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Chapter 11 Filing Chapter 11 Filing | 3 Months Ended
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Mar. 31, 2014
Chapter 11 Filing [Abstract] |
Reorganization under Chapter 11 of US Bankruptcy Code Disclosure [Text Block] | CHAPTER 11 FILING On March 5, 2014 (the “Petition Date”), USEC Inc. (the "Debtor") filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware case number 14-10475. The Bankruptcy Filing was a “pre-arranged” filing which, as described further below, included the filing of a proposed Plan of Reorganization (the “Proposed Plan”) which is supported by certain holders of the claims and interests impaired under the Proposed Plan. USEC Inc.’s subsidiaries (collectively, the “Non-Filing Entities”), including United States Enrichment Corporation ("Enrichment"), which is our primary operating subsidiary, were not part of the Bankruptcy Filing. USEC Inc. will continue to operate its business as “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. The Non-Filing Entities will continue to operate in the ordinary course of business. The Bankruptcy Filing is intended to strengthen the Company’s balance sheet, enhance its ability to sponsor the American Centrifuge project and improve its long-term business opportunities. USEC Inc. has reached an agreement on the terms of a financial restructuring plan with the holders (the “Consenting Noteholders”) of approximately 65% of the principal amount of its convertible senior notes (the “Convertible Notes”). Under the terms of the agreement described in more detail below, USEC Inc. will replace the approximately $530 million of Convertible Notes that are scheduled to mature in October 2014 with new debt and equity. USEC Inc. has also reached an agreement with Babcock & Wilcox Investment Company (“B&W”) and Toshiba America Nuclear Energy Corporation (“Toshiba” and together with B&W, the “Preferred Investors”) to restructure their preferred convertible equity investment (each of the agreements with the Consenting Noteholders, Toshiba and B&W, respectively, a "Plan Support Agreement"; and collectively, the "Plan Support Agreements"). Proposed Reorganization Plan The material terms of the Proposed Plan include, among other things, that, upon the effective date of the Proposed Plan (the “Effective Date”):
• | The holders of the Convertible Notes will receive, on a pro rata basis, in exchange for claims on account of their $530 million in outstanding principal amount of Convertible Notes:
◦ | 79.04% of the common stock of reorganized USEC Inc. (“New Common Stock”), subject to dilution on account of a new management incentive plan;
◦ | cash for interest payable on the Convertible Notes accrued from October 1, 2013, the date of the last semi-annual interest payment, to the Effective Date; and
◦ | $200 million in principal amount of new notes issued by reorganized USEC Inc. on terms described in the Proposed Plan’s implementing documents (the “New Notes”), with the New Notes being guaranteed and secured on a subordinated and limited basis by Enrichment.
• | B&W and Toshiba will each receive in exchange and on account of their shares of USEC’s Series B-1 12.75% convertible preferred stock (the “Preferred Stock”) (as of December 31, 2013, there were 85,903 shares of Preferred Stock outstanding with an aggregate liquidation preference of $113.9 million including accrued paid-in-kind dividends) and warrants dated September 2, 2010 to purchase up to 250,000 shares of USEC’s common stock (the “Warrants”):
◦ | 7.98% of the New Common Stock (15.96% in the aggregate), subject to dilution on account of a new management incentive plan; and
◦ | $20.19 million in principal amount of New Notes ($40.38 million in the aggregate).
◦ | The Preferred Investors have agreed to enter into good faith negotiations to each invest $20.19 million (for an aggregate investment of $40.38 million) of equity in the American Centrifuge project in the future, upon mutually agreed upon terms and conditions, but in any event contingent upon the funding for the American Centrifuge Plant ("ACP") of not less than $1.5 billion of debt supported by the U.S. Department of Energy ("DOE") loan guarantee program or other government support or funding in such amount.
◦ | In connection with USEC Inc.’s compliance with regulatory requirements, the New Common Stock issued to the Preferred Investors would be structured in a similar manner to the Class B Common Stock contemplated to be issuable to the Preferred Investors upon conversion of the Preferred Stock. As contemplated, Class B Common Stock will have the same rights, powers, preferences and restrictions and rank equally in all matters with the common stock of the reorganized USEC Inc., except voting. Holders of Class B Common Stock shall be entitled to elect two members of the Board of Directors of USEC Inc., consistent with their current arrangements.
