When oil and gas producer EP Energy filed for bankruptcy last October, a group of creditors led by Apollo Global Management Inc. (NYSE: APO) put up a $475 million commitment to purchase the company’s equity in exchange for a senior position when the restructuring was completed. The bankruptcy court approved the $3.3 billion bankruptcy deal earlier this month.

Now, the Wall Street Journal reports, Apollo and the other firms, including Paul Singer’s Elliott Management, want to back out of the deal because the value of the collateral (EP Energy’s assets) have been hammered by the collapse in crude oil prices. The Apollo-led group would have acquired the majority of EP Energy’s equity by means of a $475 million rights offering comprising cash and debt forgiveness.

In 2012, Apollo and its partners paid $3.3 billion to acquire EP Energy and then shouldered the oil and gas firm with about $4.25 billion in debt in a deal valued at around $7.15 billion. That $3.3 billion was worth about $50 million in the spring of last year. By then, the acquiring group had extracted $750 million in fees and dividends from taking EP Energy private. The group also recovered about $1 billion when the oil and gas firm went public in 2014.

The current crude oil price war launched by Russia and Saudi Arabia has only made much worse a debt problem faced by many other companies in the shale oil business. The coronavirus outbreak has added to the problem by severely crimping demand. At around the current price of $30 a barrel, new wells and even some drilled but uncompleted (DUC) wells, cannot make a profit.

In the plan approved last week by the bankruptcy court, the judge rejected claims by senior bondholders for $178 million in premiums on top of principal totaling $1 billion. The approved plan does repay the principal. The Apollo-led group is unhappy with the court’s decision because their refinancing plan for EP Energy put the group in first position and non-participant debt holders in the last position.

So not only are the assets worth less than they were just two weeks ago, the court is reportedly shaving off another $1 billion. No wonder Apollo and Elliott want out.

This is unlikely to be the end of the story. When the court approved the bankruptcy plan earlier this month, the judge indicated that EP Energy’s ability to pay or refinance its debts after exiting bankruptcy despite the low prices for crude. While the impact of the coronavirus pandemic on crude oil prices is expected to be temporary, no one is willing yet to define what temporary means.

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