A group of investment firms, among them Benefit Street Partners, may be nearing a substantial return of $600 million from an initial $5.6 million funding deal connected to the bankruptcy suit of Sanchez Energy Corp. Leading a collection of unsecured creditors that sought legal action following the 2019 bankruptcy, Benefit Street appears to have scored a victory. This follows the Tuesday ruling by a Houston federal judge who dismissed a challenge claim against their agreement, which entitles these firms to 90% of any generated proceeds.
Last year, Delaware Trust Co., in the capacity of an unsecured creditors’ representative, had secured a 70% stake in the energy company, presently operating as Mesquite Energy Inc. This came in the aftermath of Sanchez Energy’s bankruptcy proceedings. The claims of Delaware Trust Co. received backing from several key investors, including Benefit Street, Brigade Capital, Avenue Capital, and Taconic Capital.
A lawsuit was, however, raised by other unsecured creditors not privy to this deal. Spearheaded by Lake Whillans and Clear Harbor, they alleged the underlying $600 million agreement unfairly altered the reorganization plan of Sanchez Energy. Allegations were made that Delaware Trust, in connivance with some of the major unsecured claimholders, had committed to distributing around 90% of the equity regained for all unsecured claimholders. They argue that this is now valued at several hundreds of millions of dollars.
However, on Tuesday, Judge Marvin Isgur of the U.S. Bankruptcy Court for the Southern District of Texas decided to discard one of the lawsuit’s claims. Simultaneously, Lake Whillans and Clear Harbor were given the green light to modify their suit to pursue certain claims. The case in point is Lake Whillans Fund I LP v. Delaware Trust Company, Bankr. S.D. Tex., 23-03151, 4/30/24.