• | If the Noteholders and Preferred Investors vote by requisite majorities to accept the Proposed Plan, the holders of USEC Inc.’s common stock will receive, on a pro rata basis, 5% of the New Common Stock, subject to dilution on account of a new management incentive plan.
• | All secured claims will be reinstated and otherwise not impaired and all liens shall be continued until the claims are paid in full.
• | All other general unsecured claims of the Company will be unimpaired and will be either reinstated or paid in full in the ordinary course of business upon the later of the Effective Date or when such obligation becomes due according to its terms.
USEC believes that the Proposed Plan meets the standards for confirmation under the Bankruptcy Code, but that determination will rest with the Bankruptcy Court. Confirmation of the Proposed Plan could materially alter the classifications and amounts reported in USEC’s consolidated condensed financial statements, which do not give effect to any adjustments to the carrying values of assets or amounts of liabilities that might be necessary as a consequence of a confirmation of the Proposed Plan or other arrangement or the effect of any operational changes that may be implemented. Operation and Implication of the Bankruptcy Filing Throughout the restructuring process, both USEC Inc. and the Non-Filing Entities expect to continue operations and meet obligations to stakeholders, including suppliers, partners, customers and employees, subject to limitations on the ability of USEC Inc. to pay certain pre-petition obligations pending confirmation and implementation of the Proposed Plan. USEC also anticipates the continuation of research, development and demonstration activities for the American Centrifuge technology subject to the availability of continued government funding. As a non-debtor, Enrichment’s operations, which include the transition of the Paducah gaseous diffusion plant ("Paducah GDP") back to DOE and the sale of SWU from its inventory and purchases of Russian low enriched uranium ("LEU"), are expected to continue unaffected by the bankruptcy. USEC Inc. has received approval from the Bankruptcy Court to pay or otherwise honor certain pre-petition obligations generally designed to stabilize its operations. These obligations were primarily related to certain employee wages, salaries and benefits, certain governmental taxes and fees, and certain insurance commitments. Pre-petition obligations not authorized to be paid currently by the Bankruptcy Court will be treated under the plan of reorganization. Post-petition obligations will be paid when due in the ordinary course of business, without prior payment authorization from the Bankruptcy Court. USEC Inc. has retained, pursuant to Bankruptcy Court approval, legal and financial professionals to advise it in connection with the Bankruptcy Filing and certain other professionals to provide services and advice in the ordinary course of business. USEC Inc. may retain additional ordinary course professionals without further order of the Bankruptcy Court and from time to time may seek Bankruptcy Court approval to retain additional Chapter 11 professionals if needed. USEC Inc. also received approval from the Bankruptcy Court to enter into a Debtor-In-Possession Credit Facility (the “DIP Facility”). This $50 million revolving credit facility is provided by Enrichment, USEC Inc.’s subsidiary. It accrues interest at an annual rate of 10.5% and is secured by substantially all of USEC Inc.’s assets. The DIP Facility requires mandatory prepayments from USEC Inc. when cost sharing reimbursements for research, development and demonstration work performed under the June 2012 cooperative agreement with DOE ("the Cooperative Agreement") have been received from DOE. It matures at the earlier of the Effective Date of the Proposed Plan or 120 days, and is expected to be repaid with a draw on the Exit Facility described below. Borrowings must be consistent with a budget satisfactory to Enrichment. USEC Inc. is also required to manage its cash flows pursuant to this budget on a weekly basis with a limitation on variance from the budget. Enrichment’s obligations to make funds available include certain conditions precedent such as commencement of solicitation of acceptance of a reorganization plan within 50 days of the Petition Date, USEC shall not have demobilized all or substantially all American Centrifuge activities, and DOE shall not have suspended or terminated the American Centrifuge research, development and demonstration program under the Cooperative Agreement or associated funding. Events of default include termination of any of the Plan Support Agreements prior to confirmation of a reorganization plan, USEC Inc. filing a plan that has not been consented to by Enrichment, as well as other events of default common to such facilities. In the first quarter of 2014, USEC Inc. borrowed and repaid $3.0 million under the DIP Facility. As of April 17, 2014, USEC Inc. entered into a first amendment to the DIP Facility amending the conditions precedent to funding to provide for an extension of the time to commence solicitation of acceptances of a reorganization plan to 103 days from the Petition Date from 50 days from the Petition Date. This amendment was entered into to be consistent with amendments to certain termination conditions to the Plan Support Agreements as described below. In addition, on May 9, 