank (USA) National Association pursuant to the 2017 Amendment. Page 18 of 35
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CEI approximately $5 million for outstanding prepetition JIBs and costs related to the Onshore Leases. III.
The Debtors’Immediate Need for Use of Cash Collateral 23.
The Debtors require immediate access to postpetition financing and the use of
Cash Collateral to operate their businesses, preserve value and pursue their restructuring goals. The Debtors, in consultation with its advisors, have reviewed and analyzed the Debtors’ projected cash needs and have prepared a Budget (as updated from time to time in accordance with the DIP Credit Agreement) outlining the Debtors’ postpetition cash needs during the anticipated length of these cases. The Debtors believe that the Budget is an accurate reflection of their funding requirements over the identified period, will allow them to meet their obligations, and is reasonable and appropriate under the circumstances. 24.
Immediate and ongoing access to funding under the DIP Facility will demonstrate
to vendors, suppliers, purchasers and other key constituencies that the Debtors have sufficient resources available to meet their obligations in the ordinary course during these cases. Absent funds available under the DIP Financing, access to Cash Collateral and the cooperation of key business partners at this critical early stage, the Debtors could (a) face a devastating interruption in their businesses; (b) risk regulatory noncompliance, which could adversely affect their ability to obtain or maintain permits and licenses critical to operations; (c) undermine the support of important groups on whom the Debtors’ businesses and restructuring depend, which, in turn, would hinder their ability to maximize the value of their estates; and (d) be forced to modify their operations in a significant and adverse manner, which the Debtors believe could hamper their ability to reorganize within these cases. In sum, without the relief requested herein, the Debtors would suffer substantial, irreparable and ongoing harm. Accordingly, the Debtors' need for access to postpetition financing and the use of Cash Collateral on the terms set forth in the Page 19 of 35
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DIP Credit Agreement and the DIP Orders is immediate and urgent. 25.
As set forth in the D’Souza Declaration, the DIP Financing also represents the
best available source of financing under the circumstances.
The Debtors, through their
investment banker, Evercore, commenced a sale and marketing process where the Debtors sought, among other things, proposals to recapitalize the Debtors. This process included specific requests and proposals to provide the Debtors with postpetition financing. The Debtors were unable to identify any viable financing alternatives through this process. Of course, the primary problem in locating alternative financing was the borrowing base deficiency, which caused the Debtors to question whether they could obtain priming postpetition financing (the consent of the Prepetition Lenders to provide such financing, along with the Debtors’ having been successful in obtaining a restructuring agreement confirms the Debtors’ determination that they would be unsuccessful in any priming fight), The proposed DIP Financing is the best source of financing available under the circumstances. Request For Approval Of The DIP Credit Agreement I.
The Debtors Should Be Authorized to Obtain DIP Financing Under Section 364 of the Bankruptcy Code. 26.
It is essential that the Debtors obtain access to sufficient postpetition financing
and use of Cash Collateral to avoid immediate and irreparable harm to their businesses. The preservation of estate assets, the Debtors’ continuing viability and their ability to reach the stage of these cases for confirmation of a plan of reorganization, depends heavily upon the expeditious approval of the relief requested herein. 27.
Section 364 of the Bankruptcy Code distinguishes among (a) obtaining unsecured
credit in the ordinary course of business, (b) obtaining unsecured credit out of the ordinary course of business and (c) obtaining credit with specialized priority or with security. See 11 U.S.C. § 364. If a debtor in possession cannot obtain postpetition credit on an unsecured basis, Page 20 of 35
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pursuant to section 364(b) of the Bankruptcy Code, a court may authorize a debtor to obtain credit or to incur debt, the repayment of which is entitled to superpriority administrative expense status, or is secured by a senior lien on unencumbered property, or a junior lien on encumbered property, or a combination of the foregoing. See 11 U.S.C. § 364(c).6 In addition, pursuant to section 364(d) of the Bankruptcy Code, a court may authorize a debtor to obtain postpetition credit secured by a lien that is equal or senior in priority to existing liens on encumbered property (i.e., a “priming” lien) when a debtor is unable to obtain credit on other terms and the interests of existing lienholders are adequately protected, or if the existing lienholders consent to such priming. 28.
The Debtors propose to obtain financing that will “prime” certain of the Debtors'
pre-petition liens. Therefore, the approval of the DIP Financing is governed by both sections 364(c) and 364(d) of the Bankruptcy Code. A.
