Download Form 8937 - Seventy Seven Energy

Seventy Seven Energy, Inc.
EIN: 45-3338422
Attachment to Form 8937, Report of Organizational Action Affecting Basis of Securities
Description
SSE Common Equity
SSE Warrants
CUSIP #
81809A 100
New A Warrants: 81809A 118,
New B Warrants: 81809A 126,
New C Warrants: 81809A 134
Ticker Symbol
SSE
Not Available
Form 8937, Part II, Line 15
On the Effective Date, the Company issued (1) New Common Stock to certain creditors of the Company
holding Existing Notes (the “Senior Unsecured Noteholders”), (2) New A Warrants (as defined below) to
certain Senior Unsecured Noteholders, (3) beneficiary interests in the Litigation Trust to certain Senior
Unsecured Noteholders (the “OpCo Litigation Trust Beneficiaries” and “HoldCo Litigation Trust
Beneficiaries”), and (4) New B Warrants (as defined below) and New C Warrants (as defined below) to
Existing Stockholders, in each case in accordance with the Chapter 11 Plan of Reorganization (the
“Plan”). On the Effective Date, the Company issued the following:
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22,000,000 shares of New Common Stock, par value $.01 per share.
9,953,522 total warrants to purchase 9,953,522 shares of New Common Stock (exercisable until
their applicable expiration date), at an initial exercise price of $23.82 per share for Series A
warrants (the “New A Warrants”), $69.08 per share for Series B warrants (the “New B
Warrants”), and $86.93 per share for Series C warrants (the “New C Warrants”).
The New A Warrants and New B Warrants expire 5 years after issuance and the New C Warrants
expire 7 years after issuance.
On the Effective Date, the Company transferred and assigned to the Litigation Trust, all causes of
action held by the Company in connection with the Company’s separation from Chesapeake
Energy Corporation (“CHK”) (the “Contributed Claims”) (the “Spin-off”).
The Litigation Trust provides that each OpCo Litigation Trust Beneficiary and each HoldCo
Litigation Trust Beneficiary receives pro-rata interests in the Litigation Trust according to the
amount of their respective allowed note and guaranty claims.
Recipients of Litigation Trust interests should consult with their financial advisor to determine the
value of their respective interests in the Litigation Trust.
The Litigation Trust is intended to qualify as a liquidating trust for US federal income tax purposes
and has been structured with the intention of qualifying for grantor trust status for US federal
income tax purposes by following the criteria set forth in Rev. Proc. 94-45, 1994-2 C.B. 684.
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1. Exchange of $1,135,492,618 of the Existing Notes for New Common Stock, New A
Warrants, and Litigation Trust interests:
a. The Company is taking the position that the exchange of New Common Stock and New A
Warrants (as applicable) for the Existing Notes will qualify as a reorganization under Section
368(a)(1)(E) of the Internal Revenue Code. If such is the case, the recipient Senior
Unsecured Noteholder should take an aggregate tax basis and holding period in the New
Common Stock and the New A Warrants (if any) (other than any New Common Stock and
New A Warrants that are attributable to accrued but unpaid interest) equal to such recipient’s
tax basis and holding period in the Existing Notes immediately prior to the Reorganization.
b. The Company does not have information with respect to any Unsecured Senior Noteholder’s
tax basis or holding period in the Existing Notes.
c. The Company is taking the position that the Existing Notes qualify as securities for US federal
income tax purposes.
d. Senior Unsecured Noteholders that receive interests in the Litigation Trust should recognize
gain to the extent of the FMV of the interest received (to the extent attributable to the value of
the Contributed Claims).
e. A US holder’s tax basis of an interest in the Litigation Trust should equal the holder’s fair
market value of such interest as of the effective date of the plan of reorganization (the
“Effective Date”).
f. A US holder’s holding period for such Litigation Trust interests should begin on the day
following the Effective Date.
g. Recipients of beneficial interests in the Litigation Trust are advised to consult with their tax
advisors regarding the tax consequences of the right to receive and of the receipt of any
property from the Litigation Trust.
2. Exchange of Existing Common Stock for New B Warrants and New C Warrants:
a. The receipt of New B Warrants and the New C Warrants by Existing Stockholders in
exchange for Existing Common Stock qualifies as a taxable exchange for US federal income
tax purposes (the “Warrant Exchange”) because the Existing Stockholders received solely
warrants. In a taxable transaction, the computation of gain or loss is the excess of the amount
realized over the adjusted basis of the exchanged property. The Existing Stockholders’ gain
or loss recognized as part of the Warrant Exchange will depend on the Existing Stockholders’
individual basis in the Existing Common Stock and the value of the New B Warrants and New
C Warrants received as part of the Warrant Exchange.
b. US federal income tax laws do not specifically identify how to determine the fair market value
of the New B Warrants and the New C Warrants.
c. Existing Stockholders who received New B Warrants and New C Warrants should discuss
reasonable valuation methods with their financial advisors. As of the Effective Date, it is
anticipated that the New B Warrants and New C Warrants will be transferrable, but it is
unknown at the Effective Date whether the New B Warrants or New C Warrants will be listed
on a trading market.
d. The Company has no information regarding any Existing Stockholder’s tax basis or holding
period in the Existing Common Stock. Existing Stockholders should consult with their tax
advisor to determine the tax basis and holding period in such shares and the fair market
value to be used for the New B Warrants and New C Warrants.