2014, USEC Inc. filed a motion with the Bankruptcy Court seeking an order from the Bankruptcy Court authorizing USEC Inc. to enter into an Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement would modify the DIP Facility to reflect the transition of the American Centrifuge research, development and demonstration program from the Cooperative Agreement to the new agreement with Oak Ridge National Laboratory discussed below. The other proposed modifications include extending the maturity date of the DIP Facility to the earlier of the Effective Date of the Proposed Plan or September 30, 2014 (which date may be extended by Enrichment in its sole discretion). A hearing on USEC Inc.'s motion has been scheduled for June 2, 2014. On May 14, 2014, USEC Inc. and Enrichment entered into a limited waiver to the DIP Facility that provides a waiver of certain conditions precedent that are no longer relevant in order to enable USEC Inc. to draw limited funds prior to the scheduled hearing. Reorganization Plan Approval Process In order for USEC Inc. to emerge successfully from Chapter 11, USEC Inc. must obtain the Bankruptcy Court’s approval of the Proposed Plan, which will enable the Company to transition from Chapter 11 into ordinary course operations outside of bankruptcy. In connection with the Proposed Plan, USEC Inc. expects to enter into a new credit facility (the “Exit Facility”) with Enrichment. USEC Inc.’s ability to obtain such approval and financing will depend on, among other things, the timing and outcome of various ongoing matters related to the Bankruptcy Filing including issues relating to continued U.S. government funding for the American Centrifuge technology and issues relating to demobilization costs and potential contract termination liabilities resulting from the reduced scope of work of the American Centrifuge research, development and demonstration program under the new contract with Oak Ridge National Laboratory. As summarized above, the Proposed Plan determines the rights and satisfaction of claims of various creditors and security holders, and is subject to the ultimate outcome of events, negotiations and Bankruptcy Court decisions ongoing through the date on which the Proposed Plan is confirmed. Only creditors impaired under the Proposed Plan are entitled to vote on the Proposed Plan. As described above, USEC Inc. has already entered into agreements with the Consenting Noteholders and Preferred Investors pursuant to which the Consenting Noteholders and Preferred Investors have agreed to vote in favor of the Proposed Plan. The Plan Support Agreements may be terminated by USEC Inc., a majority of the Consenting Noteholders, or the Preferred Investors following written notice and the occurrence of certain events including:
• | Upon a good faith determination of the Board of Directors of USEC Inc. that proceeding with the Proposed Plan would be inconsistent with the exercise of its fiduciary duties;
• | DOE terminates or suspends (or announces its intent to terminate or suspend) its 80% cost share funding for work performed under the research, development and demonstration program or a successor program;
• | There is a termination or suspension or material delay in completion of the research, development and demonstration program or a successor program (other than, in the case of USEC’s right to terminate, as a result of action or inaction by USEC); and
• | If the Russian transitional supply agreement between Enrichment and Joint Stock Company Techsnabexport is terminated, suspended or materially adversely modified.
In April, the Consenting Noteholders and the Preferred Investors agreed to amend their respective Plan Support Agreements providing for an extension to certain dates which provide rights to terminate such Plan Support Agreements. A court order was entered on April 21, 2014 assuming the Plan Support Agreements in USEC Inc.’s bankruptcy case including these amendment changes. As amended, a majority of Consenting Noteholders or the Preferred Investors can also terminate their respective Plan Support Agreements following written notice and the occurrence of certain events including:
• | Failure to commence solicitation of the Proposed Plan within 103 days of the Petition Date (i.e., June 16, 2014);
• | Failure to have a Confirmation Order entered by the Bankruptcy Court within 153 days of the Petition Date (i.e., August 5, 2014);
• | Failure to have the occurrence of the Effective Date within 173 days of the Petition Date (i.e., August 25, 2014); and
• | If USEC Inc. experiences any circumstance, change or other event that has had or is reasonably likely to have a short-term or long-term material adverse effect on the financial condition or operations of USEC Inc. and its subsidiaries.
Further, the Proposed Plan is subject to revision in response to creditor claims and objections, the requirements of the Bankruptcy Code or the Bankruptcy Court, material changes in U.S. government funding for the American Centrifuge technology and in the event USEC incurs material demobilization or termination liabilities related to the American Centrifuge program. While USEC expects to emerge successfully from bankruptcy with approval of the Proposed Plan from the Bankruptcy Court during the summer of 2014, there can be no assurance that USEC will be able to secure approval for the Proposed Plan within that period or at all.

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