The Debtors Have Satisfied the Conditions Under Section 364(c) to Obtain Financing on a Senior Secured and Superpriority Basis
29.
The statutory requirement for obtaining postpetition credit under section 364(c) of
the Bankruptcy Code is a finding, made after notice and hearing, that the debtor in possession is “unable to obtain unsecured credit allowable under § 503(b)(1) of the Bankruptcy Code as an administrative expense.” 11 U.S.C. § 364(c); see In re Ames Dep't Stores, 115 B.R. 34, 37-38 (Bankr. S.D.N.Y. 1990) (a debtor must show that it has made a reasonable effort to seek other sources of financing under sections 364(a) and (b) of the Bankruptcy Code)
6
Section 363(c) provides, in relevant part: (2) The trustee may not use, sell, or lease cash collateral under paragraph (1) of this subsection unless – (A)
each entity that has an interest in such cash collateral consents; or
(B)
the court, after notice and a hearing, authorizes such use, sale, or lease in accordance with the provisions of this section.
11 U.S.C. § 363(c). Page 21 of 35
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30.
Courts have articulated a three-part test to determine whether a debtor may obtain
financing under section 364(c) of the Bankruptcy Code: (a)
the debtor is unable to obtain unsecured credit under section 364(b) (i.e., by granting a lender administrative expense priority);
(b)
the credit transaction is necessary to preserve the assets of the estate; and the terms of the transaction are fair, reasonable and adequate, given the circumstances of the debtor-borrower and the proposed lender. See, e.g., In re Los Angeles Dodgers LLC, 457 B.R. 308, 312 (Bankr. D. Del. 2011) (applying these factors); In re Ames Dep't Stores, 115 B.R. at 39. 1.
31.
The Debtors Were Unable to Obtain Necessary Postpetition Financing on an Unsecured Basis
First, financing is necessary. As shown by the Budget, the Debtors are in need of
financing as a source of funding in addition to use of cash collateral in consideration of granting replacement liens to replenish diminution of value of the Collateral of the Prepetition Lenders. So, credit is needed. To show that the credit required is not obtainable on an unsecured basis, a debtor need only demonstrate y a good faith effort that credit was not available without the protections of sections 364(c) of the Bankruptcy Code. Thus, the statute imposes no duty to seek credit from every possible lender before concluding that such credit is unavailable. In re Ames Dep't Stores, 115 B.R. at 40 (holding that debtor made a reasonable effort to secure financing where it approached four lending institutions, was rejected by two, and selected the least onerous financing option from the remaining two lenders). Moreover, where few lenders are likely to be able and willing to extend the necessary credit to the debtor, “it would be unrealistic and unnecessary to require [the debtor] to conduct . . . an exhaustive search for financing.” In re Sky Valley, Inc., 100 B.R. 107, 113 (Bankr. N.D. Ga. 1988), aff'd sub nom. Anchor Sav. Bank FSB v. Sky Valley, Inc., 99 B.R. 117, 120 n.4 (N.D. Ga. 1989). 32.
As set forth above and in the D’Souza Declaration, the Debtors engaged in a
prepetition process to secure debtor in possession financing. The Debtors’ management, with the Page 22 of 35
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assistance of their advisors, sought restructuring alternatives and explored various alternative sources of capital and financing as a part of this process but determined that financing was unavailable on an unsecured basis. Specifically, the Debtors, through Evercore, reached out to more than 55 parties for potential recapitalization of the company—including potential postpetition financing. 33.
The Debtors’ efforts to seek the necessary postpetition financing from additional
third-parties, as well as vigorous negotiations with the DIP Lenders were reasonable and sufficient and satisfy the statutory requirements of section 364(c) of the Bankruptcy Code. See, e.g., In re Ames Dep't Stores, 115 B.R. at 40. 2.
34.
The Terms of the DIP Facility are Fair, Reasonable and Appropriate Under the Circumstances
In considering whether the terms of postpetition financing are fair and reasonable,
courts consider the terms in light of the relative circumstances and disparate bargaining power of both the debtor and potential lender. See In re Farmland Indus., Inc., 294 B.R. 855, 886 (Bankr. W.D. Mo. 2003); see also Unsecured Creditors' Comm. Mobil Oil Corp. v. First Nat'l Bank & Trust Co. (In re Ellingsen MacLean Oil Co.), 65 B.R. 358, 365 n.7 (W.D. Mich. 1986) (a debtor may have to enter into hard bargains to acquire funds). 35.
