Endurance Energy Ltd (Re), 2016 ABQB 324

Court of Queen ’ s Bench of Alberta Citation: Endurance Energy Ltd (Re), 2016 ABQB 324 Date: 20160616 Docket: 1601 06765 Registry: Calgary In the Matter of the Companies’ Creditors Arrangement Act , R.S.C. 198, c. C-36, as amended And In the Matter of A Plan of Compromise or Arrangement of Endurance Energy Ltd. _______________________________________________________ Oral Reasons for Judgment of the Honourable Madam Justice K.M.

Horner _______________________________________________________ [ 1 ] This is an application to confirm Companies’ Creditors Arrangement Act (CCAA) Initial Order and a Sale Process Order granted ex parte in these proceedings on May 30, 2016. [ 2 ] Although, the first secured creditor group, referred to as the Syndicate, got only a few hours’ notice and counsel appeared on their behalf, I granted the Orders on a without prejudice basis and advised the parties that they could come back to argue afresh. [ 3 ] The issues raised by the Syndicate with respect to the Orders, broadly stated, are:

(1) The DIP loan contains an offensive term, namely a right of first refusal (ROFR) that will chill the entire process and unduly hobble the company, the Monitor, and the Court in dealing with potential purchasers; additionally, it seeks to put the equity holders (DIP Lenders) at an advantage to the Syndicate, contrary to their respective priority positions;

(2) The Financial Advisor engagement is too expensive and there are 3 other parties prepared to run the sale process for less money and on better terms. Alternatively, the Escrow Funds should be subject to the stay provisions of the Initial Order;

(3) The sale process should be extended past July 18 th in order to secure the best possible outcome; and

(4) The Syndicate’s professional fees, both legal and otherwise, should be included in the Admin Charge. [ 4 ] The company’s response is that:

(1) The DIP Lender is essential to the sales process and has said that the ROFR is an essential term and without it, there will be no funding. The Monitor’s proposal to use the 5 percent premium in the ROFR to pay any due diligence fees of an otherwise successful bidder should/could reduce the chilling effect upon the process of the ROFR;

(2) The Financial Advisor has the sale process underway, is the best available to conduct a complicated sale in a tight time frame, and the DIP Lender has advised that the DIP loan will not be funded if the Financial Advisor, BMO Capital Markets (BMO), is not approved;

(3) The company has agreed to change the bid deadline from July 18 th to July 25 th , or seven weeks from today; and

(4) The DIP Lender has agreed that its fees are not to be covered by the Admin Charge. The company takes the position that as the

Syndicate is not cooperating in the process, their fees should not be covered by the Admin Charge. They agree the Admin Charge should be reduced to $1.5 million dollars. [ 5 ] My decision with respect to these issues is:

(1) I confirm the Financial Advisor’s inclusion in the Admin Charge and continue the exemption of the Escrow Funds from the stay provisions in the Initial Order. Although the Syndicate did not see the Engagement Letter until May 30 th , 2016, they were aware at the end of March, 2016 that a Financial Advisor had been retained. I accept that BMO is a leader in this field and find that the Syndicate would have been generally aware that as a leader their fees would be commensurate. Further, as early as April 1 st , 2016, when Ms.

Saran emailed Endurance, the Syndicate was aware of $1.5 million dollars in Escrow Funds having been paid to the company’s counsel as BMO’s retainer. With a short sale process already in play, it is simply too late to terminate BMO and engage a separate Financial Advisor with the necessary attendant delay and with no certainty of cost savings.

(2) With respect to the DIP loan, after considering the factors in

section 11.2(4) of the CCAA, I will not approve the DIP loan with the ROFR term. I see no point in confirming a short sale process with complicated assets, using the most expensive Financial Advisor, and then crippling the process by fettering the Court’s discretion in allowing a ROFR in favour of the DIP Lender. Both the Syndicate and the DIP Lender can make credit bids, but there will be no DIP loan with the ROFR term approved. I am mindful that the DIP Lender has said that it will not fund without this term.

I am satisfied that there is no point in running an expensive sale process only to have the DIP Lender thwart the process with its override ability. If this means there is no sale process and the company closes its doors, I am still satisfied that I have balanced the stakeholder interests appropriately. This is essentially a liquidating CCAA where there is no real prospect of the company going forward with an arrangement. To be clear, I would confirm the DIP Loan and provide a priority charge with respect to it, should the DIP Lender change its mind about the ROFR term.

If that happens and a sale process goes forward then, as I have said I confirm BMO as the Financial Advisor, I include their fees in the Admin Charge, and I exclude the Escrow Funds from the stay provisions of the Initial Order.

(3) If the sale process takes place, then the deadline is extended by agreement to July 25th, 2016 or seven weeks from today.

(4) The Admin Charge in any event will include the Syndicate’s professional fees but will be reduced from $2.5 million to $1.5 million dollars. The DIP Lenders’ fees will not be included in the Admin Charge as they are covered by the DIP Charge. I am satisfied that there is ample precedent for uncooperative stakeholders to have their fees covered by the Admin Charge.

It improves the overall process to have all parties’ positions subject to scrutiny and opposing views. [ 6 ] I am mindful that using our new commercial week system we no longer have case management justices, but since this is in its infancy and I have dealt with now three hearings with parties, I am generally available the next few weeks and would make myself available fi there are additional matters that you need assistance with. Heard on the 8 th day of June, 2016. Dated at the City of Calgary, Alberta this 16 th day of June, 2016. K.M. Horner J.C.Q.B.A. Appearances: Leanne Williams Thornton Grout Finnigan

for Endurance Energy Ltd. G. Holub and G. Martel Stikeman Elliott LLP for Warburg Pincus Robert Anderson, Q.C. and Emily Paplawski Osler Hoskin and Harcourt LLP for BMO K.J. Bourasa Blake Cassels and Graydon LLP For the Lenders Gavin Mathews / Mathew Vernon Peacock Linder Halt & Mack LLP For the Lenders C.D. Simard Bennett Jones LLP For FTI