With the steep collapse of oil and gas prices in the last eighteen months, dozens of exploration and production companies have declared bankruptcy and many more companies are expected to file for bankruptcy protection unless prices rebound dramatically. As the prospect of further bankruptcies looms, it is important for parties to understand how to adequately protect their security interests and the nature of competing liens that could prevent them from fully realizing on the value of the collateral securing their counterparty’s obligations.

Securities Alert February 1, 2016 E&P Restructurings: Focus on Uptiering Transactions By: Jennifer Wisinski, Paul Amiel, Bill Nelson and Kristina Trauger Times are tough, very tough, for many mid-cap and small-cap exploration and production (“E&P”) companies. Crude oil prices have fallen from more than $100/barrel in July 2014 to a twelve-year low of less than $30/barrel in January 2016. Natural gas prices are at a three-year low. The growing consensus is that depressed prices will experience a slow recovery that may continue into the 2020s.

Sophisticated real estate lenders spend significant amounts of time and energy attempting to insulate themselves from potential bankruptcy filings by their borrowers. A primary reason, which many an experienced real estate lender has found out the hard way, is the risk that a debtor in bankruptcy may “cram down” a plan of reorganization over its lender’s objection. Under a typical cramdown plan, a debtor may stretch out payments to its secured creditor for several years and attempt to replace its negotiated interest rate with a new, below- market rate of interest.

A recent decision by a New Jersey bankruptcy court scrambles the law regarding rejected trademark licenses.¹ Crumbs was a multi-location bakery that also licensed its trademarks and trade secrets to third parties. In July of 2014 Crumbs filed a Chapter 11 reorganization case and in August of 2014 the court entered an order selling substantially all of the assets of Crumbs to LFAC² free and clear of liens, claims, encumbrances, and interests.

In a case that should cause lenders heartburn, the United States District Court for the Western District of North Carolina recently ruled that common provisions in a Chapter 11 plan prevented the debtor’s lender from executing on a judgment against the non-debtor owner of the debtor.¹ Biltmore is a corporation² that operates manufactured home parks and sells and rents manufactured homes. McGee is the president and controlling shareholder of Biltmore. Biltmore filed Chapter 11 in January of 2011, and TD Bank was Biltmore’s largest secured creditor.

On August 26, 2014, Judge Robert D. Drain of the Bankruptcy Court for the Southern District of New York issued a bench ruling in In re MPM Silicones, LLC, Case No. 14-22503 (RDD), on several aspects of the plan of reorganization filed by debtor Momentive Performance Materials, Inc., a specialty chemicals manufacturing company, and its affiliated debtors.

On August 15, 2014, the Eleventh Circuit entered a Memorandum Opinion in the Wortley v. Chrispus Venture Capital, LLC case (In re Global Energies, LLC, “Global”)¹ unwinding a section 363 sale order entered in 2010 by the Bankruptcy Court for the Southern District of Florida based on a finding of bad faith in the filing of an involuntary bankruptcy case in 2010.

On September 3, 2014, the United States Court of Appeals for the Fifth Circuit entered an opinion vacating various orders of the United States Bankruptcy Court and District Court for the Southern District of Texas (the “Bankruptcy Court” and the “District Court”) in the bankruptcy cases of TMT Procurement Corporation and its affiliated debtors (the “Debtors”), including a final order approving the Debtors’ post-petition debtor in possession financing (the “DIP Order”) with Macqua

On January 17, 2014 the Bankruptcy Court for the District of Delaware issued a ruling in Fisker Automotive Holdings, Inc., et. al., Case No. 13-13087 (KG), which highlights potential risks to both secured creditors and purchasers of claims in bankruptcy section 363 sales. The facts in Fisker are straightforward. Fisker was founded in 2007 to make high-end electric cars and was financed principally with federal and state government loans secured by some, but not all, of Fisker’s assets.

In In re KB Toys,¹ a recent decision by the Third Circuit Court of Appeals, the Court held that a claim that is disallowable under § 502(d)² if held by the original claimant is also disallowable in the hands of a purchaser or subsequent transferee. In other words, if a creditor sells or assigns its claim to a claims trader and the creditor later becomes liable on a preference or fraudulent transfer,³ the claim may be disallowed in the hands of the claims trader if the creditor fails to pay the amount it owes to the estate.