Sabine Oil & Gas Corp. (OTCQB: SOGC) and what remains of its $1 billion acquisition, Forest Oil, are in a tight corner.

Sabine and Forest are facing a civil action in New York Supreme Court that accuses them of a clandestine deal to avoid $580 million debt payments triggered by the acquisition.

Sabine said March 16 that it is considering “strategic alternatives” to its capital structure following legal action by bondholders seeking $584 million. The company has been served a notice of default by its lender.

Sabine said it will not file its annual report to the Securities and Exchange Commission on time but expects to file by March 31.

At issue is a whether Sabine’s acquisition of Forest was a “change of control” that would require the company to pay more than half a billion dollars of debt. Sabine and Forest are facing a civil action in New York Supreme Court that accuses them of a “clandestine scheme” to avoid making repayment on the debt.

Forest Oil bonds plummeted after the natural gas and oil producer revised the terms of its merger agreement with Sabine Oil & Gas LLC to eliminate the need to repay the debt at 101 cents on the dollar, Bloomberg reported.

Forest, which at one time held $1.9 billion in assets before it began a selling spree, was a nearly 100-year-old company. Now as Sabine, it said it does not intend to host a conference call when it releases its fourth quarter and full year 2014 operating results.

The company’s major lender, Wilmington Savings Fund Society, FSB, said in court filings that Forest has set out to sell substantially all of its assets as operating results deteriorated because it could not afford its debt payments. Forest ultimately tried to skirt the “change of control” provision on its debt through a scheme, the suit says.

Sabine announced that it has retained financial advisor Lazard and legal advisor Kirkland & Ellis LLP to advise management and the board of directors on strategic alternatives related to its capital structure.

Sabine said March 16 that it borrowed about $356 million around the time of the deal, which represented the remaining undrawn amount that was available under the company’s revolving credit facility.

Following the completion of the loan, the company’s aggregate debt was $1 billion, including about $29 million in letters of credit and a cash balance of about $350 million.

On Feb. 25, Sabine received a notice of default and acceleration from Wilmington on a 7.25% senior note due in 2019. The notice accused Sabine and Forest of defaulting on the notes when Forest was sold in December by trigging a change in control of the company.

“The Trustee has demanded acceleration of the notes and payment in full of all amounts owing under the notes,” Sabine said in an SEC filing. “We do not believe that a change of control occurred … as a result of the business combination transactions, and therefore do not believe that the trustee’s claims hold merit.”

Beginning in 2012 and continuing through May 2013, Forest engaged in a series of asset sales to raise money to repay debt, resulting in transfers that yielded proceeds of about $580 million.

“But these transfers were not enough to solve Forest's problems and, no later than May 2013, Forest made the determination to sell, as part of a plan, all or substantially all of its assets in one or more dispositions,” Wilmington said in a suit.

The vast majority of Forest's assets went to First Reserve, which owns Sabine Oil & Gas.

First Reserve is a private equity firm in the energy industry that has raised more than $30 billion in capital since it was formed in 1983.

Forest first sold its Texas Panhandle assets to Templar Energy LLC, a First Reserve portfolio company.

Following the sale, Wilmington’s suit says Forest met repeatedly with members of the management of First Reserve and Sabine to discuss the sale of the balance of Forest's assets.

Multiple sales commenced, culminating in Forest’s stock for stock acquisition.

As of September 2013, Forest's operational areas were located in:

• The Texas Panhandle area

• The Permian basin in Crockett, Pecos, and Reeves counties in West Texas

• The Eagle Ford shale area in South Texas

• The Ark/La/Tex area in East Texas

In connection with the December Forest sale, Forest officers received change of control payments valued at about $9.75 million.

First Reserve completed its acquisition of Forest using First Reserve subsidiaries, Sabine Investor Holdings LLC and FRXI Onshore AIV LLC, the Wilmington suit says.

“What has happened here is clear: First Reserve, through affiliates, acquired Forest. Forest was placed under the management of officers of an existing First Reserve portfolio company, Sabine Oil & Gas,” the complaint said.

That allowed First Reserve to take full control of Forest's corporate decision-making, the suit says.

Sabine said in regulatory filings it does not think a change of control occurred under the terms of the debt as a result of the business combination with Forest.

The company does “not believe that the trustee’s claims hold merit,” Sabine said.