1
IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
In re: Chapter 11
SUPERIOR ENERGY SERVICES, INC., et al.,1 Case No. 20-35812 (DRJ)
Debtors. (Jointly Administered)
JOINDER TO THE DEBTORS’ BRIEF AND REPLY TO CERTAIN OBJECTIONS TO DEBTORS’ JOINT PLAN OF REORGANIZATION AND FINAL APPROVAL OF THE
DEBTORS’ DISCLOSURE STATEMENT
The ad hoc group of certain holders of Prepetition Notes (the “Ad Hoc Noteholder Group”),2 through its undersigned counsel, hereby files this joinder (this “Joinder”) in support of the Memorandum of Law in Support of (I) Approval of Debtors’ Disclosure Statement and (II) Confirmation of First Amended Joint Prepackaged Plan of Reorganization for Superior Energy Services, Inc. and Its Affiliate Debtors Under Chapter 11 of the Bankruptcy Code, filed substantially contemporaneously herewith (the “Debtors’ Brief”), and reply in response to the Chevron U.S.A. Inc., Union Oil Company of California and Chevron Midcontinent, L.P.’s
1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are: Superior Energy Services, Inc. (9388), SESI, L.L.C. (4124), Superior Energy Services-North America Services, Inc. (5131), Complete Energy Services, Inc. (9295), Warrior Energy Services Corporation (9424), SPN Well Services, Inc. (2682), Pumpco Energy Services, Inc. (7310), 1105 Peters Road, L.L.C. (4198), Connection Technology, L.L.C. (4128), CSI Technologies, LLC (6936), H.B. Rentals, L.C. (7291), International Snubbing Services, L.L.C. (4134), Stabil Drill Specialties, L.L.C. (4138), Superior Energy Services, L.L.C. (4196), Superior Inspection Services, L.L.C. (4991), Wild Well Control, Inc. (3477), and Workstrings International, L.L.C. (0390). The Debtors’ address is 1001 Louisiana Street, Suite 2900, Houston, Texas 77002.
2 The identity of each member of the Ad Hoc Noteholder Group and the nature and amount of such member’s economic interests are set forth in the Verified Statement of Davis Polk & Wardwell LLP and Porter Hedges LLP
Pursuant to Federal Rule of Bankruptcy Procedure 2019 [ECF No. 110]. Capitalized terms used but not defined
herein shall have the meanings ascribed to such terms in the Joint Prepackaged Plan of Reorganization for Superior
Energy Services, Inc. and Its Affiliate Debtors Under Chapter 11 of the Bankruptcy Code [ECF No. 11] (the “Plan”)
or the Disclosure Statement for the Joint Prepackaged Plan of Reorganization for Superior Energy Services, Inc.
and Its Affiliate Debtors Under Chapter 11 of the Bankruptcy Code [ECF No. 12] (the “Disclosure Statement”).
Objections to Debtors’ Joint Plan of Reorganization [Under] Chapter 11 of the Bankruptcy Code and Final Approval of Debtors’ Disclosure Statement (the “Chevron Objection” or “Chevron Obj.”) [ECF No. 227] and the Objection of Arena Energy, LLC and Arena Offshore, LP to Confirmation of Joint Prepackaged Plan of Reorganization for Superior Energy Services, Inc. and its Affiliate Debtors [ECF No. 242] (the “Arena Objection,” or “Arena Obj.” and together with the Chevron Objection, the “Objections,” and the parties to the Objections, the “Parent Guarantee Objectors”).3 The Ad Hoc Noteholder Group states as follows:
Preliminary Statement
1. The Debtors’ plan of reorganization represents a significant achievement. It reflects the culmination of more than a year’s worth of painstaking efforts by the Debtors, the Ad Hoc Noteholder Group, each of their respective advisors, and other parties to obtain consensus around how best to de-lever and improve the Debtors’ balance sheet, so that the Debtors’ business can remain competitive in a challenging sector-wide economic environment. The result of such efforts is a Plan that contemplates, among other things:
de-levering the Debtors’ balance sheet, so that the Debtors will go from shouldering approximately $1.3 billion in funded debt to, on the Effective Date, having zero dollars in funded debt on their balance sheet;
preserving thousands of jobs, employee benefit plans, healthcare plans, and other benefits provided to rank-and-file employees;
unimpairing virtually all of the Debtors’ trade creditors, vendors, suppliers, and key contract counterparties;
3 Hess Corporation and Apache Corporation each filed joinders to the Chevron Objection [ECF Nos. 230, 236] (collectively, the “Chevron Objection Joinders”). In addition, Marathon Oil Company filed a joinder to the Objections, and asserted an independent objection to the Plan on substantive bases nearly identical to those set forth in the Objections [ECF No. 250] (the “Marathon Objection”). This Joinder is also filed in response to the Chevron Objection Joinders and the Marathon Objection.
