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Enviva bankruptcy plan allows for $1bn in debt post-emergence; bonds rally more than 10 points — Quick Take

By March 15, 2024No Comments

Related Documents:
RSA
Motion for Post-petition Financing
Declaration of Glenn Nunziata

Enviva’s chapter 11 filing in the Bankruptcy Court for the Eastern District of Virginia outlines plans to undertake a balance sheet reduction through a combination of cash repayment and a debt-for-equity exchange. Still, the wood pellets company intends to exit by the end Q4 2024 with over $1bn in debt on the post-emergence capital structure.

The debtor’s $750mn 6.5% unsecured notes due in 2026 traded at a high of 41.25 today, up from previous trades in the low-30s last week, according to trade data.  The unsecured noteholders will gain majority control of the company upon emergence due to the pro rata debt-for-equity swap envisioned by the RSA. The debtor and certain lenders executed the RSA, negotiations for which were driven by the Davis Polk-led ad hoc group of lenders.

The decision to file for chapter 11 was attributed to a confluence of economic challenges, as detailed in court filings. Enviva cited increasing operational costs, production difficulties at their plants and rising debt levels. These issues were further exacerbated by the ongoing conflict in Ukraine and the COVID-19 pandemic, which have contributed to rising production expenses and labor costs.

To implement its restructuring plan, the company will seek a DIP financing facility of $500mn of new money from a credit and note purchase, backstopped by the ad hoc group. A portion of the DIP will be syndicated. The debtor will gain access to $150mn immediately upon entry of the interim DIP order.

The debtor’s first-day hearing is scheduled for March 14 at 2:00 ET before Judge Brian Kenney of the Bankruptcy Court for the Eastern District of Virginia.

Prepetition capital structure

image

Restructuring support agreement

  • RC / TL Claims
    • These secured claims will be paid in full in cash with the proceeds from the 1L exit facility.
    • The 1L RC and TL lenders may participate in the exit financing process, and if a third party provides better terms for the exit facility, then they can roll exiting debt into the same terms.
    • Default interest rate on the RC/TL facilities to be paid as adequate protection.
  • Epes Bonds and MS Note
    • Repaid with the remaining cash from a prepetition construction fund.
    • Any remaining principal not repaid with cash will receive a share of the reorganized debtor, subject to dilution. The Epes bondholders will also be able to participate in the equity rights offering.
  • 2026 Notes
    • The 6.5% unsecured notes due 2026 will receive a pro rata share (along with Epes and general unsecured creditors) of the reorganized debtor, subject to dilution, and will be given the opportunity to participate in the equity rights offering.
  • General Unsecured Creditors
    • Will receive a percentage of the reorganized debtor in an amount to be determined.
    • General unsecured creditors of subsidiaries will be able to participate in the equity rights offering, but HoldCo GUCs will not.
  • Existing Equity
    • Will receive 5% of the reorganized equity, subject to dilution; and
    • Five-year warrants exercisable for 5% of the reorganized equity.
    • No right to participate in the equity rights offering.

Debtor-in-possession financing

  •  A $500mn super-priority delayed-draw credit and note purchase DIP facility.
    • Tranche A will be drawn first and consist of $250mn to be repaid in cash or converted into equity.
    • Tranche B will also consist of $250mn and repaid in cash at emergence.
  • $150mn in new money will be immediately available upon entry of the interim order.
  • The Davis Polk-ad hoc group will fully backstop the DIP and will receive a 3% backstop fee.
  • The DIP facility will accrue interest at S+800 and will mature nine months after the petition date.

Post-emergence capital structure 

  • New 1L RC Facility
    • $250mn new first-lien revolving credit facility subject to terms and conditions acceptable to the ad hoc group.
  • 1L Exit Facility
    • A $750mn first-lien term loan exit facility on substantially all of the assets of the reorganized debtor. Terms and conditions subject to approval of the ad hoc group.
    • The prepetition RC/TL facility may participate in the exit facility through a prepetition roll-up, or if a third party offers better terms, a roll-up at those terms.
  • Equity Rights Offering
    • ERO to raise $250mn plus the amounts of the Tranche A DIP that is not converted into equity, backstopped by the ad hoc group.
    • The proceeds will be used to repay Tranche B of the DIP and any Tranche A DIP amounts not converted to equity at emergence.

 

Jennifer Lappe, J.D.
LevFin Insights


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