College Columns December 2016 - Page 8

Bankruptcy Now & Future

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enforceability of inter-creditor agreements that restrict chapter 11 plan voting. The audience initially favored this reform by a slight margin. Mr. Goldblatt, who has made significant contributions to a lengthy response to the Commissions’ report published by the Loan Syndication and Trading Association, seemed to win the debate by swinging the audience to undecided (or confused).

The final debate topic considered the Commission’s proposals to reduce or redefine a secured creditor’s right to adequate protection. Generally speaking, the Commission proposes changing the standard for determining whether a lienholder’s interest is adequately protected to consider (and then protect) the value that the lienholder would achieve through foreclosure. Building on the prior topic, this debate expanded into a rather fascinating policy discussion about the overall purposes and effects of secured credit and the bankruptcy system. The audience, which may have been getting hungry, ended up voting by a small plurality to retain the current understanding of adequate protection.

The overall polling results may indicate an “if ain’t broke, don’t fix it” mentality among practitioners. Perhaps the Texan-heavy audience would have expressed more enthusiasm for other reforms, such as venue selection.

Panel 2: Energytec and its Progeny

After a delicious lunch, the second panel of the day commenced. The Hon. Harlin Hale (N.D. Texas) moderated a panel on Energytec and its progeny, featuring Fellows Charles Beckham (Haynes & Boone), Becky Roof (AlixPartners), Robin Russell (Andrews Kurth), and Bill Wallander (Vinson & Elkins).

The panel began by providing some overall economic context: in short, oilfield services are becoming more expensive and less integrated due to the changing nature of American mineral production. As a result of this, standalone midstream companies with lots of debt and no producing assets have become more common. In a typical (and simplified) arrangement, the midstream companies build the pipeline on the producer’s land and in exchange receive profitable long-term gathering and processing agreements (GPAs) obligating the producers to use (and pay for) the pipeline, thereby enabling the midstream companies to recover their investments.

It appears some of those enviably happy-go-lucky transactional attorneys had decided that these GPAs would be viewed as covenants running with the land, and therefore relatively immune in a producer’s bankruptcy, instead of executory contracts that could be rejected or stripped from the underlying producing assets through a § 363 sale or plan confirmation, leaving the midstream company with a measly unsecured claim. After all, if GPA says it is a “covenant running with the land,” or a “dedication,” then what else is there to decide?

Plenty, according to the panel and the recent court cases they discussed. In Newco Energy v. Energytec Inc. (In re Energytec Inc.), 739 F.3d 215 (5th Cir. 2013), the Fifth Circuit did agree that a GPA-like agreement was a covenant running with the land under applicable state law, but nevertheless remanded to the trial court for a determination about whether the pipeline could be sold free and clear of the agreement under § 363(f)(5). In In re Sabine Oil & Gas Corp., No. 15-11835, 2016 WL 890299, __ B.R. __ (Bankr. S.D.N.Y. Mar. 8, 2016), the court indicated that the executory contract portions of a GPA could be rejected, and made a preliminary finding that the GPA does not run with the land under Texas law, but also noted that this question was not procedurally ripe for a final determination. The panel also discussed an ongoing dispute in In re Quicksilver, No. 15-10585 (Bankr. D. Del.) about attempts to sell a pipeline free and clear of a GPA.

The panel concluded by presciently predicting that most of these disputes would be consensually settled. The costs of delays, the risks of shut-in termination of leases, the need for future gathering and processing services, and