In Re Ultra Petroleum Corporation

943 F.3d 758 (5th 2019)


Ultra Petroleum Corporation is an oil and gas exploration and production company. Petroleum's subsidiaries-UP Energy Corporation (Energy) and Ultra Resources, Inc. (Resources)-do the exploring and producing. Resources took on debt to finance its operations. Between 2008 and 2010, Resources issued unsecured notes worth $1.46 billion to various noteholders. In 2011, it borrowed another $999 million under a Revolving Credit Facility. Petroleum and Energy guaranteed both debt obligations. Crude oil cost well over $100 per barrel and the world showed endless promise but a year and a half later a barrel cost less than $30. The companies voluntarily petitioned for reorganization under Chapter 11. Oil prices rose to almost $80 per barrel, and the Petroleum companies became solvent again right in the middle of bankruptcy. The Companies proposed a reorganization plan that would compensate the creditors in full. On Class 4 creditors the companies would pay three sums: the outstanding principal on those obligations, pre-petition interest at a rate of 0.1%, and post-petition interest at the federal judgment rate. The debtors elected to treat the Class 4 Creditors as 'unimpaired.' They could not object to the plan. They objected anyway. They insisted their claims were impaired because the plan did not require the debtors to pay a contractual Make-Whole Amount and additional post-petition interest at contractual default rates. Prepayment of their notes triggers the Make-Whole Amount. That amount is designed 'to provide compensation for the deprivation of a noteholder's right to maintain its investment in the Notes free from repayment. Under the Note Agreement, petitioning for bankruptcy automatically renders the outstanding principal, any accrued interest, and the Make-Whole Amount 'immediately due and payable.' Failure to pay immediately triggers interest at a default rate of either 2% above the normal rate set for the note at issue or 2% above J.P. Morgan's publicly announced prime rate, whichever is greater. The Revolving Credit Facility contains an acceleration clause that made the outstanding principal and any accrued interest 'automatically due and payable.' The creditors argued the debtors owed them an additional $387 million-$201 million as the Make-Whole Amount and $186 million in post-petition interest. The debtors would set aside $400 million to compensate the Class 4 Creditors if necessary 'to render the creditors Unimpaired.' The bankruptcy court confirmed the plan. After confirmation, the debtors acknowledged the plan did not pay the Make-Whole Amount or provide post-petition interest at the contractual default rates. The debtors insisted the Class 4 Creditors were not 'impaired.' The bankruptcy court's view was that unimpairment 'requires that creditors receive all that they are entitled to under state law. If a plan does not provide the creditor with all it would receive under state law, the creditor is impaired even if the Code disallows something state law would otherwise provide outside of bankruptcy. The court ordered the debtors to pay the Make-Whole Amount and post-petition interest at the contractual rates to make the Class 4 Creditors truly unimpaired. This appeal eventually resulted.