Samson Resources Files for Bankruptcy Amid Oil Slump

Restructuring plan would give equity to junior lenders, including Silver Point, Cerberus and Anschutz in return for forgiveness of $1 billion in debt

By  Stephanie Gleason and Ezequiel Minaya  Updated Sept. 17, 2015 11:55 a.m. ET

KKR & Co.’s Samson Resources Corp. filed for chapter 11 bankruptcy protection Wednesday with a plan to restructure its business and wipe more than $3.25 billion in debt from its books.

The Tulsa, Okla.-based oil and gas producer has put forth a plan that would hand equity in the restructured company to junior lenders, including Silver Point Capital LP, Cerberus Capital Management LP and Anschutz Investment Co., who in return would forgive the $1 billion in debt they hold. Those bondholders have also agreed to recapitalize the company with as much as $485 million in new loans and to support a rights offering.

The plan will require bankruptcy court approval and a vote from creditors. However, Samson said it has already received the support of 68% of the junior lenders.

The debt-for-equity swap would wipe out KKR’s roughly $4.1 billion investment in the company. The private-equity firm led a $7.2 billion leveraged buyout of Samson in 2011, the biggest-ever such deal for an oil and gas producer.

Also as part of Samson’s restructuring, unsecured bondholders owed $2.25 billion are looking to share in a 1% equity payout with all other general unsecured creditors. That number will drop to 0.5% if the group opposes the deal, according to the plan. Those bonds were essentially worthless as of Wednesday, trading at $0.00375 on the dollar, according to Fitch Ratings.

The company said in court documents filed with the U.S. bankruptcy court in Wilmington, Del., that it expects its proposal to face opposition from the unsecured bondholders.

Samson said that during negotiations, it exchanged as many as 10 proposals with the unsecured bondholder group but couldn’t come to terms and thus decided to engage the junior lender group, whose debt sits ahead of the unsecured bonds. As of January, the bondholder group included Oaktree Capital Management LP and GSO Capital Partners LP. GSO didn’t immediately responded to requests for comment Thursday. Oaktree declined to comment.

Senior lenders, owed $942 million, would be paid in full with cash and new bonds under the plan.

On Thursday, Samson filed a series of requests with the bankruptcy court that, pending approval, would allow the company to continue operations during the bankruptcy process, pay employee salaries and benefits and pay royalties to mineral owners.

“We fully expect to operate our business as usual throughout this process and to emerge as a financially stronger company,” said Randy Limbacher, chief executive of Samson Resources.

The company is planning a quick trip through bankruptcy, working toward a Dec. 1 target for the bankruptcy court to approve its restructuring plan. It said time is of the essence, given the difficult environment in which it is currently operating.

Samson’s bankruptcy comes as energy companies across the U.S. are trying to shore up their finances with a main product—crude oil—fetching less than half what it did a year ago and natural-gas prices in a prolonged slump.

In 2007, KKR, with private-equity peer TPG, led a $32 billion deal for Texas utility TXU Corp., the largest leveraged buyout ever. After years of shuffling its finances to stay afloat, the company, renamed Energy Future Holdings Corp., filed for bankruptcy protection last year.

Private-equity firms often use borrowed money, or leverage, to buy a company with the hopes of juicing their gains on the eventual sale of an investment. But if conditions rapidly worsen for a business, as they did for Samson as commodity prices fell, the debt from the buyout can be difficult to repay.

Samson, which is primarily a natural-gas producer, ran into trouble shortly after the buyout closed, when gas prices tumbled to their lowest level in a decade. Meanwhile, the 44-year-old, formerly family-owned company, which had nearly enough cash on hand to pay off its $695 million in debt before the buyout, was left with $3.6 billion in debt on its books after the deal.

KKR booked losses on Samson some time ago and didn’t immediately respond to a request for comment. The firm began writing down the value of its 55% stake in Samson less than a year after the deal closed, and a May regulatory filing indicated its huge debts made its owners’ equity essentially worthless. Japanese trading house Itochu Corp., which took a 25% stake in the Samson buyout, in June said it was taking a full loss on its $1 billion investment.

Samson was founded by Charles Schusterman in 1971 when it took on the drilling operations of certain properties in California and began looking to acquire other low-risk investments. In the following decade, the company moved its focus to natural gas drilling and expanded operations internationally to Canada, Russia and Venezuela. Overall, the company said it has royalty or working interests in 8,700 oil and gas production sites.