By Tracy Rucinski
CHICAGO (Reuters) - A U.S. bankruptcy judge refused to allow a reorganization plan by Breitburn Energy Partners LP (PK:BBEPQ) to proceed for a creditor vote for the time being, an unusual move for a large Chapter 11 case.
Breitburn, a Los Angeles-based oil and gas explorer and producer, wants to exit bankruptcy by transferring prized assets in the Permian Basin to creditors over the objection of opponents who have called for an auction of reserves.
U.S. Bankruptcy Judge Stuart Bernstein reviewed the disclosures in the plan at a hearing in Manhattan on Tuesday but delayed a decision until after a hearing next week.
Disclosure statement hearings are normally a formality to clear the way for creditors to vote on a reorganization plan. Judges tend to address objections to the plan at a confirmation hearing, where they decide whether to green-light a bankruptcy exit.
By delaying a decision on the disclosures, Bernstein indicated he may have qualms about Breitburn's plan. The company has proposed giving holders of unsecured bonds the opportunity to buy their share of stock in a company to be created with the Permian assets, through a process known as a rights offering.
The stock sale would be guaranteed or backstopped by a group of creditors led by the investment firms Elliott Management Corp and WL Ross & Co, founded by U.S. Commerce Secretary Wilbur Ross and now owned by Invesco Ltd. The bondholders guaranteeing the stock sale would receive the opportunity to buy at least 40 percent of the stock and would receive additional stock as a fee.
Unsecured creditors and equity investors oppose the plan, which they argue undervalues the Permian assets. They have pressed the company to conduct an open auction which they say would generate a market-tested value of those reserves.
Diamondback Energy Inc (O:FANG) lodged an unsolicited $725 million offer for the Permian assets in October.
While Bernstein acknowledged there was no obligation to run a sale process, he also questioned why they were avoiding one. "If it looks like a sale, walks like a sale and quacks like a sale," then the proposal should be treated as a sale, he said.
Rights offerings have come under attack in other large Chapter 11 cases, but ultimately won bankruptcy court approval.
Breitburn filed for Chapter 11 in May 2016, one of more than 100 energy companies that sought court protection from creditors after oil prices crashed from more than $100 a barrel in 2014.