HOUSTON (Reuters) – The bankruptcy plan for U.S. oil and gas producer Chesapeake Energy was approved by a U.S. judge on Wednesday, giving lenders control of the company and ending a contentious lawsuit.
Chesapeake will come out of bankruptcy with about $ 3 billion in new financing, $ 7 billion in debt reduction and a $ 1.7 billion reduction in gas and pipeline processing costs.
Investors who pledged last spring to support restructuring as energy fell should benefit enormously. A rebound in energy prices took Chesapeake’s value to around $ 5.13 billion, the judge in charge of the case said.
Once the second largest producer of natural gas in the United States, Chesapeake filed for court protection last June, reeling from overspending on assets and a sudden drop in demand and prices spurred by the pandemic of coronavirus.
Creditors who opposed the plan claimed Chesapeake was bankrupt long before seeking court protection and harshly criticized the terms that gave lenders, including mutual fund giant Franklin Advisers Inc., exhilarating returns.
Senior Noteholders are expected to earn 130% on their claims and Franklin 41%, but unsecured creditors will only get about 4%, said Robert Stack, who represented unsecured creditors. The plan unduly favors a few at the expense of many, he said. His remarks drew a reprimand from bankruptcy court judge David Jones.
Chesapeake executives “shouldn’t be criticized,” Jones said, “they should be complimented,” citing the energy market crash. “I reject the claim that people have thrown caution to the wind.”
The plan will allow Chesapeake to become “a stronger, more competitive company,” spokesman Gordon Pennoyer said.
Jones declined to consider a last-minute offer from an investment group led by Jefferies Financial Group to replace the financing that provided Franklin with compelling returns.
At the same time, Jones acknowledged his decision to award a significant number of rights of action to Franklin and others in exchange for their funding on the condition of what he called a “good deal.”
“I might have made a different decision in hindsight,” Jones said. “The point is, I didn’t.”
Reporting by Gary McWilliams; Editing by Aurora Ellis and Richard Pullin