The terms of the DIP Credit Agreement and the proposed DIP Orders were
negotiated in good faith and at arm's-length between the Debtors and the DIP Lenders, resulting in agreements designed to permit the Debtors to obtain the needed liquidity to maximize the value of their assets through confirmation of a chapter 11 plan. With the Court’s approval of the DIP Facility, the Debtors will be well situated to confirm a chapter 11 plan. B.
The DIP Facility is in the Best Interests of the Debtors’Estates and Creditors
36.
Approval of the DIP Facility is in the best interests of the Debtors’ estates and
their creditors. Given that the Debtors do not currently have any other executable options for Page 23 of 35
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financing in these cases that would permit the Debtors to remain viable, the Debtors, in the exercise of their sound business judgment, believe that they have negotiated for the best possible terms for the DIP Facility.
Moreover, after an extensive search for postpetition financing
alternatives, the Debtors could not find a more favorable proposal that could be approved over the objections of the Prepetition Lenders. Under such circumstances, the Debtors submit that the DIP Facility is unquestionably in the best interest of their estates and creditors. II.
The Debtors' Proposed Adequate Protection Should Be Approved. 37.
Parties with an interest in cash collateral or collateral that may be used to secure
postpetition financing are entitled to adequate protection. 11 U.S.C. § 363(e). In addition, a debtor may obtain postpetition credit “secured by a senior or equal lien on property of the estate that is subject to a lien only if” the debtor, among other things, provides “adequate protection” to those parties whose liens are primed. 11 U.S.C. § 364(d)(1)(B). 38.
Here, the Prepetition Lenders have consented to the Debtors’ use of cash
collateral in conformity with this Motion and subject to the terms and limitations set forth in the Interim DIP Order. Further, section 363(e) provides that “on request of an entity that has an interest in property…proposed to be used, sold or leased, by the trustee, the court, with or without a hearing, shall prohibit or condition such use, sale, or lease as is necessary to provide adequate protection of such interest.” 11 U.S.C. § 363(e). The Debtors have satisfied the requirements of sections 363(c)(2) and (e), and should be authorized to use the Cash Collateral. 39.
Although the Bankruptcy Code does not provide an all-encompassing definition
of what constitutes adequate protection, section 361 of the Bankruptcy Code provides a nonexhaustive list of factors that may constitute adequate protection. A determination of adequate protection is decided on a case-by-case basis, and involves a consideration of the “nature of the creditor’s interest in the property, [and] the potential harm to the creditor as a result of the Page 24 of 35
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property’s decline in value of the method of protection.” In re Braniff Airways, Inc., 783 F.2d 1283, 1286 (5th Cir. 1986). 40.
For the use of the cash collateral, the Debtors are granting the Prepetition Lenders
DIP Liens on Post-Petition Collateral, with such Post-Petition Collateral as well to be collateral for postpetition advances, in accordance with the DIP Facility and DIP Credit Agreement. The Debtors anticipate that the aforementioned first priority liens and security interests will adequately protect the Prepetition Lenders from any diminution in the value of their interest in their collateral resulting from the use of the Cash Collateral. In re First Douth Sav., Ass’n, 820 F.2d 700, 710 (5th Cir. 1987) (granting a creditor replacement liens to the extent of diminution in the value of their security interest constitutes adequate protection under section 361). 41.
The Debtors will also provide the Prepetition Lenders with required weekly
reporting of financial information relating to projected revenues and expenses, actual revenue and expenses, and variances from the Budget, as applicable, as well as reasonable access to, among other things, the Debtors’ management, books, and records, including the reporting required under the DIP Facility and Amended Credit Agreement. See, e.g., Mutual Benefit Life Ins. Co. v. Stanley Station Assocs., L.P. (In re Stanley Station Assocs., L.P.), 140 B.R. 806, 809 (D. Kan. 1992) (“In addition, we believe the request of MBL for ‘timely filing of proper monthly operating reports…’ falls within the ambit of adequate protection…”); Sumitomo Trust & Banking Co. v. Holly's, Inc. (In re Holly’s, Inc.), 140 B.R. 643, 706 (Bankr. W.D. Mich. 1992) (reports required as part of adequate protection). 42.