receiving commitments from reputable financial institutions to provide a $120 million, four-year, market-priced ABL facility that will support the Debtors’ go-forward letter of credit issuing needs; and
maintaining continuity in the management team and the operational leadership of the Debtors’ various subdivisions.
Consummation of the Plan will increase the Debtors’ operational flexibility, free up cash flow for reinvestment, best position the Debtors’ North American business for strategic opportunities, and improve growth prospects for the Debtors’ other “RemainCo” business segments. It is for these reasons that the Plan enjoys near universal creditor support and, according to the Debtors’ solicitation agent, has been accepted by every impaired class entitled to vote on the Plan.
2. Even the Parent Guarantee Objectors are better off under the Plan than any alternative. By virtue of the fact that the Legacy Parent Guarantee Claims can only be asserted against Parent Debtor Superior Energy Services, Inc., such claims are structurally junior to the approximately $1.3 billion of Prepetition Notes Claims that can be asserted against each of the Parent and the Parent’s Debtor subsidiaries. The Debtors have shown, and the Parent Guarantee Objectors have failed to present any evidence to refute, that the value of the Parent’s Debtor subsidiaries is hundreds of millions of dollars less than the allowed amount of the Prepetition Notes Claims. Because the Parent’s only material assets consist of equity interests in its directly held subsidiary, SESI, L.L.C., the Parent Guarantee Objectors are deeply out-of-the-money and are entitled to receive no value on account of their claims. Nevertheless, the Plan provides at least some recovery to these parties in the form of a $125,000 cash “gift.” Furthermore, the holders of Prepetition Notes Claims against the Parent have agreed to waive their right to payment from, and effectively turnover, their share of the Parent GUC Recovery Cash Pool so that the recovery of the holders of Legacy Parent Guarantee Claims is increased. Indeed, the Parent Guarantee Objectors’ recovery is doubly enhanced relative to what such parties are legally
entitled to—first, on account of the cash pool available for distribution to holders of Legacy Parent Guarantee Claims, and, second, on account of the holders of Prepetition Notes Claims horizontally “gifting” their recovery from the cash pool to the holders of General Unsecured Claims against the Parent.
3. The Parent Guarantee Objectors nevertheless take aim at alleged “facial infirmities that plague the Plan” and argue that the Debtors have failed to carry their burden to show that the Plan satisfies certain confirmation requirements under section 1129 of the Bankruptcy Code. Chevron Obj. at ¶ 43. None of the Parent Guarantee Objectors’ arguments has merit. Chevron contends that the Plan is unfairly discriminatory with respect to the class of General Unsecured Claims against the Parent (Class 6) under section 1129(b)(1) of the Bankruptcy Code, even though section 1129(b)(1) plainly does not apply to an impaired class, like Class 6, that has accepted the Plan. Arena argues that the Debtors have improperly “gerrymandered” Classes 5 and 6 at the Parent in order to obtain an impaired consenting class, even though the intent of the Parent classification scheme was to permit the class of General Unsecured Claims against the Parent (Class 6) to receive a better recovery than the class of Prepetition Notes Claims against the Parent and, if the two classes were combined, the single Class would have accepted the Plan (by an overwhelming margin). The remaining arguments that the Parent Guarantee Objectors advance—that the Plan fails section 1129(a)(7)’s “best interests test” and has not been proposed in “good faith” under section 1129(a)(3), among others—have no factual support whatsoever and are easily countered by evidence put forward by the Debtors.4
4 In the Chevron Objection, Chevron argues that the Court should deny approval of the Disclosure Statement because the Disclosure Statement lacks adequate information regarding the Plan’s classification scheme at the Parent, the range of recoveries among creditors at the Parent, and the Debtors’ liquidation and valuation analysis. (….continued)
4. For the reasons set forth in the Debtors’ Brief, in which the Ad Hoc Noteholder Group joins, and those detailed below, the Objections should be overruled and the Court should approve the Disclosure Statement and confirm the Plan.
