Business Context and Reporting Period
This Form 8-K, dated April 30, 2016, reports that Midstates Petroleum Company, Inc. (the "Company") and its subsidiary, Midstates Petroleum Company LLC, filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the Southern District of Texas. The Debtors will continue operations as debtors-in-possession under court jurisdiction.
Key Financial Metrics and Restructuring Terms
The filing details a prearranged plan of reorganization supported by a Plan Support Agreement with approximately 80% of Credit Facility Lenders, 74% of Second Lien Noteholders, and 77% of Third Lien Noteholders. Key financial terms include:
- Debt Reduction: Permanent pay-down of $82 million of the existing Credit Facility.
- Exit Facility: Replacement of the Credit Facility with a new $170 million exit facility upon emergence.
- Cash Payments: Pay-down of up to $60 million of Second Lien Notes in cash.
- Debt Conversion: Conversion of all remaining debt junior to the Credit Facility into equity.
- Equity Valuation: Warrants issued to Third Lien Noteholders are based on an equity valuation of $600 million.
Material Changes and Capital Structure
The bankruptcy filing triggered an event of default, accelerating obligations under the Credit Agreement, Second Lien Notes, Third Lien Notes, and two series of Senior Unsecured Notes. The proposed capital structure changes are as follows:
- Second Lien Noteholders: To receive approximately 96.3% of the reorganized company's equity (potentially 98.8%) plus cash distributions up to $60 million.
- Third Lien Noteholders: To receive 2.5% of equity and warrants to acquire 15% of equity.
- Unsecured Noteholders: To receive 1.2% of equity.
- Existing Equity: All existing equity interests will be extinguished with no consideration paid to current shareholders.
- Management Incentive Plan: 10% of the reorganized equity will be reserved for management grants.
Outlook, Risks, and Contingencies
The Company's future operations are contingent upon the confirmation of the Plan of Reorganization by the Bankruptcy Court. The Exit Facility will mature on the earlier of September 30, 2020, or four years post-emergence, with interest at LIBOR plus 4.50% (subject to a 1.00% floor). Borrowing base redeterminations are suspended until April 2018. Corporate governance of the reorganized entity will be subject to the consent of Second Lien Noteholders, who will appoint the initial board of directors. The filing notes that enforcement of accelerated debt obligations is automatically stayed under the Bankruptcy Code.
Investor Verification Checklist
- Verify the final confirmation of the Plan of Reorganization by the Bankruptcy Court.
- Confirm the exact amount of cash available for distribution to Second Lien Noteholders at emergence.
- Review the final terms of the $170 million Exit Facility, including covenants and borrowing base mechanics.
- Monitor the status of the intercreditor settlement regarding the 98.8% vs. 96.3% equity allocation for Second Lien holders.
- Assess the impact of the 10% management equity reserve on the dilution of creditor equity.