Item 1.01 – Entry into a Material Definitive Agreement
Restructuring Support Agreement
On July 28, 2020, Denbury Resources Inc. (the “Company”) and certain of the Company’s wholly owned direct and indirect subsidiaries (collectively, “Denbury”) entered into a Restructuring Support Agreement (the “RSA”) with (i) the lenders party to that certain Amended and Restated Credit Agreement (the “RBL”), dated as of December 9, 2014, as amended through the Eighth Amendment dated June 26, 2020, by and among the Company, as borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (collectively, the “Consenting RBL Lenders”), (ii) certain holders (collectively, the “Consenting Second Lien Noteholders”) of the Company’s (a) 9% Senior Secured Second Lien Notes due 2021, issued under the Indenture, dated as of May 10, 2016, (b) 9¼% Senior Secured Second Lien Notes due 2022, issued under the Indenture, dated as of December 6, 2017, (c) 7½% Senior Secured Second Lien Notes due 2024, issued under the Indenture, dated as of August 21, 2018 and (d) 7¾% Senior Secured Second Lien Notes due 2024, issued under the Indenture, dated as of June 19, 2019 (collectively, the “Second Lien Notes”), each by and among the Company, certain of its subsidiaries and Wilmington Trust, National Association as Trustee and (iii) certain holders (collectively, the “Consenting Convertible Noteholders” and, together with the Consenting RBL Lenders and the Consenting Second Lien Noteholders, the “Consenting Creditors”) of the Company’s 6⅜% Convertible Senior Notes due 2024 issued under the Indenture, dated as of June 19, 2019 (the “Convertible Notes”), among the Company, the subsidiary guarantors named therein and Wilmington Trust, National Association as Trustee. Capitalized terms used but not otherwise defined herein shall have the meaning given to such terms in the RSA.
The RSA provides for certain milestones requiring, among other things, that Denbury (i) commences solicitation of acceptances of the Plan (as defined below) no later than July 29, 2020; (ii) commences the Chapter 11 Cases and files the Plan and corresponding disclosure statement (the “Disclosure Statement”) no later than July 30, 2020 (the “Petition Date”); (iii) obtains entry of an order by the Bankruptcy Court approving the DIP Facility (as defined below) on an interim basis no later than August 1, 2020; (iv) obtains entry of an order by the Bankruptcy Court approving the Disclosure Statement and confirming the Plan (the “Confirmation Order”) no later than September 6, 2020; (v) obtains entry of an order by the Bankruptcy Court approving the DIP Facility on a final basis no later than the earlier of (a) the entry of the Confirmation Order or (b) 35 days after the Petition Date; and (vi) causes the Plan to become effective no later than 14 days after entry of the Confirmation Order.
The RSA contains certain covenants on the part of each of Denbury and the Consenting Creditors, including commitments by the Consenting Creditors to vote in favor of the Plan and commitments of Denbury and the Consenting Creditors to negotiate in good faith to finalize the documents and agreements governing the Restructuring. 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 by the parties under the RSA.
Although Denbury intends to pursue the restructuring in accordance with the terms set forth in the RSA, there can be no assurance that Denbury will be successful in completing a restructuring or any other similar transaction on the terms set forth in the RSA, on different terms or at all.
A copy of the RSA (and the Annexes thereto) are attached hereto as Exhibit 10.1 to this Current Report on Form 8-K and are incorporated by reference herein. The foregoing description of the RSA is only a summary, does not purport to be complete and is qualified in its entirety by reference to the RSA.
Proposed Joint Prepackaged Chapter 11 Plan of Reorganization
As of July 28, 2020, 100% of the Consenting RBL Lenders and Consenting Creditors holding approximately 67.2% of the Second Lien Notes and approximately 70.8% of the Convertible Notes signed the RSA, which contemplates a restructuring (the “Restructuring”) of Denbury pursuant to a prepackaged joint plan of reorganization (the “Plan”), which is attached to the RSA and under which the Denbury entities will file petitions for voluntary relief under chapter 11 (the “Chapter 11 Cases”) of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”).
Pursuant to the terms of the RSA, below is a summary of the treatment that the stakeholders of the Company would receive under the Plan:
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Second Lien Noteholders will receive their Pro Rata share of 95% of the new common stock (subject to dilution) in the new, reorganized company (the “New DNR Equity”);
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Convertible Noteholders will receive their Pro Rata share of (a) 5% of the New DNR Equity (subject to dilution) and (b) 100% of the Series A Warrants;
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if the Class of Subordinated Notes Claims votes to accept the Plan, Holders of Subordinated Notes Claims will receive their Pro Rata share of 54.55% of the Series B Warrants;
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holders of General Unsecured Claims will receive Cash or otherwise so as to render such claims unimpaired;
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if the Class of Subordinated Notes Claims and the Class of Existing Equity Interests votes to accept the Plan, Holders of the Company’s Existing Equity Interests will receive their Pro Rata share of 45.45% of the Series B Warrants.
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DIP Facility
Under the RSA, the Consenting RBL Lenders agreed to provide the Company and certain of its subsidiaries with a senior secured superpriority debtor-in-possession revolving credit facility in an aggregate principal amount of up to $615 million (the “DIP Facility”), which, upon satisfaction of certain conditions, including the effectiveness of the Plan, will become a senior secured revolving credit facility (the “Exit Facility”). Certain terms and conditions of the DIP Facility are set forth in the DIP term sheet attached to that certain commitment letter, attached hereto as Exhibit 10.2 (the “Exit Commitment Letter”), entered into by and among the Company and the Consenting RBL Lenders and/or their affiliates. The proceeds of all or a portion of the DIP Facility may be used for, among other things, post-petition working capital, permitted investments, general corporate purposes, letters of credit, administrative costs and premiums, expenses and fees for the transactions contemplated by the Chapter 11 Cases, payment of court-approved adequate protection obligations, and other such purposes consistent with the DIP Facility.
The foregoing description of the DIP Facility does not purport to be complete and is qualified in its entirety by reference to the final, executed documents memorializing the DIP Facility.
Exit Financing
On July 28, 2020, prior to the commencement of the Chapter 11 Cases, the Company entered into the Exit Commitment Letter with the Consenting RBL Lenders and/or their affiliates, which is subject to the satisfaction of certain customary conditions, including the approval of the Bankruptcy Court. In addition, as part of the RSA, the Consenting RBL Lenders and/or their affiliates have agreed to provide, on a committed basis, the Company with the Exit Facility on the terms set forth in the exit term sheet attached to the RSA (the “Exit Facility Term Sheet”). The Exit Facility Term Sheet provides for, among other things, post-emergence financing in the form of a senior secured revolving credit facility in an aggregate principal amount of up to $615 million, subject to an initial borrowing base redetermination at the closing of the Exit Facility. Any loans drawn under the Exit Facility will be non-amortizing.
The effectiveness of the Exit Facility will be subject to customary closing conditions including consummation of the Plan. The foregoing description of the Exit Facility Term Sheet does not purport to be complete and is qualified in its entirety by reference to the final, executed documents memorializing the Exit Facility, to be included in a supplement to the Plan to be filed with the Bankruptcy Court.