Aurelius, Farallon Take Aim at Sabine Oil’s Senior Lenders

Sabine Oil & Gas Corp.’s worst-off creditors are trying to grab back assets taken by senior lenders as the company tumbled toward bankruptcy, saying everyone else was hurt in the process.

The bid by Aurelius Capital Partners LP, Farallon Capital Offshore Investors II and Sabine’s other unsecured creditors threatens a potentially costly delay to the company’s plans to keep operating by drawing on $253 million it has in cash.

When Sabine merged with Forest Oil Corp. in December, the company let a group of second-tier lenders take properties as additional collateral and the alleged asset giveaway began, a committee of unsecured creditors said in an Aug. 19 court filing. It continued when another group staked claim to the cash, it said.

“These debtors need not be so beholden to the secured lenders,” the committee said. Sabine had admitted the secured lenders don’t have “perfected” rights to all oil and gas assets, the committee said.

Sabine is working with the committee and other lenders to resolve the cash issue and hopes to give the judge a “consensual” proposal at the next scheduled court hearing, Sept. 10 to use some funds, said lawyer Jonathan Henes, who represents the company.

The ruckus isn’t unusual when debt sinks a once-popular company. The law allows parties to try to improve their prospects by reclaiming assets moved just before a bankruptcy -- or earlier, if the borrower were insolvent. Sabine last month sued second-tier lenders over the security they took on a $650 million loan.

Merger Probe

The committee said it plans to probe the Forest Oil deal because Sabine’s lawsuit only partly addressed the giveaways. Senior lenders might have to give up some liens, it said.

Alan Kornberg, a lawyer for the second-lien lenders, didn’t respond to a call and e-mail seeking comment.

The disputed properties were shuttled around in the merger, when both companies were cash-strapped and lower energy and asset prices left senior lenders undersecured. Sabine blamed unnamed hedge funds for delaying a deal that looked better earlier in the year.

A fight over assets might delay Sabine’s Nov. 12 goal for proposing a restructuring plan, adding to the costs of putting it together.

Sabine has about $2.9 billion of liabilities.

The energy slump has also helped to put American Eagle Energy Corp., Dune Energy Inc. and Quicksilver Resources Inc. in bankruptcy this year.

The case is in re Sabine Oil & Gas Corp., 15-11835, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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