(CN) – A Fifth Circuit panel reversed a bankruptcy court’s ruling that required Ultra Petroleum Corp. to pay roughly $400 million to creditors after the company’s “anomalous” pull-out from Chapter 11 bankruptcy proceedings amid rebounding oil prices.
The Fifth Circuit’s opinion, authored by Judge Andrew S. Oldham, accredits Ultra Petroleum’s ability to pull out of Chapter 11 to a “lottery-like rise in commodity prices.”
Ultra Petroleum took out substantial loans from 2008 to 2010 worth approximately $1.46 billion, with another $999 million borrowed in 2011, according to the ruling.
The oil industry was lucrative for Ultra Petroleum for a time, with oil prices above $100 per barrel. The company ran into hardship when the price point of oil barrels eventually tanked to less than $30 and the “world was flooded with oil.”
“Petroleum and its subsidiaries were flooded with debt,” Oldham wrote.
Following the oil price drop, Ultra Petroleum moved for a reorganization under Chapter 11. Shortly after, the oil market turned around with crude oil rising to roughly $80 per barrel. Due to this “lottery-like,” rebound, the company became solvent again, the ruling states.
“The combination of these anomalies makes these debtors as rare as the proverbial rich man who manages to enter the Kingdom of Heaven,” wrote Oldham.
The individual creditors argued that they were entitled to a “make-whole,” premium in the wake of the bankruptcy filing, which the bankruptcy court granted. However, the Fifth Circuit disagreed with the bankruptcy court’s findings that Ultra Petroleum’s filing impaired the lenders.
The appellate panel instead found that the lenders were not impaired under bankruptcy code because the reorganization plan left the contract “unaltered, legal and equitable,” the ruling states.
The panel also ruled that post-petition interest should be in accordance with the statutory federal judgment rate instead of the higher rate under the contract.