ARGUMENT
A. By Its Plain Language, the Unfair Discrimination Test Under Section 1129(b)(1) Does Not Apply Where Class 6 Has Accepted the Plan
5. Chevron contends that the Plan “clearly unfairly discriminates” against the class of General Unsecured Claims against the Parent (Class 6), because the recovery by creditors in such class is “vastly inequitable” when compared to the recovery of holders of unsecured claims in Classes 7 and 8, the classes of Prepetition Notes Claims and General Unsecured Claims, respectively, against Affiliated Debtors. Chevron Obj. at ¶¶ 22-23. However, under the plain text of section 1129(b)(1) of the Bankruptcy Code, unfair discrimination with respect to an impaired class of claims can apply only if such class has not accepted the Plan. The Parent Guarantee Objectors ignore this basic statutory requirement.
6. Section 1129(b)(1) provides a basis to confirm a plan so long as the plan is fair and equitable and “does not discriminate unfairly . . . with respect to each class of claims or interests that is impaired under, and has not accepted, the Plan.” 11 U.S.C. § 1129(b)(1) (emphasis added). Under section 1129(b)(1), a plan can only discriminate unfairly “against an impaired class that has not accepted the plan.” In re Cypresswood Land Partners, I, 409 B.R. 396, 434 (Bankr. S.D. Tex. 2009) (internal citations omitted) (emphasis added); see also In re Tribune Co., 972 F.3d 228, 242 (3d Cir. 2020) (“unfair discrimination applies only to classes of (continued….)
See Chevron Obj. at ¶¶ 35-37. Additionally, in its Objection, Arena raises a feasibility argument with respect to the
Plan as it relates to surety bond commitments related to alleged plugging and abandonment claims. See Arena Obj. at ¶¶ 15-21. For the reasons set forth in the Debtors’ Brief, these arguments are either specious or lack any factual support.
creditors (not the individual creditors that comprise them), and then only to classes that dissent . . .[,] a disapproving creditor within a class that approves a plan cannot claim unfair discrimination.”). Here, Class 6 has accepted the Plan.5 See Declaration of James Lee of Kurtzman Carson Consultants LLC Regarding Solicitation of Votes and Tabulation of Ballots Cast on Joint Prepackaged Plan of Reorganization for Superior Energy Services, Inc. and Its Affiliate Debtors Under Chapter 11 of the Bankruptcy Code (the “Lee Affidavit”), filed substantially contemporaneously herewith. Therefore, contrary to Chevron’s argument, section 1129(b)(1)’s prohibition on unfair discrimination is simply inapplicable to Class 6.
