Law360, Wilmington (April 07, 2014, 8:46 PM ET)
Approval of
Tuscany International Drilling Inc.'s disclosure statement for its Chapter 11 plan remained in limbo Monday after a Delaware bankruptcy judge said he would not OK the document without a signed asset purchase agreement from secured lenders expected to make a stalking horse bid for the company.
At a hearing in Wilmington, U.S. Bankruptcy Judge Kevin Gross appeared to side with some of the objections to the disclosure statement that the official committee of equity security holders had lodged, chiefly that the document did not contain finalized details about the stalking horse sale at the heart of Tuscany's Chapter 11 plan.
Judge Gross had approved bid procedures for that sale
March 21,
and was told then by Tuscany's counsel that the APA between the debtor and a consortium of prepetition lenders — which would make a stalking horse credit bid of either $125 million or $155 million, depending on what assets are sold — was in the final stages of negotiation and expected to be signed soon.
But Monday, Tuscany submitted its disclosure statement for the court's consideration with the APA still not ready, which sparked objections from the equity committee and the U.S. trustee's office, and prompted some scolding from the judge.
“I am not approving any disclosure statement without a signed APA,” Judge Gross said from the bench. “I was told I would have one 17 days ago. I feel like I have egg on my face.”
The equity committee had argued that a finalized APA was important to Tuscany's disclosure statement in part because the sale is slated to proceed through the Chapter 11 plan process and not under Section 363 of the Bankruptcy Code, which governs most bankruptcy auctions.
Tuscany attorney Keith A. Simon of
Latham & Watkins LLP argued that lack of one should not necessarily be a barrier to approval of a disclosure statement. As the case is structured, it is not a situation where the lenders funding the bankruptcy could simply walk away because they are also party to a restructuring support agreement, Simon said.
If need be, Tuscany could go ahead with a “Plan B” — a so-called naked auction, one without a stalking horse, where potential suitors could bid on portions of the debtor's assets, the attorney said.
Simon added that the only voting class for the Chapter 11 plan were the signatories to the restructuring support agreement and that none of them had objected to the disclosure statement.
Arguing for the equity committee, Adam G. Landis of
Landis Rath & Cobb LLP contended that a finalized APA was indeed relevant to the disclosure statement since it would speak to what a potential suitor would be bidding against, and argued that there have been several changes made to the draft APA that were not reflected in the proposed document.
The equity committee
had objectedto both the disclosure statement and Tuscany's sale plan, which it argued had “highly unreasonable” hurdles for prospective bidders and gave prepetition lenders “unwarranted control” over nearly every step of the process.
On Monday, Judge Gross said that the disclosure statement in Tuscany's case is not only for creditors' benefit, but also for potential investors or bidders, and he reiterated that one without a signed APA would not get his blessing.
Simon said that members of his firm's deal team were working on hammering out some remaining issues with the APA with the goal of presenting one to the judge either Monday night or Tuesday morning.
In the meantime, attorneys for both the debtor and the equity committee would negotiate language changes in the disclosure statement with the hopes of presenting a final revised version to the court.
Calgary, Alberta-based Tuscany
filed for Chapter 11 protectionin February after experiencing revenue and cash flow woes that began in 2012 due in part to low rig utilization, nonpayment by certain customers on large overdue accounts and underperforming acquisitions in Brazil and Africa, according to a bankruptcy declaration by Chief Restructuring Officer Deryck Helkaa.
The company provides onshore drilling and support services to companies involved in oil and gas exploration, development and production, focusing mainly on the South American market.
The equity committee is represented by Adam G. Landis, Kerri K. Mumford, J. Landon Ellis and Joseph D. Wright of Landis Rath & Cobb LLP.
Tuscany is represented by Michael R. Nestor and Kara Hammond Coyle of
Young Conaway Stargatt & Taylor LLP and Mitchell A. Seider, Keith A. Simon, David A. Hammerman and Annemarie V. Reilly of Latham & Watkins LLP.