The Debtors submit that the replacement liens and the provision of timely
financial reporting will adequately protect the Prepetition Lenders for the Debtors’ use of Cash Collateral.
Thus, the Prepetition Lenders’ interests are adequately protected, and the
requirements for adequate protection under sections 361 and 363 of the Bankruptcy Code have Page 25 of 35
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been satisfied. 43.
The Debtors’ proposed adequate protection package is consistent with the relief
granted by other courts in this jurisdiction and others. See, e.g., In re Energy XXI Ltd., No. 1631928 (DRJ) (Bankr. S.D. Tex. Apr. 15, 2016) (granting superpriority administrative claims, adequate protection replacement liens, adequate protection payments, and fees and expenses on an interim basis to first lien secured creditors); In re Goodrich Petrol. Corp., No. 16-31975 (MI (Bankr. S.D. Tex. Apr. 18, 2016) (same); In re Midstates Petrol. Co., No. 16-32237 (DRJ) (Bankr. S.D. Tex. May 2, 2016) (same); In re Southcross Holdings LP, No. 16-20111 (MI) (Bankr. S.D. Tex. Mar. 29, 2016) (same); In re Sabine Oil & Gas Corp., No. 15-11853 (SCC) (Bankr. S.D.N.Y. Sept. 16, 2015) (same). III.
Entry into the DIP Facility Is an Exercise of the Debtors’Sound Business Judgment 44.
As described above, after appropriate investigation and analysis, the Debtors’
management has concluded that the DIP Facility is the best option available under the circumstances of these cases. Bankruptcy courts routinely defer to a debtor’s business judgment on most business decisions, including the decision to borrow money, unless such decision is arbitrary and capricious. See In re YL West 87th Holdings I LLC, 423 B.R. 421, 441 (Bankr. S.D.N.Y. 2010) (stating that "[c]ourts have generally deferred to a debtor's business judgment in granting section 364 financing"); Trans World Airlines, Inc. v. Travellers Int'l AG (In re Trans World Airlines, Inc.), 163 B.R. 964, 974 (Bankr. D. Del. 1994) (noting that the interim loan, receivables facility and asset-based facility were approved because they “reflect[ed] sound and prudent business judgment on the part of TWA . . . [were] reasonable under the circumstances and in the best interest of TWA and its creditors”). In fact, “[m]ore exacting scrutiny would slow the administration of the debtor's estate and increase its cost, interfere with the Bankruptcy Code’s provision for private control of administration of the estate, and threaten the court’s Page 26 of 35
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ability to control a case impartially.” Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303, 1311 (5th Cir. 1985). 45.
The Debtors, with the assistance of their advisors, have exercised their sound
business judgment in determining that a postpetition credit facility is appropriate and have satisfied the legal prerequisites to incur debt under the DIP Facility. In light of this, and that the Debtors could not obtain postpetition financing from another lending source on terms superior to the DIP Facility, the Debtors’ decision to enter into the DIP Facility is a sound exercise of the Debtors’ business judgment, including, as discussed below, the following aspects of the DIP Facility: (a) the Carve-Out; (b) the Budget; and (c) the payment of certain fees under the DIP Credit Agreement. Accordingly, the Court should grant the Debtors authority to enter into the DIP Facility and obtain funds from the DIP Lenders on the secured, administrative superpriority basis described above, pursuant to section 364 of the Bankruptcy Code. A.
The Scope of the Carve-Out is Appropriate
46.
The proposed DIP Facility subjects the claims and liens of the DIP Lenders to the
Carve-Out. Similar carve-outs for professional fees have been found to be reasonable and necessary to ensure that a debtor's estate and any statutory committee can retain assistance from counsel. See In re Autoseis, Case No. 14-20130 (Bankr. S.D. Tex. March 27, 2014) (granting a postpetition financing order with a carve-out for professional fees); In re ATP Oil & Gas Corp., Case No. 12-36187 (Bankr. S.D. Tex. Aug. 17, 2012) (same); Ames, 115 B.R. at 40. The DIP Facility does not directly or indirectly deprive the Debtors’ estates or other parties in interest of possible rights and powers by restricting the services for which professionals may be paid in these cases.
