Strategy

KKR’s Energy Play Planning Chapter 11 Filing

The downfall of Samson Resources will wipe out the $4.1 billion in cash that private-equity firms led by KKR invested in the oil and gas producer.
Katie Kuehner-HebertAugust 17, 2015

KKR & Co.’s Samson Resources is heading toward a Chapter 11 filing next month after announcing a restructuring plan with key lenders that will wipe out the roughly $4.1 billion in cash KKR and its partners invested in the oil and gas producer.

Samson’s board approved the restructuring agreement on Friday, The Wall Street Journal reported, citing a person familiar with the deal.

KKR led a $7.2 billion leveraged buyout of Samson in 2011, the biggest-ever such deal for an energy producer. The private equity firm began writing down the value of its 55% stake less than a year after the deal closed, and a May regulatory filing indicated its huge debts made its owners’ equity essentially worthless.

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Samson’s planned Chapter 11 filing “would represent the biggest corporate casualty yet of a slump in oil and gas prices and another black mark in energy for [KKR],” the WSJ said.

Samson said it had entered into an agreement with lenders that would significantly reduce its overall indebtedness and result in an investment of at least $450 million of new capital into the business.

The company intends to skip a bond payment due Monday and use a 30-day grace period to seek broader creditor support for its plan. It will ultimately implement the reorganization as part of the bankruptcy process.

“Although Samson Resources has completed a series of initiatives to strengthen our business during this difficult and extended period of low commodity prices, we – like many of our peers – have not been able to overcome industry headwinds that significantly reduced our cash flows, limited our ability to reinvest in our assets and prevented us from selling non-core assets as we had planned,” Samson CEO Randy Limbacher said in a news release.

In recent weeks, the WSJ noted, investors have shown waning interest in buying new stock from energy companies, and bankers are predicting a wave of asset sales and defaults later this year if energy prices don’t rise.

“Samson’s downfall is a stark, albeit extreme, example of the pain private-equity firms are facing after the industry made a big bet on U.S. energy over the past decade or so,” the Journal said.