U.S. Energy needs more financing now to get through Dec. 31, could be forced to file bankruptcy

By Caroline Salls

Pittsburgh, Aug. 31 - U.S. Energy Systems, Inc. said it will need additional financing in September to meet its operating and contractual obligations as they become due, according to an 8-K filed with the Securities and Exchange Commission.

Specifically, the company said it estimates that it will need roughly $21 million to give it sufficient liquidity to fund $8.2 million in capital contributions required to be made under its U.K. financing arrangements, $2.8 million in working capital required to continue operations through Dec. 31 and $10 million of capital contributions to its U.K. subsidiaries to allow them to continue operations through Dec. 31.

U.S. Energy Systems said these funding requirements do not take into account $25 million in restricted cash reserves in place under the U.K. financing arrangements.

U.S. Energy said failure to secure additional financing will most likely force it to file for Chapter 11 bankruptcy and to enter bankruptcy administration in the United Kingdom.

The company said it is in discussions with its lenders on a possible debt restructuring, including receiving access to the restricted cash reserves, and is exploring funding alternatives, including sales of assets.

U.S. Energy said lender Silver Point Finance, LLC is considering an up to $8 million increase in the company's credit agreement, of which $2 million would be funded upon closing and $6 million would be available at Silver Point's discretion.

While a $9 million non-binding letter of intent has been executed for the sale of subsidiary U.S. Energy Biogas Corp., U.S. Energy said no definitive asset sale or other funding alternative agreements are in place, and the discussion of funding alternatives is in a preliminary stage.

According to the 8-K, U.S. Energy has received a letter from a party interested in investing in the company, but the proposal would prohibit the U.S. Energy Biogas sale and would substantially dilute existing shareholders. U.S. Energy said it is still in the preliminary stages of reviewing the letter.

U.S. Energy also said its capital requirements for its plan to expand its U.K. assets will exceed its capital expenditure budget by significantly more than 100%.

U.S. Energy said its management is developing a revised plan for the U.K. assets in lieu of the originally contemplated plan, which was the basis for the U.K. financing.

The company said it is in non-monetary default under the U.K. financing arrangements and is required to pay interest at the default rate, which results in an additional monthly interest payment of $220,000.

As a result, the company said its capital expenditure program through Dec. 31 will need to include enough funding for repairs at one of the U.K. subsidiary's gas wells and for a 3D seismic program.

In addition, because of a shortfall in the production of gas resulting from the shutting in of one of the company's producing wells, the power plant is producing at about 20% below its generating capacity, resulting in a $100,000 per day reduction in revenues.

In order to bring the well back into production, U.S. Energy said a roughly $1 million workover of the well is needed, and those funds are not currently available.

U.S. Energy Systems is a New York-based owner of green power and clean energy and resources.

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