See Ames, 115 B.R. at 38 (observing that courts insist on carve-outs for
professionals representing parties-in-interest because “[a]bsent such protection, the collective rights and expectations of all parties-in-interest are sorely prejudiced”). Additionally, the CarvePage 27 of 35
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Out protects against administrative insolvency during the course of these chapter 11 cases by ensuring that assets remain for the payment of professional fees of the Debtors and any official committees, notwithstanding the grant of liens and claims under the DIP Facility. 47.
Importantly, the Carve-Out set forth in the DIP Orders (a) does not cause
disparate treatment with respect to the professionals retained by any official committee of unsecured creditors and the professionals retained by the Debtors, (b) includes the fees to be paid to the U.S. Trustee, and (c) does not impair the ability of any party to object to such fees, expenses, reimbursement or compensation. Accordingly, the Debtors submit that the proposed Carve-Out comports with the standard set forth in this Court’s Local Rules. B.
The Budget is Appropriate
48.
As described above, the Debtors’ access to Cash Collateral and DIP Loans under
the DIP Facility will be subject to the Budget, which, after extensive negotiations, has been approved by the DIP Lenders. After diligent consideration of all known circumstances, and upon consultation with their advisors, the Debtors believe, in their reasonable business judgment, that the proposed Budget (including the variances permitted thereunder pursuant to the DIP Credit Agreement) is achievable, reasonable under the circumstances, and will allow the Debtors to operate in chapter 11 without the accrual of unpaid liabilities. Furthermore, the Debtors believe that the Budget will be adequate, considering all available assets, to pay all administrative expenses due or accruing during the period covered by the DIP Facility and the Budget. Accordingly, the Debtors submit that the proposed Budget is appropriate. C.
The Payment of Fees under the DIP Agreement is Appropriate
49.
The fees and charges to be paid to the DIP Lenders and DIP Agent, as expressly
provided in the DIP Credit Agreement, are reasonable and appropriate under the circumstances. Courts routinely authorize debtor-in-possession lenders to impose fees beyond the explicit liens Page 28 of 35
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and rights specified in section 364 of the Bankruptcy Code. Moreover, such fees are often permitted where the associated financing is, in the debtors’ business judgment, beneficial to the debtors’ estates. See In re Aleris Int'l Inc., No. 09-10478 (Bankr. D. Del. Mar. 18, 2009) (approving a 3.5% front-end net adjustment against each lender’s initial commitment); In re Dura Auto. Sys., Inc., No. 06-11202 (Bankr. D. Del. Jan. 30, 2008) (approving a 2.5% fee related to refinancing and extending a postpetition financing facility); see also In re Great Atl. & Pac. Tea Co., No. 10 24549 (Bankr. S.D.N.Y. Jan. 11, 2011) (approving 3% letter of credit fee); In re InSight Health Servs. Holdings Corp., No. 10-16564 (AJG) (Bankr. S.D.N.Y. Jan. 4, 2011) (approving 2.5% DIP closing fee). Request For Use Of Cash Collateral 50.
By this Motion, the Debtors also request authority to use Cash Collateral on the
terms set forth in the proposed DIP Orders. The Debtors submit that this use of Cash Collateral is authorized pursuant to section 363(c) of the Bankruptcy Code.
Section 363(c) of the
Bankruptcy Code provides as follows: (1)
If the business of the debtor is authorized to be operated under section 721, 1108, 1203, 1204, or 1304 of this title and unless the court orders otherwise, the trustee may enter into transactions, including the sale or lease of property of the estate, in the ordinary course of business, without notice or a hearing, and may use property of the estate in the ordinary course of business without notice or a hearing.
(2)
The trustee may not use, sell, or lease cash collateral under paragraph (1) of this subsection unless— each entity that has an interest in such cash collateral consents; or the court, after notice and a hearing, authorizes such use, sale, or lease in accordance with the provisions of this section. 11 U.S.C. § 363(c).
51.
Section 363(e) of the Bankruptcy Code further provides, in pertinent part, that "on
request of an entity that has an interest in property . . . proposed to be used, sold, or leased, by the trustee, the court, with or without a hearing, shall prohibit or condition such use, sale, or lease as is necessary to provide adequate protection of such interest." 11 U.S.C. § 363(e). Page 29 of 35
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52.
The Debtors are seeking the use of Cash Collateral on a consensual basis, and the
Debtors have negotiated the use of Cash Collateral at arm’s length and in good faith with the Prepetition Lenders.
