Denver-based Venoco Inc. won bankruptcy-court approval Wednesday for a restructuring plan that will slash nearly $1 billion in debt from the oil and gas producer’s books.
Judge Kevin Gross of the U.S. Bankruptcy Court in Wilmington, Del., confirmed Venoco’s Chapter 11 plan of reorganization, paving the way for the company to exit bankruptcy protection.
Smoothing the way for Venoco to secure the court’s approval was an early settlement of potential legal claims by one major bondholder and a last-minute deal to resolve the objections to the restructuring from two other bondholders.
“This case … could have gone in a very different direction,” Gross said Wednesday. “The consideration given and the concessions made were all in good faith and the result of hard work and hard negotiation, and the parties are to be congratulated for the result.”
Amid the decline in oil and gas prices, after securing support for its restructuring from secured bondholders Apollo Capital Management and MAST Capital Management. Apollo, a unit of New York-based Apollo Global Management, and Boston-based MAST agreed to forgive some $339 million in first- and second-lien bond debt in exchange for most of the new equity in the restructured Venoco. Apollo representatives are also slated to get three of the company’s four board seats when it leaves bankruptcy, Venoco lawyer Robert Burns said at Wednesday’s hearing.
Unsecured bondholder Candlewood Investment Group LP had previously threatened litigation related to the 2015 transaction that allowed Apollo and MAST to exchange their unsecured bonds for secured bonds, moving them ahead of unsecured bondholders in the line to be repaid.
However, Candlewood agreed not to bring the claims and signed on to back the restructuring plan shortly after the chapter 11 case was filed. In return, Candlewood and the other holders of $324.4 million in senior unsecured bond debt will share in $6.5 million in cash, 2.6 percent of Venoco’s new equity and a percentage interest in the oil and gas extracted from Venoco’s proposed expansion of drilling operations in the South Ellwood Field in Santa Barbara County, Calif.
Then last month, Sierentz North America LLC and Pentwater Capital Management — which hold senior unsecured bond debt as well as debt issued by Venoco’s parent — stepped forward to object to the restructuring.
Sierentz and Pentwater alleged that the plan was the “culmination of a collusive scheme” among Apollo, MAST and Venoco founder, chairman and owner Timothy Marquez to take “substantially all of the value” of Venoco’s business for themselves, cutting out other creditors.
Venoco, Apollo and MAST denied the allegations, and on the eve of Wednesday’s plan-confirmation hearing, they cut a deal to resolve the Sierentz and Pentwater objection.
The deal boosts the recoveries of Wilton, Conn.-based Sierentz and Evanston, Ill.-based Pentwater on account of the debt they are owed by Venoco’s parent company. Instead of a prior offer to give them warrants to buy 2 percent of Venoco’s new equity if they voted in favor of the restructuring plan, they now stand to recover up to $3.9 million in cash, court papers show.
Some of those payments, however, will be conditioned upon the success of the South Ellwood expansion, which still requires approval from California regulators.
Burns, the Venoco lawyer, said Wednesday that the company’s emergence from bankruptcy should help those efforts.
Founded in 1992, Venoco primarily explores for oil in locations offshore and onshore in southern California.
According to law firm Haynes and Boone, Venoco is one of 85 oil and gas producers that have sought bankruptcy protection in the U.S. and Canada in the past year and a half.
