USEC to file bankruptcy in first quarter to implement noteholder deal

By Caroline Salls

Pittsburgh, Dec. 16 - USEC Inc. reached an agreement with a majority of the holders of its 3% senior convertible notes due Oct. 1, 2014 on the terms of a financial restructuring plan that will strengthen the company's balance sheet, enhance its ability to sponsor its American Centrifuge project and improve its long-term business opportunities, according to a company news release.

In order to implement the agreement, USEC said it expects to file a prearranged Chapter 11 bankruptcy case in the U.S. Bankruptcy Court for the District of Delaware in the first quarter of 2014.

Under the agreement, the company said it will replace roughly $530 million in convertible notes that are scheduled to mature in October 2014 with new debt and equity.

Specifically, USEC said the agreement with the noteholders, which includes the participation of financial institutions representing about 60% of the company's debt, calls for the company's $530 million debt to be replaced with $200 million in new 8% notes.

The new debt issue would mature in five years and automatically extend an additional five years upon the occurrence of specified events.

Reorganized USEC may at its option elect to pay up to 1.5% of interest for the time on the new notes in kind for the period between the date of issuance and Sept. 30, 2014, pay up to 3% of interest in kind for the period of Oct. 1, 2014 through Sept. 30, 2015 and pay up to 5.5% of interest in kind from Oct. 1, 2015 through maturity.

In addition, the company said existing equity will be replaced with new equity, with the noteholders receiving 79.04% of the new equity as common stock.

Existing stockholders would receive 5% of the new common stock.

According to an 8-K filed with the Securities and Exchange Commission, all secured claims will be reinstated and otherwise not impaired and all liens will be continued until the claims are paid in full.

All general unsecured claims will be unimpaired and will be either reinstated or paid in full in the ordinary course of business upon the later of the plan effective date or when they become due according to their terms.

No unit filings

None of the company's subsidiaries are expected to file bankruptcy. USEC said primary operating subsidiary United States Enrichment Corp. is expected to be a proponent for a limited purpose, but will not be included in the Chapter 11 filing.

"We have said for many months that we are transitioning our business to focus on our core strengths, and today's announcement represents another important step in that process," USEC president and chief executive officer John K. Welch said in the release.

The company said it expects to continue its operations and to meet its obligations to stakeholders, partners, customers and employees throughout the restructuring process.

USEC said it also anticipates the continuation of research, development and demonstration activities for the American Centrifuge technology, as well as the transition activities at the Paducah Gaseous Diffusion Plant by United States Enrichment.

B&W, Toshiba talks

According to the release, discussions continue with the Babcock & Wilcox Investment Co. (B&W) and Toshiba Corp. regarding agreement to restructure their preferred convertible equity investment.

The noteholders and USEC have made a proposal regarding restructuring the Toshiba and B&W investment, and the parties are in discussions on those terms and documentation which must be completed before implementing the financial restructuring plan.

As strategic investors, USEC said Toshiba and B&W remain supportive on deployment of the American Centrifuge Plant.

Under the proposed plan, Toshiba and B&W would jointly obtain 15.96% of USEC's new common stock, as well as $40.38 million in debt on the same terms as the noteholders, in exchange for their existing preferred equity investment.

The preferred investors would enter into an agreement to each invest $20.19 million of equity in the American Centrifuge project in the future, contingent upon the funding for the American Centrifuge Plant of not less than $1.5 billion of debt supported by the DOE loan guarantee program or other government support or funding in that amount, the 8-K said.

DOE support condition

USEC said its full production-scale cascade of 120 machines achieved 20 machine-years of operations at commercial plant specifications. During that performance run, USEC successfully completed three important milestones set by the Department of Energy (DOE) for the program.

The company said the DOE's ongoing support for the project is a condition to implementing the agreement with noteholders, and USEC is in discussions with DOE officials regarding the American Centrifuge project and the proposed restructuring.

Under the agreement, the current USEC board of directors would oversee the restructuring process until the effective date of the plan when a new board would take its place. B&W and Toshiba are expected to continue to have representation on the board, the release said.

USEC's legal adviser for the restructuring is Latham & Watkins LLP, its financial adviser is Lazard, and its restructuring adviser is AlixPartners LLP.

USEC is a Bethesda, Md.-based supplier of nuclear fuel and advanced technology services.

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