|3 Months Ended|
Mar. 31, 2020
|Subsequent Events [Abstract]|
Please read Note 3 - Liquidity for information regarding certain events subsequent to March 31, 2020 that relate to the events described in this Note 20.
Restructuring Support Agreement
On June 30, 2020, the Company and Rosehill Operating (together with the Company, the “Company Parties”) entered into the RSA, which includes the term sheet attached thereto as Exhibit A (the “Term Sheet”), with (i) Tema, as (a) the holder of approximately 66.8% of the voting equity interests of the Company and 35.2% of the equity interests in Rosehill Operating and (b) party to the Tax Receivable Agreement, (ii) certain beneficial holders of, or investment advisors, sub-advisors, or managers of discretionary accounts that are beneficial holders of claims under the Amended and Restated Credit Agreement among the Company Parties, JPMorgan and the lenders from time to time party thereto (the “Consenting Lenders”), and (iii) certain beneficial holders of, or the investment advisors, sub-advisors, or managers on behalf of discretionary funds, accounts or entities that are beneficial holders of claims under the Note Purchase Agreement, and 100% of the Company’s issued Series B Preferred Stock (the “Consenting Noteholders,” and together with Tema and the Consenting Lenders, the “Consenting Creditors”).
The RSA contemplates that the Company Parties will (i) file voluntary cases (the “Chapter 11 Filings”) under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) to effect a restructuring through a prepackaged chapter 11 plan of reorganization (the “Plan”) to be filed with the Bankruptcy Court on or before July 15, 2020 at 11:59 p.m. (prevailing Central Time) and (ii) enter into a proposed junior convertible debtor in possession delayed draw term loan facility (the “DIP Facility”), as evidenced by the DIP Credit Agreement (as defined in the RSA).
The RSA contains certain covenants on the part of each of the Company Parties and the Consenting Creditors including that the Consenting Creditors use commercially reasonable efforts to support the Restructuring Transactions (as defined in the RSA), to vote in favor of the Plan and to otherwise use good faith when negotiating the forms of the Definitive Documents (as defined in the RSA) with the Company Parties. The RSA also provides for certain conditions to the obligations of the parties and for termination upon the occurrence of certain events, including without limitation, the failure to achieve certain milestones and certain breaches or other actions by the parties under the RSA.
Proposed Plan of Reorganization
The Plan as contemplated by the RSA will provide for the following, among other things:
The terms of the Plan are subject to approval by, among other parties, the Consenting Creditors (pursuant to the terms set forth in the RSA) and the Company, as well as the Bankruptcy Court, among other conditions to the effectiveness of the Plan. The Company Parties intend to solicit votes from the Consenting Creditors with respect to the Plan prior to the Petition Date, and to commence solicitation of votes from the Preferred Holders prior to the Petition Date but to receive such votes after the Petition Date. Accordingly, no assurance can be given that the transactions described herein will be consummated. If a termination of the Plan occurs prior to the Chapter 11 Filings, then the Company’s lenders and noteholders could exercise remedies for Events of Default (as defined in the respective agreements) (including accelerating debt, sweeping cash and foreclosing on its assets). During the Chapter 11 proceedings, a termination of the RSA may result in the loss of support for the Plan, which would adversely affect the Company’s ability to confirm and consummate the Plan. If the Plan is not consummated, there can be no assurance that the Company could achieve a restructuring alternative and its Chapter 11 proceedings could become protracted or terminate, which would have a material adverse effect on the Company’s liquidity and ability to continue as a going concern.
Following the Chapter 11 Filings, the Company and Rosehill Operating (together, the “Debtors”) expect to operate the business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. Subject to certain exceptions under the Bankruptcy Code, the Chapter 11 Filings will automatically enjoin or stay the continuation of any judicial or administrative proceedings or other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the filing of the Bankruptcy Petitions. Under the Plan, the Company intends to ask the Bankruptcy Court to grant certain relief requested by the Debtors enabling the Company to conduct its business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorization to pay employee wages and benefits, to pay certain taxes and governmental fees and charges, to continue to operate our cash management system in the ordinary course, to secure debtor-in-possession financing, to remit funds we hold from time to time for the benefit of third parties (such as royalty owners), and to pay the prepetition claims of certain of our vendors that hold liens under applicable non-bankruptcy law.
The RSA contemplates that the Company Parties will file a motion with the Bankruptcy Court (the “DIP Motion”) seeking, among other things, interim and final approval of debtor-in-possession financing on the terms and conditions set forth in the DIP Credit Agreement. If approved by the Bankruptcy Court, the RSA provides that the DIP Credit Agreement will provide for the following, among other things:
The terms of the DIP Credit Agreement are subject to approval by the DIP Lenders, the Company, and the Bankruptcy Court, among other conditions. Accordingly, the terms of the DIP Credit Agreement are subject to change and there can be no assurance that the DIP Credit Agreement will be consummated. The Company anticipates closing the DIP Credit Agreement promptly following approval by the Bankruptcy Court of the DIP Motion.
Despite the liquidity that may be provided by the DIP Credit Agreement, the Company’s ability to maintain normal credit terms with our suppliers and vendors may become impaired. The Company may be required to pay cash in advance to certain vendors and may experience restrictions on the availability of trade credit, which would further reduce its liquidity. If liquidity problems persist, suppliers could refuse to provide key products and services in the future. In addition to the cash requirements to fund ongoing operations, the Company has incurred significant professional fees and other costs in connection with the RSA and expect that it will continue to incur significant fees and costs throughout the Chapter 11 proceedings.
Even if the Company obtains financing under the DIP Credit Agreement, it is uncertain the Company’s liquidity will be sufficient to allow it to satisfy its obligations related to the Chapter 11 proceedings or that it will be able to confirm a Plan with the Bankruptcy Court that allows it to emerge from bankruptcy. In addition, the Company will be required to comply with the covenants and conditions of our DIP Credit Agreement in order to continue to access borrowings thereunder.
In connection with the Chapter 11 Filings, as contemplated by the Term Sheet, the Company intends to delist its Class A Common Stock, Class A Common Stock Public Units and Class A Common Stock Public Warrants from Nasdaq. The Company also expects to terminate and suspend its reporting obligations under the Exchange Act when it is eligible to do so.
If the Chapter 11 Filing is not completed or the Plan is not consummated within the timeframe expected, the Company does not expect to have sufficient liquidity to fund capital expenditures. The Chapter 11 Filings will constitute an Event of Default under the credit agreement and Second Lien Notes and the delisting of the Class A Common Stock will constitute an Event of Default under the Second Lien Notes. The creditors under these debt agreements are subject to a forbearance under the RSA and, after the Chapter 11 Filings, will be stayed from taking any action against the Company as a result of an event of default.
The entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef