Bankrupt Lilis Energy Inc. is switching gears to a sales process after a restructuring agreement with its investor fell through.
The Permian Basin pure-play voluntarily filed for Chapter 11 on June 29, succumbing to bankruptcy following months of struggling to make debt payments. Concurrent with the Chapter 11 petitions, Lilis entered a restructuring support agreement (RSA) with affiliates of Värde Partners Inc. that if consummated was expected to reduce its debt by more than $34.9 million.
However, on Aug. 17, Värde Partners, which collectively own all of Lilis’ outstanding preferred stock, declined to pursue a new money investment in the company to sponsor its Chapter 11 plan of reorganization, Lilis said in a company release.
In a statement on Aug. 17, Joseph C. Daches, who serves as Lilis’ CEO, president and CFO, said: “While the company is disappointed that the Värde Funds declined to pursue the new money investment contemplated by the RSA, we are confident there will be significant interest in the company’s highly contiguous block of approximately 16,000 net acres located in the deep and overpressured portion of the Delaware Basin, including Winkler and Loving counties in Texas and Lea County in New Mexico.”
Värde Partners, a Minneapolis-based alternative investment firm, had approached Lilis at the beginning of this year with a non-binding cash take-private offer after the company missed several payments on its revolving credit agreement resulting in a borrowing base deficiency.
Lilis ended up selling a chunk of its Permian acreage in New Mexico’s Lea County, which it said in a February release would fund repayment of a “substantial portion” of its borrowing base deficiency. However, the company was still unable to make the final payment of $7.75 million due June 5 and was forced to enter into forbearance that month.
For the majority of 2019, the Fort Worth, Texas-based independent E&P company struggled to generate returns, even temporarily suspending drilling and completion operations at one point last year. Despite reporting improved operational efficiencies and G&A cost savings in its third-quarter results, by late 2019, Lilis said it had hired Barclays Capital Inc. as financial adviser to explore strategic alternatives.
In accordance with the terms of the RSA that Lilis entered into with its lenders, the company will immediately begin pursuing a process to sell substantially all of its assets through the Chapter 11 process, which may be pursuant to section 363 of the bankruptcy code or a Chapter 11 plan.
The proposed form of bidding procedures was previously filed with the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division, on July 13, and will be scheduled for hearing and approval by the court on Aug. 21.
Vinson & Elkins LLP is legal adviser to Lilis. Barclays Capital is serving as the company’s investment banker and Opportune LLP is its restructuring advise.