Some Interesting Issues Facing Current Bankruptcy Cases

May 09, 2019 11:20 AM ETBW, XCOOQ, VNRRQ, WLBAQ, WMLPQ17 Comments
WYCO Researcher profile picture
WYCO Researcher
6.71K Followers

Summary

  • Fight over the value of the new equity to be received by debt holders of EXCO Resources.
  • Westmoreland Coal shares are still trading despite having the reorganization plan confirmed by the court weeks ago.
  • Vanguard Natural Resources files for bankruptcy a second time.
  • Babcock & Wilcox is trying to raise cash via a rights offering to avoid bankruptcy.

There are many Ch.11 bankruptcy cases of publicly-traded companies that are not followed by the media, including Seeking Alpha. Often court rulings and issues from these cases have an indirect impact on other bankruptcy cases and traders need to be aware of this information in making investments in bankrupt companies. This article gives a brief overview of a few issues in some current or potential bankruptcy cases.

EXCO Resources - Fight Over Equity Valuation

EXCO Resources (OTCPK:XCOOQ), which has been in bankruptcy since January 2018, was hoping to exit bankruptcy last December, but because of lower energy prices, they were only able to get about an 80% commitment for exit financing and decided to wait until 2019. Since then, there has been a lot of litigation involving various insiders and hedge funds. The major current problem is the valuation of equity being paid to 1.5 lien and 1.75 lien claim holders under the reorganization plan. (Use docket 1907 for the red-lined filing).

Oaktree Capital Management, which owns 13% of the 1.5 lien notes, is asserting (docket 1883) that Fairfax and Bluescape Resources have established a too high of value for the new equity in order to give fewer new shares to Oaktree and other minor holders of 1.5 lien notes under the reorganization plan and thus are able to give more new shares to the lower priority class of 1.75 lien term loans. Collectively, Fairfax and Bluescape own about 75% of 1.5 lien notes and more than 75% of 1.75 lien term loan. While Fairfax and Bluescape will get few shares for their 1.5 lien claim, they will more than make up for this lower amount by the greater amount they will receive for their 1.75 lien claim. The court has ruled that this issue can be contested at the confirmation hearing that is currently set for June 10.

This article was written by

WYCO Researcher profile picture
6.71K Followers
B.A. in Economics; M.S. in Finance. I usually write about distressed companies and companies in Ch.11 bankruptcy. I am semi-retired after spending decades in investments.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Any prior long or short positions in mentioned companies have already been closed

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