Energy XXI to Cut $3B Worth of Debt in Chapter 11 Plan

 | Apr 14, 2016 | 10:15 AM EDT
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-- This article was written by Lisa Allen of The Deal

Following missed interest payments on two sets of notes, Energy XXI (EXXI) has filed for bankruptcy with plans to eliminate nearly $3 billion in debt.

The Houston oil and gas exploration and production company submitted its Chapter 11 petition in the U.S. Bankruptcy Court for the Southern District of Texas in Houston on Thursday, April 14, along with more than two dozen affiliates. The companies requested joint administration the same day.

In a Thursday statement, Energy XXI said that it had entered into a restructuring support agreement with holders of 63% of the company's second-lien notes on a reorganization strategy that would cut more than $2.8 billion from its balance sheet.

On Wednesday, a source familiar with the situation told The Deal the company was in talks with potential debtor-in-possession lenders and anticipated filing for bankruptcy in the near term.

The source, who requested anonymity, told The Deal that the Houston oil and gas exploration and production company was holding talks with DIP lenders late last week. (In its Thursday statement, the debtor said that it had enough cash on hand, about $180 million, and sufficient funds from ongoing operations to support its business during the Chapter 11 process.)

The source added that Energy XXI usually pays its employees on Fridays, but it handed out paychecks covering the period through Friday, April 15, on Wednesday, a tactic sometimes employed ahead of a bankruptcy filing.

A 30-day grace period expires Thursday related to missed interest payments on Energy XXI's $1.45 billion in 11% senior second-lien notes due March 15, 2020, and $143.99 million in 6.875% senior unsecured notes due March 15, 2024. Subsidiary Energy XXI Gulf Coast issued the second-lien and unsecured notes.

Energy XXI also has a waiver on certain requirements under its first-lien credit facility, set to expire Friday. In exchange for the waiver, the oil and gas company on March 15 accepted a borrowing base cut to $377.7 million from $500 million on its first-lien revolving credit facility, which bears interest at Libor plus 175 to 275 basis points and matures April 9, 2018. Wells Fargo Bank is agent on the first-lien facility, which also includes $227.8 million in outstanding letters of credit. The company faced covenant compliance problems.

The Deal previously reported bankruptcy was the likely outcome for Energy XXI.

Subsequently, the company warned March 7 that it might have to restructure in court if an out-of-court restructuring failed and the market didn't improve.

Officials at Energy XXI's financial adviser, PJT Partners, didn't return calls for comment. Its legal counsel, Vinson & Elkins, also was unavailable.

An Energy XXI spokesman didn't return calls.

Energy XXI bought time to continue restructuring talks last month by making up one missed interest payment. It announced March 15 that it has made up an interest payment that it missed Feb. 16 on its $480.24 million of 8.25% senior unsecured notes due Feb. 15, 2018, within the 30-day grace period.

The company had $1.76 billion in assets and $4.38 billion in liabilities as of Dec. 31, according to its latest quarterly report, released Feb. 16.

In an earnings announcement released that day, it touted the repurchase of $1.7 billion in face value of debt over the preceding seven months.

The oil and gas company said it had $391 million in liquidity as of Jan. 31.

Its net loss during the quarter ended Dec. 31 ballooned to $1.31 billion on $184.6 million in revenue, up from a $278.8 million net loss on $503 million in revenue during the same quarter in 2014.

The company, which is registered in Hamilton, Bermuda, has struggled in the wake of its hefty $2.3 billion acquisition of EPL Oil & Gas in March 2014.

-- This article was originally published by The Deal, a sister publication of TheStreet that offers sophisticated insight and analysis on all types of deals, from inception to integration. Click here for a free trial.

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