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Energy company seeks debt reorganization via Chapter 11


While the last thing a Texas business and its owners have in mind when they start and run the company is struggling to the degree that they need to consider Chapter 11 bankruptcy, it is often a useful method to get the company into a better position to succeed in the future. Regardless of the type of business it I --, large, medium-sized or small -- reorganization under Chapter 11 is an option to keep the business going and deal with debt in a way that is manageable and time-tested.

A pipeline company's parent company has filed for Chapter 11 bankruptcy as part of an agreement with owners and lenders that will eliminate $700 million in debt. This is known as a "prepackaged" Chapter 11 as the creditors agreed to the plan for restructuring that the company presented. Based on the plan, the owners of the holding company will place as much as $170 million into the operator in an exchange for equity amounting to two-thirds after the reorganization is complete. Half will emanate through financing to fund the Chapter 11 bankruptcy. The filing will have no affect on paying contractors, suppliers or trade creditors.

Any business can be severely hampered by debt. If those debts accrue to the point of potential catastrophe, it is imperative to understand the possible potential benefits of Chapter 11 bankruptcy. With Chapter 11 known as a reorganization bankruptcy, it is a useful way for certain businesses to continue operation without a liquidation or other strategy that will stop the business from running.

In this case, an energy company is moving forward with a filing for Chapter 11 bankruptcy as part of an agreement with creditors. While this is a relatively large energy pipeline company with a parent company and a partner, Chapter 11 bankruptcy can be a positive for a business of any size.

Source: Wall Street Journal, "Southcross Energy Parent Files for Bankruptcy," Patrick Fitzgerald, March 28, 2016

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