United States Court of Appeals for the Fifth Circuit United States Court of Appeals ____________ Fifth Circuit

FILED No. 23-20557 May 30, 2025 ____________ Lyle W. Cayce Clerk In re Sanchez Energy Corporation, Et al.

Debtors, Ad Hoc Group of Senior Secured Noteholders; DIP Lenders; Wilmington Savings Fund Society, FSB,

Appellants,

versus Delaware Trust Company,

Appellee. ______________________________

Appeal from the United States District Court for the Southern District of Texas USDC Nos. 4:19-BK-34508, 4:23-CV-02987 ______________________________ Before Jones, Engelhardt, and Oldham, Circuit Judges. Edith H. Jones, Circuit Judge: In 2019, Sanchez Energy Corporation petitioned for bankruptcy protection under Chapter 11. Facing a catastrophic downturn in the oil and gas industry caused by the COVID pandemic, the bankruptcy court rushed to approve in April 2020 a reorganization plan designed to compensate Case: 23-20557 Document: 134-1 Page: 2 Date Filed: 05/30/2025

No. 23-20557

creditors with equity in a new entity. Disagreement arose between secured and unsecured creditors over proper allocation of the equity. The bankruptcy court sided with the unsecured creditors and awarded them a dominant stake in the new entity after the court hypothetically “valued” various avoidance actions that the reconstituted debtor preserved. We hold that the court’s equity allocation contravened the Bankruptcy Code, 11 U.S.C. §§ 550(a) and (d), because it incorrectly approved more than a “single satisfaction” as a remedy for the avoided secured creditors’ liens. The judgment must be VACATED and REMANDED for further proceedings. BACKGROUND Sanchez Energy Corporation was a Texas-based oil and gas exploration and production company. Its pre-bankruptcy liabilities included $500 million of secured notes and $1.75 billion of unsecured notes with maturity dates falling between 2021 and 2023. The appellants are a subgroup of secured noteholders (the “Ad Hoc Secured Creditors”) that obtained deeds of trust on April 13, 2018, from Sanchez granting nonpossessory liens on virtually all corporate assets. They putatively perfected their liens by filing all-asset financing statements with the Texas Secretary of State or Delaware Department of State. Several of the liens covered valuable oil and gas interests that the parties refer to as the “HHK Leases.” Those leases were apparently worth more than all of Sanchez’s other assets combined. But the secured creditors never foreclosed on the HHK liens. Though the liens thwarted the unsecured creditors from satisfying any of their delinquent notes with corporate assets, Sanchez continued to operate its wells and to collect proceeds from the sale of processed minerals. Sanchez stood on the verge of insolvency when it solicited proposals for debtor-in-possession (“DIP”) financing in June 2019. The company received indications of interest from eighteen financial institutions in

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addition to interest from pa