HOUSTON – The U.S. Bankruptcy Court for the Southern
District of Texas has seen a boom in major Chapter 11 bankruptcy filings this
year, particularly from companies in the energy sector.
In light of action taken by the judges in the district, the
uptick in Southern Texas filings may be no coincidence.
“The bankruptcy judges in Southern District put together a
protocol for complex Chapter 11 cases earlier this year,” John Little, a
Dallas-based Deloitte Advisory principal specializing in corporate
restructuring, told the Southeast Texas
Record. “That protocol allowed more certainty for a debtor regarding which
judge would get assigned a Chapter 11 case.
More importantly, it cleared up which judge would not get such a case."
As a result, Little said the district became very popular
for corporate bankruptcies.
The growing list of cases in the Southern Texas district
comes in a rather distant third to the most popular bankruptcy venues: Delaware
and the Southern District of New York.
“This change, almost by itself, increased the attractiveness
for a Debtor to file in Southern district versus an alternative venue, such as
Delaware or Southern District of New York,” Little said.
The large volume of energy sector filings made in Southern
Texas primarily coincides with the aftermath of plunging oil prices in 2015 and
the beginning of 2016. In addition, many of the oil and gas companies are based
in, or have operations in, Texas, as opposed to major coal companies, that have
mostly filed in venues closer to the states where their operations are
Little said he does expect to see more filings in Southern
Texas in the coming months, although perhaps at a slower pace than seen in the
spring of this year.
“We do expect more filings in 2016 and 2017, though the pace
of filings will reduce given that so many companies have already filed and
commodity prices have recovered to some extent,” Little said.
Major Chapter 11 bankruptcy cases currently pending in
Southern Texas include those filed by Sherwin Alumina Co. LLC, Energy XXI
LTD, Goodrich Petroleum Corp., Midstates Petroleum Co. Inc., Ultra Petroleum
Corp., LINN Energy LLC, SandRidge Energy Inc., Linc USA GP, Warren Resources
Inc., C&J Energy Services LTD and Global Geophysical Services LLC.
Of that group, Global Geophysical, SandRidge, C&J Energy,
Sherwin, Energy XXI, Goodrich, Midstates, LINN Energy, and Warren Resources all
made prearranged or pre-packaged filings, under which the terms of those
companies’ restructurings were negotiated with creditors and plan voting was
completed before the actual bankruptcy filings were made.
Global Geophysical, which filed its second bankruptcy case
in two years in early August, plans to liquidate and wind down its assets
through its latest Chapter 11 case. In addition, Sherwin’s pre-packaged plan
calls for a sale of its assets.
Linc USA made its filing after efforts to find out-of-court
options for addressing their debt problems failed. Ultra Petroleum said when it
filed for bankruptcy that it would use the Chapter 11 process to explore its
various restructuring alternatives and evaluate whether to reject or
renegotiate its contractual obligations.
The debt totals of these companies ranged from in excess of $100
million to more than $8 billion. Specifically, Sherwin, Linc and Global
Geophysical had in excess of $100 million in debt, Ultra Petroleum listed $3.12
billion, Midstates had $2.01 billion, C&J Energy had more than $1 billion, SandRidge
listed $4 billion in debt, Energy XXI had $4.38 billion, LINN Energy had $8.28
billion, and Warren Resources listed $545.17 million.