7. Even if section 1129(b)(1) were to apply to Class 6, there is no discrimination as to such class, let alone “unfair” discrimination. “[T]he unfair discrimination standard prevents creditors and equity interest holders with similar legal rights from receiving materially different treatment under a proposed plan without compelling justifications for doing so.” In re Idearc, 423 B.R. at 171 (emphasis added); see also In re Murray Metallurgical Coal Holdings, LLC, 2021 WL 105622, at *54 (Bankr. S.D. Ohio 2021) (“[U]nfair discrimination can only be shown where similarly situated creditors are treated in a disparate matter.”) (citing In re Tribune Co., 972 F.3d at 232 (“‘[D]iscriminate unfairly’ is a horizontal comparative assessment applied to similarly situated creditors . . .”). All unsecured claims against the Parent are placed into one of
5 As described more fully in the Disclosure Statement, the Legacy Parent Guarantee Claims are unliquidated and contingent liabilities, and therefore, as is consistent with precedent and unopposed by the Parent Guarantee Objectors, for voting purposes such Claims are valued at $1.00. See Debtors’ Emergency Motion for Entry of an
Order (I) Conditionally Approving Disclosure Statement, (II) Scheduling Combined Hearing on (A) Adequacy of Disclosure Statement and (B) Confirmation of Plan, (III) Establishing Deadline to Object to Disclosure Statement and Plan and Form of Notice Thereof, (IV) Approving Solicitation Procedures and Forms of Ballots and Notices of Non-Voting Status, (V) Conditionally Waiving Requirement of Filing Schedules and Statements and of Convening Section 341 Meeting of Creditors, with Respect to Certain Creditors, and (VI) Grating Related Relief [ECF No. 20]
(“[I]f a proof of claim is filed for a Claim that is contingent or in a wholly-unliquidated or unknown amount, any Ballot cast on account of such Claim shall be treated as a ballot for a Claim in the amount of $1.00 solely for purposes of satisfying the dollar amount provisions of section 1126(c) of the Bankruptcy Code.”); see also In re
Hi-Crush Inc. (Bankr. S.D. Tex. July 27, 2020) [ECF No. 176] (using $1.00 as the claim amount for voting purposes); In re FTS International, Inc. (Bankr. S.D. Tex. Sept. 22, 2020) [ECF No. 18] (same).
two classes—Class 5 or Class 6—and both classes are treated in an identical manner. They both receive their pro rata share of the Parent GUC Recovery Cash Pool and, as the Plan states, holders of Prepetition Notes Claims in Class 5 have “waiv[ed] any distribution from the Parent GUC Recovery Cash Pool,” thereby enhancing the recovery of holders of General Unsecured Claims in Class 6 (such as the Parent Guarantee Objectors).
8. Chevron, however, asserts that the claims in Class 7, Prepetition Notes Claims against Affiliated Debtors, are “the same claims as the Class 6 claimants” and suggests that the unfair discrimination standard under Section 1129(b)(1) is tested as to classes of Claims across Debtor entities. Chevron Obj. at ¶ 22. Chevron goes on to argue that the Prepetition Notes Claims against Affiliated Debtors are “similarly-situated” to General Unsecured Claims against the Parent, a separate debtor, and that the disparity in recoveries between the two classes is “unfairly discriminatory.” Id. at ¶ 23. Chevron is wrong.
9. The Plan provides that it is “not premised upon the substantive consolidation of the Debtors” and that the Plan “constitutes a separate Plan for each Debtor.” Plan at 1. As such, the “unfair discrimination” standard set forth in section 1129(b)(1) as to the Plan for the Parent is evaluated by comparing “each class of claims or interests” under “the plan,” specifically the Parent’s plan, not by comparing such classes to classes under the Parent’s affiliate Debtors’ plans. In the absence of substantive consolidation of the Debtors, unfair discrimination cannot exist between classes at different Debtors that receive disparate treatment under separate plans of reorganization. See generally Bunker v. Peyton (In re Bunker), 312 F.3d 145, 153 (4th Cir. 2002) (“Under joint administration the estate of each debtor remains separate and distinct. Joint administration does not affect the substantive rights of either the debtor or his or her creditors.”) (internal citations omitted); In re Farmers & Feeders, Inc., No. 93-30770, 1994 WL 1887489, at
*3 (Bankr. D.N.D. 1994) (“The basic and most significant difference between substantive consolidation and joint administration is that joint administration does not affect the substantive rights of creditors and other interested parties since the estate of each debtor remains separate and distinct.”). Indeed, any difference in recoveries for Class 6 and Class 7 are directly attributable to the fact that Claims in such classes are against different Debtor entities that have different value that can be distributed to such Debtors’ different creditors and equity holders.
