Fidelity Management & Research Co. and Apollo Global Management Inc. alleged that a Texas oil driller’s junior bondholders are improperly financing a legal dispute over who should control the company following its 2020 bankruptcy restructuring, WSJ Pro Bankruptcy reported. Investors are still fighting over an 80% stake in Mesquite Energy Inc. nearly two years after the company, then known as Sanchez Energy Corp., exited from chapter 11. As part of the bankruptcy plan, the business allocated a 20% equity stake to top lenders Fidelity and Apollo while placing the remaining stock in a lockbox, to be divided depending on the outcome of the separate litigation. That dispute remains unresolved in the U.S. Bankruptcy Court in Houston. However, senior lenders including Fidelity and Apollo are now alleging that junior bondholders ran afoul of Mesquite’s court-approved chapter 11 plan by arranging outside funding to cover ongoing legal costs, according to court papers filed on Tuesday. The financing agreements propose “transferring a significant portion of the unsecured creditors’ recoveries” from the bankruptcy lawsuit to four investment funds in return for help with the costs of litigation, the court filings said. That may exceed the authority granted to an appointed representative of all unsecured creditors that is advocating on their behalf in the dispute over the 80% of the company, according to a complaint the lenders filed on Wednesday.
