This litigation arose from Chesapeake Energy Corporation’s (“Chesapeake”) Chapter 11 filing and subsequent plan of reorganization. Chesapeake was once the second-largest U.S. natural gas producer, but, following declines in oil and gas prices, in November 2019 Chesapeake announced concerns about its ability to continue as a going concern under its then-current debt load. In an effort to avoid bankruptcy and address going concern issues, Chesapeake executed two transactions in December 2019 (“Restructuring Transactions”) to consolidate assets and reduce total debt. The decline in oil and gas prices, however, accelerated with onset of the COVID-19 pandemic and spot prices for crude oil briefly went negative on April 20, 2020, an unprecedented event. Chesapeake ultimately filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas on June 28, 2020.
A committee of unsecured creditors (“Committee”) asked the Court to reject Chesapeake’s plan of reorganization. The Committee alleged, among other things, that the Restructuring Transactions improperly subordinated certain unsecured creditors’ claims and saddled Chesapeake with debt for which they did not receive reasonably equivalent value and that Chesapeake was insolvent at the time of, or became insolvent as a result of, the Restructuring Transactions. The Committee sought a judgment against Franklin Advisers, Inc. and Franklin Resources, Inc. (“Franklin”) and others finding that the Restructuring Transactions constituted fraudulent transfers and sought to have such transfers avoided and recovered.
On January 13, 2021, after a monthlong trial, Judge David R. Jones confirmed Chesapeake’s Chapter 11 plan of reorganization allowing it to emerge from bankruptcy protection. Under the confirmed plan, Chesapeake will emerge from bankruptcy with about $3 billion in new debt, a $7 billion reduction in the company’s debt load. The confirmed plan also includes a $600 million new rights offering with parties, including Franklin, Chesapeake’s largest stakeholder, who agreed to backstop the offering.
Compass Lexecon was retained by Franklin, through their counsel Akin Gump Strauss Hauer & Feld LLP (“Akin Gump”) to analyze the reasonably equivalent value and solvency issues raised by the Committee and provide support at deposition and trial. The Compass Lexecon team included Daniel Fischel, Rajiv Gokhale, Quinn Johnson, Mike Keable, Constance Kelly, and Jessica Mandel. Compass Lexecon worked closely with attorneys at Akin Gump, including David M. Zensky and Abid Qureshi.