Delta Petroleum gets competing offer; receives tentative statement OK

By Jim Witters

Wilmington, Del., July 5 - Delta Petroleum Corp.'s lawyer announced on July 5 that company management has received an offer competing with the plan sponsorship of, and proposed joint venture with, Laramie Energy II, LLC.

The statement came during a July 5 hearing in the U.S. Bankruptcy Court for the District of Delaware, during which judge Kevin J. Carey voiced his tentative approval of the disclosure statement associated with Delta's proposed joint Chapter 11 plan of reorganization.

Also during the hearing, Delta received approval for a debtor-in-possession financing facility forbearance agreement negotiated with lender Whitebox Advisors LLC. The $58.9 million DIP matured on June 30.

Competing bid

Delta attorney Kathryn Coleman said the prospect of a competing bid "should not halt or slow this process" while discussions continue. She disclosed neither the bidder nor the proposed terms.

As previously reported, Delta and Laramie plan to form a joint venture merging some assets of each company.

The proposed plan is intended to allow Delta to deleverage its balance sheet by forming a new joint venture limited liability company with Laramie.

The joint venture is to be called Piceance Energy, LLC.

Disclosure statement

Carey approved the disclosure statement, contingent on the acceptability of changes in the language to be completed by 2 p.m. ET on July 6.

The changes are intended to overcome objections to the disclosure statement made by various parties. None of the changes involved treatment of creditors under the proposed plan.

One question raised by the official committee of unsecured creditors was whether the new common stock to be issued by the reorganized debtors would be publicly traded through an exchange.

Coleman said that no final decision has been made but it is highly likely the stock will trade over the counter.

Carey said he understood the creditors committee is concerned that a distribution may be made "in an illiquid instrument." But, he said, the language in the disclosure statement is sufficient to alert voting creditors of the risk.

Another issue arose when U.S. Bank NA argued that the new stock being distributed to Class 5 noteholders, for whom U.S. Bank is the indenture trustee, should be the party to distribute the stock to its noteholders.

Coleman said the proposed Chapter 11 plan calls for a recovery trustee to handle that task and U.S. Bank can challenge the arrangement at the plan confirmation hearing.

One change made in the disclosure statement was the addition of a section explaining that the reorganized Delta may be encumbered with new debt incurred to pay off the DIP facility and to cover any unpaid administrative claims.

Attorneys for all parties at the hearing assured Carey that the needed revisions to the disclosure statement would be completed and provided for his consideration by 2 p.m. ET on July 6.

Delta needs an order entered by the close of business July 6 to keep to its schedule for the plan.

A plan confirmation hearing is scheduled for 2 p.m. ET on Aug. 15.

Under the agreement with Laramie, the plan must become effective by Aug. 30.

DIP forbearance

The DIP forbearance agreement provides:

• The DIP agent and DIP lenders will not exercise their rights and remedies in connection with the maturity of the loans until July 16;

• The lenders may make additional loans during the forbearance period at the sole discretion of the lenders; and

• Effective July 1, all obligations to the lenders will bear the default interest rate. The DIP facility called for interest of 13% payable in cash plus 6% of pay-in-kind interest. The default rate is 15%.

Daniel H. Golden, representing the creditors committee, was concerned that the agreement contained no requirement that Delta ensures it will not incur "ongoing new administrative expenses it has no money to pay."

Coleman assured the court that the debtors are not incurring expenses they cannot pay.

Lenders' attorney Robert J. Stark also said that the forbearance agreement is being back-dated to July 1 to help ensure that the fees and expenses for the attorneys and other professionals working on the case will not be subject to carve-out during the forbearance period.

The debtors will pay no forbearance fee.

Treatment of creditors

As previously reported, under the proposed plan, treatment of creditors includes:

• Priority non-tax claim and other secured claims will be paid in full in cash on the effective date;

• General unsecured claim will receive either 15% of the allowed amount of the claim in cash, or a share of 100% of the new common stock of reorganized Delta;

• Noteholder claims will receive a share of 100% of the new common stock of reorganized Delta;

• Intercompany claims against the debtors will receive no recovery;

• All existing Delta equity interests will be canceled and the holders will receive no value;

• Holders of securities litigation claims will receive no recovery; and

• All intercompany equity interests will be reinstated on the effective date.

Delta anticipates holders of intercompany claims, existing Delta equity interests and securities litigation claims will vote to reject the plan. So the company is seeking confirmation through the "cram down" provisions of the bankruptcy code, according to the disclosure statement.

If holders of general unsecured claims or noteholder claims reject the plan as a class, the debtors intend to "cram down" the plan over their objections, as well, documents state.

Delta Petroleum, a Denver-based oil and gas exploration and development company, filed for bankruptcy on Dec. 15. Its Chapter 11 case number is 11-14006.

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