B. Arena’s Argument that Classes 5 and 6 Were Gerrymandered to Obtain an Impaired Consenting Class Rings Hollow Since Both Classes Have Accepted the Plan
10. Arena submits that the Plan is unconfirmable because Classes 5 and 6 were impermissibly gerrymandered “to guarantee an impaired accepting class to satisfy section 1129(a)(10) of the Bankruptcy Code.” Arena Obj. at ¶¶ 8-13. As an initial matter, Arena provides no evidence for this accusation, relying instead on “information and belief.” Id. at ¶¶ 11, 13. That alone is sufficient to reject the argument. More importantly, however, as explained above, Class 5 and Class 6 have each accepted the Plan, negating Arena’s premise that the claims were split into two classes in order to obtain one consenting class. See Lee Affidavit. However, even if Class 6 (the class of General Unsecured Claims against the Parent) had not voted to accept the Plan, Arena’s argument still falls flat. As the Lee Affidavit reveals, had Classes 5 and 6 been combined into a single class, that hypothetical class would still have voted overwhelmingly to accept the Plan. See Lee Affidavit.6 In other words, there was no need for
the Debtors to have gerrymandered and split up Classes 5 and 6 to obtain an impaired consenting class because the combined class would have voted (overwhelmingly) to accept the Plan.
6 According to the Lee Affidavit, if Classes 5 and 6 were combined for voting purposes, at least 84.29% of claimants in the single hypothetical combined class would be considered to have voted to accept the Plan, and this “assumes that all valid Class 6 rejecting ballots are counted in the full amounts asserted by the creditors,” even though the claims asserted by such holders are contingent and unliquidated.
11. Furthermore, Arena argues that Class 5 is not an impaired accepting class because it has waived “any right to a recovery at the Parent” and, therefore, is “deemed to reject the Plan pursuant to section 1126(g) of the Bankruptcy Code.” Arena Obj. at ¶ 14. Even if Arena were correct and Class 5 is deemed not to have accepted the Plan, the Plan is still confirmable because Class 6 has accepted the Plan. In any event, Arena misses the mark on the merits. The fact that holders of Claims in Class 5 are deemed to have waived their right to receive a distribution is irrelevant when considering whether Class 5 is deemed to reject, as made clear in the text of section 1126(g): “a class is deemed not to have accepted a plan if such plan provides that the claims or interest of such class do not entitle the holders of such claims or interests to receive or retain property.” 11 U.S.C. § 1126(g) (emphasis added). The Plan in fact entitles holders in Class 5 to receive their share of the Parent GUC Recovery Pool, but such holders are deemed to waive their right to any distribution, and no holder of a Claim in Class 5 has objected to such waiver. See Plan at 26.
12. None of the cases Arena has cited in support of its argument address whether a deemed waiver of the right to receive a Plan distribution causes holders in such class not to be “entitled” to receive property under the Plan. See In re Real Wilson Enters., 2013 Bankr. LEXIS 3997, at *11-12 (Bankr. E. Cal. 2013) (finding that “1126(g) looks to the four corners of the Plan” and where the Plan states “by its plain language” that a holder “‘shall receive no distribution under the Plan,’” then the class is deemed to have rejected a plan); In re 11,111, Inc., 117 B.R. 471, 477 (section “1126(g) provides that classes which receive nothing under the plan are deemed to reject the plan.”) (emphasis added); In re Waterways Barge Partnership, 104 B.R. 776, 783 (“[T]he debtor’s plan recites that the members of this class are to receive or retain nothing under the plan . . . [, a]s such, pursuant to § 1126(g), this class is conclusively deemed
not to have accepted the plan.”) (emphasis added). Here, the four corners of the Plan are unequivocal, “each Holder of an Allowed Prepetition Notes Claim against Parent shall receive . . . its Pro Rata share (calculated together with the Claims in Class 6) of the Parent GUC Recovery Cash Pool.” Plan at 26. Therefore, since Class 5 is entitled to receive a distribution under the Plan, irrespective of any waiver of the right to receive the distribution, they are not deemed to reject pursuant to section 1126(g). However, if Arena would prefer and if it would render its argument moot, the Ad Hoc Noteholder Group would not oppose an amendment to the Plan that eliminates such waiver.