Summary of property exchanged in the Reorganization and the respective exchange ratios
Issuer
Seventy Seven
Operating LLC
Seventy Seven
Operating LLC
Seventy Seven
Operating LLC
Seventy Seven
Energy Inc.
Issuer
Seventy Seven Energy,
Inc.
Security Description
6.625% Senior Unsecured
Notes due 2019
6.625% Senior Unsecured
Notes (REGS) due 2019
6.625% Senior Unsecured
Notes (144A) due 2019
6.500% Senior Unsecured
Notes due 2022
CUSIP
Rate of New Common
Stock
(81809A 100) per
$1,000 Principal
Amount
165258AB0
32.74615
U1650HAA8
32.74615
165258AA2
32.74615
818097AB3
1.58889
Security Description
CUSIP
Common Stock
818097107
Rate of New A
Warrants (81809A
118)
per $1,000 Principal
Amount
8.62745
Rate of New B
Warrants (81809A
126)
per Share
Rate of New C
Warrants (81809A
134)
per Share
0.05004
0.0556
Form 8937, Part II, Line 16
1. Exchange of $1,135,492,618 of the Existing Notes for New Common Stock, New A
Warrants, and Litigation Trust interests:
a. Assuming the Reorganization qualifies as a recapitalization under section 368(a)(1)(E) of the
Internal Revenue Code, a Senior Unsecured Noteholder’s aggregate tax basis in the shares
of New Common Stock (and New A Warrants, as applicable) (other than any New Common
Stock and New A Warrants that are attributable to accrued but unpaid interest) received in
exchange for the Existing Notes will equal his or her tax basis in the Existing Notes prior to
the Reorganization.
b. For Senior Unsecured Noteholders who received solely New Common Stock, the aggregate
tax basis amount is then divided by the number of shares of New Common Stock received in
order to determine the holder’s tax basis per share of New Common Stock.
c. Senior Unsecured Noteholders who received New A Warrants in Line 16, Part 1 will need to
compute the fair market value of the New A Warrants and the shares of New Common Stock
received. Such Senior Unsecured Noteholders will then allocate tax basis according to the
percentage of value attributed to the New A Warrants and the percentage of value attributed
to the shares of New Common Stock. Such Senior Unsecured Noteholders will then divide
the amount of tax basis attributed to the shares of New Common Stock by the number of
shares of New Common Stock received and divide the amount of basis attributed to the New
A Warrants by the number of New A Warrants received in order to determine the holder’s tax
basis per share of New Common Stock and per New A Warrant.
d. US federal income tax laws do not specifically identify how to determine the fair market value
of the New A Warrants.
e. Senior Unsecured Noteholders who received New A Warrants should discuss reasonable
valuation methods with their financial advisors.
f.
As of the Effective Date, it is anticipated that the New A Warrants will be transferrable, but it
is unknown at the Effective Date whether the New A Warrants will be listed on a trading
market.
g. OpCo Litigation Trust beneficiaries and HoldCo Litigation Trust Beneficiaries will have basis
in their respective Litigation Trust interests that is equal to the fair market value of such
interests as of the Effective Date.
h.
2. Exchange of Existing Common Stock for New B Warrants and New C Warrants:
a. The Existing Stockholders’ tax basis in the New B Warrants and the New C Warrants
received will be their cost, which in the case of the Warrant Exchange equals their fair market
value at the time of the exchange.
Form8937, Part II, Line 17
1. Exchange of $1,135,492,618 of the Existing Notes for New Common Stock, New A
Warrants, and Litigation Trust interests:
a. Section 354(a), Section 358, Section 368(a)(1)(E)
2. Exchange of Existing Common Stock for New B Warrants and New C Warrants:
a. Section 1001, Section 1012
3. Creation of Litigation Trust and distribution to Litigation Trust Beneficiaries:
a. Section 301, Section 671, Section 672, Section 673, Section 674, Section 675, Section
676, Section 677, Section 678, Section 679, Section 7701
Form 8937, Part II, Line 18
1. Exchange of 1,135,492,618 of the Existing Notes for New Common Stock, New A Warrants,
and Litigation Trust interests:
a. No loss can be recognized for US federal income tax purposes with regard to the exchange
of the Existing Notes for shares of New Common Stock and New A Warrants, assuming the
Reorganization qualifies as a tax-free reorganization under Section 368(a)(1)(E) of the
Internal Revenue Code.
b. Distributions by the Litigation Trust to OpCo Litigation Trust Beneficiaries and HoldCo
Litigation Trust Beneficiaries may constitute taxable gain. No loss can be recognized for US
federal income tax purposes with regard to the formation or issuance of interests in the
Litigation Trust
c.
2. Exchange of Existing Common Stock for New B Warrants and New C Warrants:
a. To the extent Existing Stockholders received New B Warrants and New C Warrants as a
result of the Warrant Exchange, gain or loss may be recognized for US federal income tax
purposes.
b. To the extent Existing Stockholders received no warrants as a result of the Reorganization, a
loss for US federal income tax purposes may be recognized.
Form 8937, Part II, Line 19
The transaction occurred on August 1, 2016. The Company cannot offer tax advice. Creditors and
shareholders should consult their tax advisor regarding the application of the Internal Revenue Code to a
particular circumstance. The reportable tax year is 2016 with respect to calendar year taxpayers.