Hedge fund and PE shop move to save the floundering energy giant

The EP Energy bankruptcy might have a pair of saviors in Elliott Management and Apollo Global Management.

The two firms have put together a rescue plan for the bankrupt firm. A deal would allow Apollo to keep control of the oil and gas developer.

The companies sent a plan to Judge Marvin Isgur in Houston on Friday. A deal would see Apollo and Elliott convert their roughly 70% stake in the company’s 1.5-lien notes into 99% of the equity of the reorganized oil and gas company. They would then agree to backstop $325 million of its $436 million equity rights offering at a discount.

Is an EP Energy bankruptcy deal on tap?

The unsecured bondholder receives 1% of the equity in the new company, which amounts to a blood bath for the owners of those bonds. Their attorney called it patently unfair; however, if the judge agrees with the proposal, these bondholders won’t have enough power to stop the deal.

Apollo and Elliott own about 70% of its 1.5-lien notes. Another bondholder, hedge fund Avenue Capital, has also agreed to the proposal.

If the judge agrees with the proposal, the total debt will decrease by reducing the $4.9 billion debt load by two thirds. This plan would reduce interest expense by as much as $263 million annually.

The EP Energy bankruptcy came after the firm filed for Chapter 11 last week. The firm struggled to keep the lights on as lower commodity prices have surprised cash flow.

Around a dozen oil and gas companies have already gone bankrupt this year due to large debt loads and lower oil prices. If oil prices remain low, we can anticipate more bankruptcies.

The New York Stock Exchange suspended trading of EP Energy stock in May 2019.

The next hearing is set for Nov. 7 at 1:30 p.m. Central Time.