USEC files pre-packaged bankruptcy to implement noteholder agreement

By Caroline Salls

Pittsburgh, March 5 - USEC Inc. made a pre-packaged Chapter 11 bankruptcy filing on March 5 in the U.S. Bankruptcy Court for the District of Delaware to implement the restructuring plan agreement reached in December with a majority of the holders of its senior unsecured convertible notes, according to a company news release.

The company said the plan is designed to strengthen its balance sheet, enhance its ability to sponsor the American Centrifuge project and improve its long-term business opportunities.

In addition, USEC said preferred equity investors Toshiba Corp. and Babcock & Wilcox Co. have agreed to support the restructuring plan.

Plan terms

According to the release, the plan calls for replacing USEC's $530 million debt and all of its preferred and common stock with a new debt issue totaling $240.4 million and new common stock.

The new debt issue would mature in five years and can be extended for an additional five years.

The company said noteholders would receive $200 million of the new notes and roughly 79% of the common stock.

Preferred investors Toshiba and Babcock & Wilcox would each receive $20.19 million of the new notes and about 8% of the new common stock.

According to an 8-K filed with the Securities and Exchange Commission, the preferred investors each agreed to discuss in good faith the possible investment of up to $20.19 million of equity in a special purpose entity to commercialize the American Centrifuge project in the future, contingent upon the funding for the plant of not less than $1.5 billion of debt supported by the Department of Energy loan guarantee program or other government support or funding in the same amount.

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

USEC said its board of directors and management team are substantial holders of the common stock, and their holdings will be treated exactly as all other common shareholders. In addition, any unvested or unexercised stock awards they hold will be forfeited under the plan.

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.

The current USEC board of directors will oversee the restructuring process until the effective date of the plan, when a new board would take its place, the release said. B&W and Toshiba each retain the right to representation on the board of directors.

Effective March 4, Babcock & Wilcox Technical Services Group, Inc. president George Dudich resigned from USEC's board of directors, the 8-K said.

USEC said it expects to receive court approval for its pre-arranged plan of reorganization and emerge from Chapter 11 in 90 to 120 days.

Plant delays

USEC said it issued the original notes in 2007 at a time when the nuclear power industry was expected to grow significantly and the American Centrifuge Plant was expected to be completed and producing operating cash flow before the notes matured.

In addition, USEC, Toshiba and Babcock & Wilcox entered into an agreement in 2010 for a phased preferred equity investment to strengthen the company's financial position for deployment of the American Centrifuge technology.

However, the company said its deployment plans for the American Centrifuge Plant have been affected by delays in obtaining permanent financing for construction and by a global oversupply of nuclear fuel following a tsunami in Japan that resulted in extensive damage to reactors at Fukushima in 2011.

The resulting oversupply caused nuclear fuel prices to drop to their lowest levels in a decade, which USEC said has negatively affected the economics of deploying the American Centrifuge technology in the near term.

Other factors that have affected the company's deployment plans include increases in the cost of several key commodities and changes and additions to project scope and schedule, the release said.

"By addressing the October 2014 maturity of the convertible notes, USEC will be able to pursue its ongoing business objectives with greater certainty," president and chief executive officer John K. Welch said in the release.

None of USEC's subsidiaries, including primary operating subsidiary United States Enrichment Corp. have filed for bankruptcy protection.

USEC said it had positive cash flow from operations in 2013 and ended the year with a cash balance of $314 million.

DIP financing

During the restructuring process, United States Enrichment will provide $50 million in debtor-in-possession financing to USEC that will support continued operations, and no third-party DIP financing will be required.

Interest on the DIP loan will be Prime rate plus 725 basis points.

The facility will mature on the earlier of 120 days from the bankruptcy filing date and the plan effective date.

The company is seeking interim access to $20 million of the DIP financing.

Operations unaffected

After meeting its significant payables in the first quarter, the company said it expects to have a cash balance of at least $60 million at March 31.

The company said the bankruptcy filing has no impact on its daily operations, which includes its efforts to deploy the American Centrifuge uranium enrichment technology and perform the research, development and demonstration program partially funded by the DOE.

As a non-debtor, United States Enrichment's operations, which include the transition of the Paducah Gaseous Diffusion Plant back to the DOE and the sale of SWU from its inventory and purchases of Russian low enriched uranium, continue unaffected.

In connection with the bankruptcy filing, USEC's board of directors also approved the termination of the company's tax benefit preservation plan, which was originally scheduled to expire on Sept. 29, 2014. The plan has been amended to accelerate the expiration date to March 4, effectively terminating the plan as of that date.

Debt details

According to court documents, USEC had $70 million in assets and $1.07 billion in debt as of Dec. 31.

The company's largest unsecured creditor is CSC Trust Co. of Delaware, based in Wilmington, Del., with a $536.73 million unsecured debt claim. No other unsecured creditors were listed with claims of $1 million or more.

USEC said in the 8-K that the bankruptcy filing constituted an event of default on the convertible notes.

Any efforts to enforce payment obligations under the notes are stayed as a result of the bankruptcy filing.

The company's legal adviser for the restructuring is Latham & Watkins LLP, its financial adviser is Lazard, and its restructuring adviser is Alix Partners LLP.

An informal group of holders of USEC's senior convertible notes is advised by Akin Gump Strauss Hauer & Feld LLP and Houlihan Lokey.

USEC is a Bethesda, Md.-based supplier of nuclear fuel and advanced technology services. The Chapter 11 case number is 14-10475.

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