GSO agrees to provide $20m loan to Warren Resources

Multiple lenders advised by the alternative asset management firm were first-lien lenders to Warren Resources before it sought bankruptcy protection.

Warren Resources has requested permission to eventually fund its operations with a $20 million loan while in bankruptcy as it looks to hand its first-lien lenders a majority stake in a the reorganized entity.

The oil and gas exploration and production company filed a motion Thursday with a federal bankruptcy judge in Houston, where the company, along with five affiliates, filed Chapter 11 petitions the same day. The filing sought to grant it access to the facility, which GSO Capital Partners would provide.

No hearing has been set on the matter yet, debtor counsel Henry Havre said, as Warren Resources does not need to access the funding just yet.

First-lien lenders would also provide an exit loan of at least $130 million upon exit from bankruptcy, according to a restructuring support agreement (RSA) that lays out Warren Resource’s roadmap out of court protection. Any outstanding amount on the $20 million debtor-in-possession loan could be rolled into the exit loan, at the lenders’ choice.

The first-lien credit agreement filed on 26 May last year, with the US Securities and Exchange Commission showed many GSO-advised funds to be lenders on the loan. GSO managing director Valerie Kritsberg did not respond to request for comment.

Under a yet-to-be-filed bankruptcy-exit plan, first-lien lenders would receive 82.5 percent of the new equity in a reorganized Warren Resources and their portion of the exit loan—which matures 22 May, 2020, and accrues interest, if paid in cash, at L+9 percent with an additional 1 percent if the interest is paid in kind. The exit financing’s Libor rate specifies a floor of 1 percent.

The postpetition financing would carry a rate of L+11 percent, with a default rate of L+13 percent. The facility would mature, among other potential dates, on 31 October, once the company exits Chapter 11, if Warren Resources closes a sale of substantially all its assets or the debtor defaults on the financing.

Houston-based Warren Resources develops oil and gas properties in California, coalbed methane natural gas in the Rocky Mountains, and produces dry natural gas in northeastern Pennsylvania.

The State Teachers Retirement System of Ohio, multiple PIMCO funds, the Santa Barbara County Employees Retirement System and the San Diego County Employees Retirement Association are creditors that are also party to the RSA. A representative for PIMCO declined to comment on the funds’ holding, while no representatives at the other firms could be reached.

Havre, of Andrews Kurth, said all the creditors were among holders of 88 percent of the 9 percent senior unsecured notes but declined to specify the amount the creditors held.

Watt in his declaration said the “dramatic decline in oil and gas prices and depressed state of the energy industry” negatively impacted Warren Resources’ revenue and liquidity. As a result, it had difficulty developing its oil and gas assets, Watt said, which affected the company’s ability to pay off its debt.

A Warren Resources investor relations spokesman could not be reached for comment.