When Furie Alaska Operating LLC and affiliated companies filed a voluntary petition for Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware Aug. 9, 2019, the sale of the debtors’ Cook Inlet area production assets and the Kitchen Lights unit was scheduled to close in early January 2020 - not later than 150 days from the petition date.
The January date has come and gone, and two deals have fallen through. Now the debtors are working toward gaining court approval for a third deal with Anchorage-based Hex LLC, which is relying on a loan from the Alaska Industrial Development and Export Authority to close the transaction.
Hex was also the proposed buyer from the first deal - now defunct - which was based on Hex’s high bid in the scheduled auction for the Furie assets last year.
In the meantime, a fourth proposal has surfaced, from Escopeta KLU Operating LLC, a company led by Danny Davis, former president of Escopeta Oil - original operator of the Kitchen Lights unit.
Davis told Petroleum News April 17 that Escopeta KLU had made a competing offer for the Furie assets, but the offer was rebuffed without serious consideration by the debtors.
“We were offering more cash; when you have cash you can get out of a bankruptcy quicker, the company is stronger because the Hex deal has a $22.5 million loan against it just to start,” Davis said. “I think we would be able to develop it faster because we won’t have any serious debt except for the $15 million that goes to pay the DIP (debtor in possession) financing.”
Debtors have a deal with HexThe debtors have a deal with Hex, according to Timothy Walsh of McDermott Will & Emery LLP, counsel to the debtors.
“That deal has been solidified with definitive documents including a purchase agreement and a plan of reorganization that has been submitted to the bankruptcy court for approval,” Walsh told Petroleum News in an April 27 interview. “The document was subject to significant negotiations among many constituents in the case including the debtor and all of its lenders.”
Walsh said the plan of reorganization currently before the court reflects a meeting of the minds between all the major constituents in the case, and it includes resolution of substantial litigation that was outstanding, including that of a royalty and working interest owner group of which Davis is a part.
“The debtor did receive other indications of interest from various parties including Escopeta,” Walsh said. “Unfortunately none of the (other offers) entailed a settlement agreement with the debtors’ existing lenders. That’s very important because there is an existing DIP facility that needs to be satisfied.”
When asked about the $15 million secured DIP loan proposed to be issued as a part of the Hex transaction, Walsh said, “Currently that’s contemplated by the plan that’s before the court, but any of the parties that has an interest in doing a deal with the debtor would need to get the same terms from the lender, and so anyone that comes to the debtor and says I have a better deal, but it’s being ignored because mine has more cash in it, well it’s not being ignored by the debtors, but the debtors can’t commit unless we know that that deal will account for payment or a rollover of (of the DIP facility) and no deal that was presented to us had that except for the Hex deal.”
“And that’s really it in a nutshell: Hex right now has a deal with the lenders; nobody else does,” Walsh said. “The Hex deal is the deal that’s before the court, and that’s what we’re pushing to get approved within about the next month.”
“From my perspective, where I sit representing the debtor, I have a deal,” he said. “I have a signed deal with Hex, so if that deal doesn’t close for whatever reason, if it doesn’t get approved by the court, I’m happy to listen to any other deal, but right now that’s the deal that we’re pushing forward, and we’re hopeful that it will close and we think that it will close.”
Walsh said the debtors were uncertain about Escopeta’s ability to fund the transaction.
“If we were to go forward with his bid, we would want to know that he has the financing,” Walsh said. “When he first presented his bid we asked him for proof of financing, which he was unable to provide.”
“We have a settlement with him as a participant in the royalty working interest owners, and we looked at his bid, but the bottom line is that he didn’t have a settlement agreement with the banks, and that’s where we’re at.”
“There was no disparate treatment that he received — he needed to have a deal with the lenders, which he didn’t,” Walsh said.
“We are looking forward to having this deal finalized with the state and approved by the bankruptcy court in the next month and a half,” Walsh said. “Right now, it looks like it will be.”
When asked about remarks made by an AIDEA official that the proposed loan to Hex is conditioned on defining the agreement between Hex and the royalty and working interest owners group, Walsh said the deal with the RWIO group is finalized.
“They can’t hold up the closing of the Hex deal, and I don’t think that they want to,” he said. “That’s my understanding.”
Asked if it was a problem for the debtor to continue to fund operations if the asset sale is further delayed., Walsh said, “Exactly, it’s problematic.”
“The debtor and Hex are moving the process forward,” he said.