C. The Debtors Have Shown by a Preponderance of the Evidence that the Plan Satisfies the Best Interests Test
13. Chevron argues that the Debtors “cannot meet their burden under section 1129(a)(7)” with respect to Class 6 because “the Debtors will not file schedules disclosing the assets and liabilities of the Subsidiary Debtors” and that “no information” has been provided regarding the value of the non-Debtor subsidiaries. Chevron Obj. at ¶ 27. This argument overlooks that attached to the Disclosure Statement (at Exhibit C) is a detailed liquidation analysis prepared by the Debtors’ professional advisors. The liquidation analysis shows that in a best-case “high” scenario, there would be only $400,000 of net liquidation proceeds available for distribution to all of the Parent’s creditors, which would be distributable first to repay DIP Superpriority Claims and then to repay other Claims senior to unsecured claims. No recovery would be available to any unsecured creditors of the Parent if the Parent were liquidated under chapter 7. Chevron makes no attempt to challenge the results, methodology, or component parts of the liquidation analysis in its objection, and unless Chevron successfully challenges such
analysis at the Confirmation Hearing, the Debtors will have established by a preponderance of the evidence that the Plan satisfies section 1129(a)(7).7
D. The Plan Was Proposed in Good Faith
14. The Chevron Objection also repurposes its section 1129(b) unfair discrimination argument by arguing that the Debtors have failed to propose the Plan in good faith under section 1129(a)(3) of the Bankruptcy Code solely because the Debtors “give preferential treatment to certain unsecured creditors versus other unsecured creditors.” Chevron Obj. at ¶ 29. However, courts have found that the “good faith” requirement should not be conflated with a generalized inquiry as to the confirmability of the Plan, and that a “debtor’s plan may satisfy the good faith requirement even though the plan may not be one which the creditors would themselves design and indeed may not be confirmable.” In re T-H New Orleans Ltd. P’ship, 116 F.3d 790, 802 (5th Cir. 1997); see also In re Trenton Ridge Inv., LLC, 461 B.R. 440, 471 (Bankr. S.D. Ohio 2011) (“[T]he Plans do violate the absolute priority rule with respect to unsecured creditors. That fact, however, is . . . not an adequate basis for finding that the Debtors failed to propose the Plans in good faith.”). Rather, “in analyzing whether a Chapter 11 plan was proposed in good faith, courts look to whether there is a reasonable likelihood that the plan will achieve a result consistent with the objectives and purposes of the Bankruptcy Code.” In re Trenton Ridge Inv., LLC, 461 B.R. at 471 (internal citations omitted).
15. Chevron does not produce any evidence of, or make any credible argument supporting, a lack of good faith in connection with the Plan. Case law holds that the Parent
7 In its objection, Arena asserts that it “should receive more than a pro rata share of $125,000” and that the Plan may deprive it and other holders of Claims in Class 6 of “value they would otherwise receive at the Parent, including $884,723.20 in cash and certain other causes of action.” Arena Obj. at ¶ 5. Although it is not clear, to the extent Arena argues that assets owned by the Parent entitle Arena to more than it would receive in a liquidation under chapter 7, for the reasons set forth above such argument is not persuasive.
Guarantee Objectors’ dissatisfaction with its recovery under the Plan does not provide grounds for allegations of a lack of good faith. To the contrary, the Plan is singularly proposed with the goal of restructuring the Debtors’ over-leveraged balance sheet for the benefit of all of the Debtors’ stakeholders.
CONCLUSION
16. For the foregoing reasons and those detailed in the Debtors’ Brief, the Ad Hoc Noteholder Group respectfully requests that the Court overrule each of the Objections, approve the Disclosure Statement, confirm the Debtors’ Plan, and grant such further relief as the Court may deem just and proper.
Dated: January 15, 2021
DAVIS POLK & WARDWELL LLP
/s/ Damian S. Schaible Damian S. Schaible* Adam L. Shpeen* Matthew B. Masaro* 450 Lexington Avenue New York, New York 10017 (212) 450-4000
(212) 701-5800 (fax)
[email protected] [email protected] [email protected] *admitted pro hac vice
- and - John F. Higgins Eric M. English
Megan N. Young-John
PORTER HEDGES LLP
1000 Main Street, 36th Floor Houston, Texas 77002 (713) 226-6000 (713) 226-6248 (fax) [email protected] [email protected] [email protected]
COUNSEL TO THE AD HOC NOTEHOLDER GROUP
