By Gary McWilliams
HOUSTON (Reuters) – U.S. oil and gas producer Chesapeake Energy (NYSE:)’s Chapter 11 bankruptcy plan was approved by a U.S. judge on Wednesday, giving lenders control of the firm and ending a contentious trial.
Chesapeake will emerge from bankruptcy with about $3 billion in new financing, a $7 billion reduction in debt, and eliminating $1.7 billion in gas processing and pipeline costs, under the plan endorsed by the court.
Investors who committed last spring to back the restructuring as energy tumbled stand to benefit enormously. A rebound in oil and gas prices raised Chesapeake’s value to about $5.13 billion, the judge hearing the case said.
Once the second-largest U.S. producer, Chesapeake filed for court protection last June, weighed down by debts from years of overspending on assets and from a sudden decline in energy demand and prices spurred by the coronavirus pandemic.
Creditors who opposed the plan claimed Chesapeake was bankrupt long before it sought court protection and harshly criticized terms that gave backers including mutual fund giant Franklin Advisers Inc. potentially huge returns.
First-lien note holders stand to get a 130% return on their claims and Franklin a 41% return, but unsecured creditors will only recover about 4% of their investment, said Robert Stack, who represented unsecured creditors. He argued the plan improperly favored a few at the expense of many. His testimony drew a rebuke on Wednesday from bankruptcy court Judge David Jones.
Chesapeake managers “should not be criticized,” said Jones, “they should be complimented,” citing the energy market crash. “I reject the assertion that people threw caution to the wind.”
Jones refused to consider a last minute financing offer by an investment group led by Jefferies (NYSE:) Financial Group to replace the financing that gave first-lien and Franklin heady returns.
At the same time, Jones acknowledged his decision to allocate a significant number of share-rights to Franklin and others in exchange for their financing provided what he called a “good deal.”
“I might have made a different decision with the benefit of hindsight,” Jones said. “The fact of the matter is I didn’t.”
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