The parent holding company for Marcellus driller Arsenal Resources, Arsenal Energy Holdings LLC, is applying for what has to be the fastest “prepackaged bankruptcy” we’ve ever heard of. Yesterday (Feb. 4) the company filed, claiming nearly all of its outstanding “stakeholders” are on board with the plan–and they aim to exit bankruptcy on Valentine’s Day, Feb. 14.
Arsenal Resources says vendors don’t have to worry, it’s business and usual and everybody will get paid everything they are owed. The bankruptcy is designed to convert $861 million in debt into equity (shares of stock). This is not the first time we’ve seen this kind of deal. We’ve written plenty about how existing stockholders typically get the shaft under such debt-to-equity conversions, with their shares becoming worthless.
In the case of Arsenal, the company says “100% of its common equity holders” have voted in favor of the deal. That says to us all of the shareholders are in favor of and will benefit from this deal (there are likely just a few such shareholders, we doubt there’s a lot of stock floating around).
At any rate, this one is a speeding bullet. Here’s the press release issued by Arsenal yesterday:
Arsenal Resources, a growing pure play natural gas operator in the Marcellus Shale, announced that its top tier holding company – Arsenal Energy Holdings LLC (“AEH”) – commenced a chapter 11 case in the Bankruptcy Court for the District of Delaware on February 4, 2019. AEH filed the chapter 11 case to implement a pre-packaged plan of reorganization (the “Plan of Reorganization”) whereby all of AEH’s outstanding subordinated notes (approximately $861 million) will be converted into equity through a debt-for-equity exchange.
Arsenal is pleased to announce that the Plan of Reorganization has overwhelming support from its stakeholders, with over 93% of the subordinated noteholders holding over 95% in principal amount and 100% of its common equity holders voting in favor. Arsenal anticipates that the AEH Plan of Reorganization will be consummated expeditiously and has sought approval to emerge from chapter 11 by February 14, 2019.
The chapter 11 case only involves a proceeding at AEH, which does not conduct operations, and all of its creditors other than the subordinated noteholders will not be impacted by the plan. Additionally, none of Arsenal’s operating entities, including any of its subsidiaries, will be affected by the chapter 11 case or the Plan of Reorganization. All of their employees, customers, vendors and lenders will be paid in the ordinary course of business without interruption as if the chapter 11 case had not been commenced.
“We are pleased that our stakeholders have shown their confidence in the Company and have voted nearly unanimously in favor of the Plan of Reorganization. Implementing the Plan of Reorganization will provide the Company with runway to execute on our growth-focused long-term operational business plan and will allow us to continue to operate seamlessly with no impact to our employees, customers and vendors,” said Jonathan Farmer, Chief Executive Officer of AEH.
About Arsenal Resources
Arsenal Resources is an independent exploration and production company headquartered in Pittsburgh, Pennsylvania that is engaged in the acquisition, exploration, development and production of natural gas in the Appalachian Basin. Through the strategic employment of select technologies, the company achieves continuous improvement in efficiencies and production results.*
*Arsenal Resources (Feb 4, 2019) – Arsenal Energy Holdings LLC Announces Commencement of a Fully Solicited and Voted on Pre-Packaged Chapter 11 Case
Petition filed by Arsenal requesting the court approve the bankruptcy plan:
Arsenal Brief History
In October 2014, Mountaineer Keystone, a pure play Marcellus driller headquartered in Pittsburgh, bought out PDC Mountaineer for half a billion dollars, creating a company with 181,000 net acres totally focused on the northeast (see Major New Player in the Marcellus Emerges: Mountaineer Keystone).
Mountaineer Keystone got its start in 2010 when founder/CEO Rob Kozel formed the initial management team from former Texas Keystone people. In 2011 the company took a boatload of money from First Reserve, an energy investment firm. We don’t have the back story, but in November 2015, Mountaineer announced that Kozel was out as CEO, and in his place the board has selected David Wood, the current Chairman of the Board at Mountaineer Keystone (see Shake-up at the Top of Marcellus Driller Mountaineer Keystone).
In February 2017, Mountaineer changed its name to Arsenal Resources (see Mountaineer Keystone Renames Itself Arsenal Resources).
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