TGIF, right?! Before kick starting your weekend — here’s what you need to know about the recent decision from the United States Court of Appeals for the Third Circuit in the chapter 11 cases of SemCrude L.P. and its debtor affiliates.
SemGroup, L.P., a “midstream” energy company provided transportation, storage, and distribution of oil and gas products to oil producers and refiners. From 2005 through to July 2008, when SemGroup filed for chapter 11, SemGroup had a significant line of credit from a syndicate of over 100 different lenders. Despite prohibitions in its credit agreement, SemGroup participated in certain types of high risk trading activity unbeknownst to the lenders. Due to the erratic price of oil between July 2007 and February 2008, SemGroup posted large margin deposits, incurred significant borrowings, and ultimately defaulted under its credit facility (it does not appear that the default declared by the lenders was based upon the trading strategy). Shortly thereafter, SemGroup commenced a case under chapter 11 of the Bankruptcy Code. SemGroup’s chapter 11 plan was confirmed on November 20, 2009, pursuant to which a litigation trust, vested with the claims held by the SemGroup estate, was created.