The terms of the DIP Orders provide Prepetition Lenders with the
following “adequate protection”: (a) replacement liens, (b) administrative claims and (c) cash payments of reasonable fees and expenses of counsel and advisors to the Prepetition Agent. As described in more detail above, these protections satisfy the adequate protection requirements of section 363(e). 53.
It is essential to the success of the Debtors' chapter 11 cases that the Debtors
immediately obtain authority to use Cash Collateral. The Debtors must maintain sufficient access to cash to continue to operate their businesses as a going concern for the direct benefit of all stakeholders and to develop and implement their reorganization. The preservation of estate assets, the Debtors continuing viability and their ability to successfully reorganize and maximize value for stakeholders, thus, depend heavily upon the expeditious approval of the relief requested herein. Most, if not all, of the Debtors’ cash constitutes encumbered Cash Collateral. The Debtors, therefore, seek immediate authority to access the DIP Facility and use Cash Collateral on an interim basis as set forth in this Motion and in the Interim DIP Order to prevent immediate and irreparable harm to their estates pending the Final Hearing pursuant to Bankruptcy Rule 4001(b). Request For Modification Of The Automatic Stay 54.
Bankruptcy Code section 362 provides for an automatic stay upon the filing of a
bankruptcy petition. The proposed Interim DIP Order contemplates the modification of the automatic stay (to the extent applicable), to the extent necessary to permit the (a) Debtors and (b) DIP Agent to implement the terms of the Interim DIP Order. Stay modifications of this kind are ordinary and standard features for the use of cash collateral, and in the Debtors’ business Page 30 of 35
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judgment, are reasonable and fair under the present circumstances. See, e.g., In re Autoseis, Inc., No. 14-20130 (RSS) (Bankr. S.D. Tex. Mar. 27, 2014) (modifying automatic stay as necessary to effectuate the terms of the order); In re ATP Oil and Gas Corp., No. 12-36187 (MI) (Bankr. S.D. Tex. Aug. 17, 2012) (same); In re MPF Holdings US LLC, No. 08-36084 (JB) (Bankr. S.D. Tex. Feb. 18, 2009) (same); In re TMP Directional Mktg., LLC, No. 11-13835 (MFW) (Bankr. D. Del. Jan. 17, 2012) (same). 55.
Accordingly, the Debtors respectfully request that the Court authorize the
modification of the automatic stay in accordance with the terms set forth in the Interim DIP Order and DIP Credit Agreement to permit the Debtors to grant security interests and liens described above, and to perform such acts as may be required to assure the perfection and priority of such security interests and liens. Good Faith 56.
The terms and conditions of the DIP Facility and the use of Cash Collateral are
fair and reasonable and were negotiated by the parties in good faith and at arm’s length. Therefore, the DIP Lenders should be accorded the benefits of section 364(e) of the Bankruptcy Code to the extent any or all of the provisions of the DIP Facility, or any Interim or Final DIP Order of this Court pertaining thereto, are hereafter modified, vacated, stayed or terminated by subsequent order of this or any other court. 57.
Bankruptcy Rules 4001(b) and 4001(c) provide that a final hearing on a motion to
use cash collateral pursuant to section 363 of the Bankruptcy Code may not be commenced earlier than fourteen (14) days after the service of such motion. Upon request, however, the Bankruptcy Court is empowered to conduct a preliminary expedited hearing on the motion and authorize the use of cash collateral to the extent necessary to avoid immediate and irreparable harm to a debtor’s estate. The Debtors request that the Bankruptcy Court conduct an expedited Page 31 of 35
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Interim Hearing on the Motion and authorize the Debtors to use the Cash Collateral for a 4-week period detailed within the Budget and in accordance with the terms of the Interim DIP Order and the Budget. Interim Relief is Warranted 58.
The Debtors are seeking immediate access to the DIP Facility, pursuant to the
terms of the Interim DIP Order. This Court may grant interim relief in respect of a motion filed pursuant to section 363(c) or 364 of the Bankruptcy Code where, as here, interim relief is “necessary to avoid immediate and irreparable harm to the estate pending a final hearing.� Fed. R. Bankr. P. 4001(b)(2), (c)(2). 59.
