(Reuters) – Breitburn Energy Partners LP (BBEPQ.PK) has reached an agreement with holdout creditors over its $3 billion bankruptcy exit plan and hopes to win court confirmation as soon as this month for a reorganization under new ownership, a lawyer said on Monday.
On Friday, U.S. Bankruptcy Judge Stuart Bernstein rejected Breitburn’s plan to split into two separate creditor-owned companies, saying certain terms discriminated against retail bondholders, who had voted against the plan.
Judges rarely reject large corporate Chapter 11 plans, in part because the parties generally reach a broad consensus before seeking court approval.
During a status conference in U.S. Bankruptcy Court in New York on Monday, Breitburn lawyer Ray Schrock of Weil, Gotshal & Manges LLP said individual bondholders will be offered the same cash recovery as institutional bondholders, addressing Bernstein’s concerns.
The deal will cost Breitburn “a couple of million dollars,” he said, a small amount considering that the $3 billion bankruptcy of the oil-and-gas producer has lingered in court for two years.
Breitburn filed for Chapter 11 bankruptcy protection in 2016 after oil prices had slumped to below $30 a barrel from more than $100 in 2014, triggering a wave of bankruptcies across the energy industry.
Under the reorganization, a group of unsecured creditors led by Elliott Management Corp and WL Ross & Co will own choice reserves in West Texas through their participation in a $775 million rights offering. Creditors with $793 million in debt will own a second company with oil reserves in California, the Rocky Mountains and the U.S. Midwest and Southeast.
The reorganization plan was also opposed by Breitburn equity holders, who were at risk of paying a significant tax charge because of the company’s structure as a master limited partnership, which treats canceled debt as taxable income.
In a move to prevent a tax charge, the creditors that will own the new company have agreed not to convert it into a corporation once it emerges from bankruptcy.
“This goes a long way to potentially resolving what could amount to a $525 million tax liability for Breitburn common unit holders,” Vincent Indelicato of Proskauer Rose said on behalf of the equity holders.
Breitburn said it would file a revised reorganization plan as soon as Monday and requested a confirmation hearing to be held later this month.