Mayer Brown: Oil companies, lenders negotiate restructuring support agreements

More oil and gas companies are being forced into bankruptcy filings or other types of financing given the current oil price slump, and lenders are being drawn into what Mayer Brown partner Charles Kelley called “capital structure reengineering.”

Kelley moderated a panel on restructuring amid redeterminations at the Mayer Brown annual global energy conference in Houston on May 17. Federal regulators are closely watching the redetermination season. Twice yearly, banks evaluate credit lines. Each bank has its own method of determining the borrowing base for a particular company.

Oil and gas producers depend largely on bank credit lines to run their businesses. Kelley said companies getting ready to restructure are working closely with their bankers before filing for bankruptcy.

“I don’t see lenders wanting to extend credit and pretend,” Kelley said. “Instead, they are saying let us look at what you can do, but you have to get to this borrowing base.”

Fraser McKay, Wood MacKenzie Ltd. research director for corporate analysis, said the economics of a company’s assets “are what drives all this.”

He said some of the more attractive properties now involve the Permian basin, the Marcellus and Utica plays, and the SCOOP and STACK plays in Oklahoma.

“Strong companies are looking at distressed companies having assets in those areas,” McKay said.

David Baggett, founder and managing partner of Opportune LLP, said companies preparing for redeterminations focused on cutting field expenses as they tried to conserve cash.

“Liquidity is king,” Baggett said. “The banks are trying to be helpful in this price environment.” He said exploration and production companies generally do not thrive during a bankruptcy.

“You want support from creditors. You don’t want a free-fall bankruptcy that goes on,” Baggett said. He said companies filing for bankruptcy this year often already have arranged negotiated restructuring support agreements, or RSAs, with their creditors.

The key in RSAs is who signed them, Baggett said, adding the agreements outline details such as an employee-retention plan.

“Some of the timetables are getting tighter,” and more timetables are being discussed than in past bankruptcies, Baggett said.

Geoff Richards, Canaccord Genuity head of US debt finance and restructuring, said the RSAs almost look like a restructuring plan. RSAs are designed as a map regarding how a company plans to exit Chapter 11 reorganization bankruptcy, he said.

Kelley noted the process of getting oil executives and lenders to sit down at a table and talk can become “quite complex.”

Baggett described banks as being “more proactive,” adding that he sees banks becoming more involved to ensure that oil companies arrange loan terms that they can fulfill.

Contact Paula Dittrick at

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