Bankruptcy Rule 4001(c)(2) governs the procedures for obtaining authorization to
obtain postpetition financing and provides, in relevant part: The court may commence a final hearing on a motion for authority to obtain credit no earlier than 14 days after service of the motion. If the motion so requests, the court may conduct a hearing before such 14 day period expires, but the court may authorize the obtaining of credit only to the extent necessary to avoid immediate and irreparable harm to the estate pending a final hearing. The Debtors have an immediate postpetition need to access the funds provided by the DIP Facility. As described in greater detail in the Declarations, the Debtors will be unable to operate their business as a going concern in the near term without the ability to access the DIP Facility and use Cash Collateral, and will suffer immediate and irreparable harm to the detriment of all creditors and other parties in interest. On the other hand, the Debtors will use liquidity obtained under the DIP Facility and Cash Collateral to, among other things, procure goods and services from vendors, complete existing drilling projects and begin new ones, and satisfy other working capital needs during these Chapter 11 Cases. In short, the Debtors’ ability to finance their operations and the availability of sufficient working capital and liquidity to the Debtors through the use of the DIP Facility and Cash Collateral is vital to the preservation and maintenance of the Page 32 of 35
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going concern value of the Debtors’ estates. 60.
The Debtors, therefore, seek immediate authority to access the DIP Facility on an
interim basis and as set forth in this Motion and in the Interim DIP Order to prevent immediate and irreparable harm to their estates pending the Final Hearing pursuant to Bankruptcy Rules 4001(b) and 4001(c). Accordingly, to the extent the Debtors require the use of Cash Collateral and postpetition financing, the Debtors respectfully submit they have satisfied the requirements of Bankruptcy Rule 4001 to support an expedited preliminary hearing and immediate DIP Facility and Cash Collateral availability on an interim basis. Request For Final Hearing 61.
Pursuant to Bankruptcy Rules 4001(b)(2) and 4001(c)(2), the Debtors request the
Court set a date for the Final Hearing as soon as practicable and fix the date and time prior to the Final Hearing for parties to file objections to the relief requested by this Motion. Waiver of Bankruptcy Rule 6004(a) and 6004(h) 62.
To implement the foregoing successfully, the Debtors request that the Court enter
an order providing that notice of the relief requested herein satisfies Bankruptcy Rule 6004(a) and that the Debtors have established cause to exclude such relief from the 14-day stay period under Bankruptcy Rule 6004(h), to the extent applicable. Notice 63.
The Debtors will provide notice of this Motion to: (a) the Office of the United
States Trustee for the Southern District of Texas; (b) the Debtors’ thirty (30) largest unsecured creditors on a consolidated basis, as identified in their chapter 11 petitions; (c) O’Melveny & Myers LLP, counsel to Capital One in its capacity as administrative agent under the proposed postpetition credit agreement and as administrative agent under the Debtors’ prepetition secured credit facility; (d) Norton Rose Fulbright LLP as counsel to Castex Energy, Inc., as a Page 33 of 35
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restructuring support party under the Restructuring Support Agreement; (e) the Internal Revenue Service; (f) parties that have filed a lien on the Debtors’ assets and (g) any party that has requested notice pursuant to Bankruptcy Rule 2002 as of the time of service. The Debtors submit that, in light of the nature of the relief requested, no other or further notice need be given. No Prior Request 64.
No prior request for relief sought in this Motion has been made to this or any
other court. WHEREFORE, the Debtors respectfully request entry of an Interim DIP Order, substantially in the form attached hereto as Exhibit A, granting the relief requested herein and granting such other relief as is just and proper. Respectfully submitted, KELLY HART & PITRE /s/ Louis M. Phillips Louis M. Phillips (#10505) Peter A. Kopfinger (#20104) Amelia L. Bueche (#36817) One American Place 301 Main Street, Suite 1600 Baton Rouge, LA 70801-1916 Telephone: (225) 381-9643 Facsimile: (225) 336-9763 Email: louis.phillips@kellyhart.com Email: peter.kopfinger@kellyhart.com Email: amelia.bueche@kellyhart.com AND Patrick (Rick) M. Shelby (#31963) 400 Poydras Street, Suite 1812 New Orleans, LA 70130 Telephone: (504) 522-1812 Email: rick.shelby@kellyhart.com Proposed Counsel for the Debtors
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CERTIFICATE OF SERVICE I certify that on October 16, 2017, I caused a copy of the foregoing document to be served by the Electronic Case Filing System for the United States Bankruptcy Court for the Southern District of Texas. /s/ Louis M. Phillips
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