Sabine Fights Creditors' Bid To Sue Over Forest Merger

Sabine Oil & Gas Corp. on Wednesday attacked its creditors’ attempt to unilaterally bring litigation over the company's 2014 merger with Forest Oil, telling a New York bankruptcy judge that doing so would undermine the company’s attempt to get support from financial stakeholders on a restructuring plan.

Sabine is opposing a motion that would give its official committee of unsecured creditors derivative standing to bring litigation over several matters tied to the bankruptcy, including the company’s 2014 merger with Forest Oil Corp. The creditors’ strategy would be costly to the estate and hinder Sabine’s ability to gain consensus on a Chapter 11 plan, an attorney for the debtor said during a court hearing in Manhattan.

Jonathan Henes, a partner at Kirkland & Ellis LLP who is representing Sabine, told U.S. Bankruptcy Judge Shelley Chapman that the debtor is preparing to submit a Chapter 11 plan to the court. Although creditors will likely oppose the plan when it is filed, Henes said the filing would offer a framework for continued negotiations between Sabine’s financiers — a settlement between various lending groups and creditors being the ultimate goal.

“We are working on a plan,” Henes said. “It is a plan that, in our view, will address every claim that could be out there.”

Possible litigation over the Sabine, Forest Oil tie-up has so far been a major sticking point in the bankruptcy. The company's creditors had been looking into whether it can bring any breach of fiduciary duty claims against Sabine's officers and directors over the merger.

The transaction was especially unusual in that the companies shifted the technical acquirer under the terms of their agreement after the deal had been announced, making Forest the acquirer in the bargain instead of the other way around and revealing the adoption of a shareholder rights plan.

The merger has also created issues between Sabine and its secured lenders. At a hearing earlier this week, Judge Chapman pushed parties to seek mediation in a lawsuit Sabine has filed against second-lien lenders over a $650 million lien on Forest Oil assets.

That complaint claims that through the merger with Sabine, Forest Oil pledged its assets to second-lien creditors but the company’s unsecured creditors didn’t receive fair value for the assets in the newly formed company.

An attorney representing the creditors committee could not immediately be reached for comment.

Sabine filed for bankruptcy in July, listing assets of approximately $2.5 billion and debts of $2.9 billion. The company, which has upstream operations in Texas and Louisiana, has said in court papers that the combination of cratering oil prices, still-low natural gas prices and substantial debt obligations forced the company to take the restructuring route.

Sabine is represented by Jonathan S. Henes, James H.M. Sprayregen, Paul M. Basta, Christopher Marcus, Gabor Balassa, Ryan B. Bennett, A. Katrine Jakola and Whitney L. Becker of Kirkland & Ellis LLP. Lazard is acting as financial adviser.

The creditors committee is represented by Keith Wofford, D. Ross Martin and Mark R. Somerstein of Ropes & Gray LLP.

The case is Sabine Oil & Gas Corp., case number 1:15-bk-11835, in the U.S. Bankruptcy Court for the Southern District of New York.