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Texas Lawyer

Only 28 days after Baseline Oil and Gas Corp. of Houston filed a voluntary Chapter 11 petition, a federal bankruptcy judge confirmed the Houston-based energy company's reorganization plan.

To enable that speedy reorganization, a team of lawyers from Thompson & Knight spent five months getting ready for the Aug. 28 prepackaged bankruptcy filing in the U.S. Bankruptcy Court for the Southern District of Texas.

Tom Kaetzer, Baseline's chief executive officer, says Thompson & Knight did a good job helping the company lay the groundwork necessary for an expeditious Chapter 11. The preparation took months, but it was worthwhile, he says.

"Our overall goal was to keep it as simple as we could," he says. "We had a very simple structure - no banks involved, no multiple debt tiers, just two bondholders that owned the majority [of the debt]."

Hugh Ray, a bankruptcy principal in McKool Smith in Houston who was not involved in the Baseline bankruptcy proceeding but worked on a prepack in the 1980s, says the energy industry does not necessarily lend itself to prepackaged bankruptcies because the energy business is complicated and may involve many unsecured and secured creditors. For example, he says, it can be difficult to contact royalty owners and get their prior approval for a reorganization plan. But he says it helps in any bankruptcy to have some of the bigger players, such as secured creditors, signed on to a reorganization plan prior to a filing.

Ray says prepacks are more common in industries where there may be fewer creditors, such as in the case of a real estate company that may have only a few creditors and a single secured lender.

Read Bankruptcy Attorney Hugh Rays comments in Texas Lawyer article

Notes Come Due

Campbell says he started looking at Baseline's financial situation in March at the request of New York City corporate partner Matt Cohen, who has done work for Baseline for several years. Baseline, which was incorporated in 2004, is an independent oil and natural gas company with producing assets in Texas and Indiana.

Cohen did not return a telephone call seeking comment.

When announcing its bankruptcy filing in a press release on Aug. 31, Baseline said the restructuring was necessary because of its "inability" to repay some notes that were due and payable as a result of a change of control in July 2008. Also, the company noted, the impact of the nation's economic troubles on the U.S. and global credit markets, along with "steeply declining" commodity prices and results of the company's drilling program, made it difficult for the company to obtain financing to repay the notes.

As of June 30, 2009, the company's assets were $2.96 million, but its liabilities were $138.6 million, according to the release. Most of that debt was senior notes held by investment bank Jefferies & Co. of Stamford, Conn., and funds managed by hedge fund company Third Point of New York, Kaetzer wrote in a declaration filed with Baseline's petition.

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