Covia Holdings
CASE SUMMARY: Industrial Material Maker Covia Files for Chapter 11; Under RSA, Holders of Term Loan Claims, Swap Agreement Claims to Receive 100% of Reorg Equity, $825M in Takeback Debt
Tue 06/30/2020 12:59 PM
Relevant Documents:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
First Day Hearing Agenda
Covia Holdings Corp., an Independence, Ohio-based maker of industrial materials for the energy and industrial markets, and several affiliates filed petitions on Monday night, June 29, in the Bankruptcy Court for the Southern District of Texas. The company has entered into a restructuring support agreement with an ad hoc group of term lenders for a prearranged restructuring. The RSA contemplates filing of a plan and disclosure statement within 30 days and that the plan effective date would occur within 150 days of the petition date. “The Debtors have strategically worked to build a cash position of approximately $250 million prior to entering chapter 11” and as such, do not need DIP financing, but rather seek the use of cash collateral with the consent of the prepetition term lenders (emphasis added).
The proposed plan embodied in the RSA contemplates that holders of term loan claims and swap agreement claims would receive, among other things, $825 million in takeback debt to be issued under a new term loan and 100% of the reorganized equity, minus a certain amount to be agreed upon on account of general unsecured claims, and subject to dilution by a MIP. These claims would also receive all excess cash on the debtors’ balance sheet for payment of professional fees through emergence, subject to certain limitations.
The first day hearing has been scheduled for today, Tuesday, June 30, at 3:30 p.m. ET. The case docket can be found on Reorg HERE.
Under the RSA, the debtors’ post-emergence capital structure would consist of an $825 million senior secured new term loan facility and at least a $100 million senior secured revolving credit facility.
The first day declaration of Andrew Eich, the debtors’ CFO, states that the debtors filed for chapter 11 because their existing debt service and above-market railcar lease arrangements are unsustainable, requiring the debtors to pay approximately $100 million in debt payments per year and about $90 million in railcar-related payments per year. Coupled with a drop in EBIT, Eich says that the debtors are forecasted to collectively result in severe negative cash flow over the course of 2020. Covia filed due to “significant structural change” in the market over the last two years, that it says, “if corrected, will position the Debtors’ Energy and Industrial Segments (as defined below) for growth and long-term success.”
“In lieu of waiting for an inevitable insolvency event to occur, the Debtors have opted to file these chapter 11 cases now to address these issues head-on,” the first day declaration says. Eich’s declaration states that the debtors pursued a number of strategies over the last two years to “proactively address balance sheet challenges head on,” ultimately determining that the debtors’ current financial and liquidity forecasts indicate that a restructuring “is the only course of action remaining.”
According to Eich, during the months preceding the bankruptcy filing, nondebtor affiliate Silbelco informed the debtors that “it desired to submit a proposal to Covia and the Ad Hoc Group regarding a transaction pursuant to which Sibelco would remain the majority shareholder of CHC in exchange for a new money investment.” Sibelco submitted two “plan sponsor” proposals, which were subsequently countered by the ad hoc group of term lenders. In light of this, Sibelco decided not to counter the proposal, and the debtors and Sibelco failed to reach agreement on terms of a Sibelco-sponsored transaction prior to the petition date, the declaration says. The debtors and the ad hoc group thereafter entered into the RSA, which contemplates a comprehensive reorganization under a plan.
Covia Holdings Corp. reports $2.5 billion in assets and $1.9 billion in liabilities. The company’s prepetition capital structure includes approximately $1.6 billion in funded debt, as follows:
The term loan agreement matures June 2025 and is guaranteed by “all of Covia’s wholly-owned, material, domestic, restricted subsidiaries, subject to certain customary exceptions,” and is secured by substantially all of Covia’s assets in the United States and those of each guarantor. Because of a variable interest rate, Covia has entered into interest rate swap agreements, and is party to five interest swap agreements with an aggregate notional value of $450 million at an aggregate fixed rate ranging between 2.81% and 2.87%, and “due in part to the COVID-19 pandemic and related global economic downturn)” the hedges have been negatively affected, leaving Covia with a liability of $35.8 million on the swap agreements as of June 22. The term loan agent Barclays Bank submitted a resignation notice to Covia on June 28, which was posted on June 29. Barclays will serve as agent until the earlier of acceptance of a successor agent or July 29.
The debtors’ other funded secured debt of $16 million consists of: (a) $10 million industrial revenue bond related to the construction of a mining facility in Wisconsin (matures Sept. 1, 2027, and is collateralized by a $10 million LC), and (b) $5.9 million in capital leases and $145,000 in promissory notes with three unrelated third parties that Unimin entered into on Jan. 17, 2011.
The company is also party to a receivables financing facility with PNC Bank with up to $75 million of borrowing capacity. “The security interests securing Term Loan Agreement obligations are subordinated to the security interests securing RFA obligations with respect to any AR Rights, but RFA security interests are subordinated to Term Loan Agreement security interests in all other respects,” according to the first day declaration. However, the debtors entered into prepetition agreements with PNC to effect the termination of the receivables financing facility and to transition to a stand-alone letter of credit facility with PNC Bank. The debtors say that these agreements, once consummated, will allow the debtors to “freely access” cash collections on account of $75 million of receivables currently held, “which will no longer be subject to the Administrator’s security interest under the Securitization Agreements, and to avoid the accrual of default interest on amounts outstanding under the RFA.” The debtors filed a related motion, providing, among other things, that the receivables financing facility would terminate upon Covia Financing’s payment of amounts set forth in a payoff agreement.
The debtors have used the receivables financing facility to obtain letters of credit, of which there are currently eight outstanding with an aggregate undrawn face amount of $36.98 million.
Shares of Covia Holding Corp.’s common stock have traded on the New York Stock Exchange since June 1, 2018. Approximately 65% of Covia common stock is owned by Sibelco, previously the parent company of Unimin.
The company attributes the bankruptcy filing to a substantial decline in the availability of debt and equity capital to E&P companies, the primary end customers for proppants, that negatively affected well completion activity and, as a result, the demand for the debtors’ proppants. In addition, in-basin proppant supply nearly doubled since 2017, while demand remained relatively flat, leading to a glut in the proppants market. Capital restraints by E&P companies also led to an increased shift in demand from northern white sand, or NWS, to lower cost in-basin sand, which reduced the overall addressable market for NWS proppants.
While proppant market volatility has created challenges for the debtors’ energy segment in recent years, the onset of the Covid-19 pandemic has exacerbated struggles within the energy industry and hastened a considerable reduction in the U.S. gross domestic product, which has had a negative flow-through impact on many facets of the debtors’ industrial business, the debtors lament. The compounded effects of these macroeconomic drivers have magnified the existing contraction in EBITDA and free cash flow over the past three years, the debtors add, which they say is expected to accelerate through fiscal year 2020 and 2021 “in light of worsening economic circumstances.”
The debtors say that they have “struggled under the weight of their funded debt obligations since the end of 2018, and, despite significant success in reducing costs, strengthening the balance sheet, and navigating the challenging commodity market’s effect on the Energy Segment, the exacerbation of these problems in recent months, together with the onslaught of the COVID-19 pandemic and its wide-ranging effects, ultimately made it impracticable for the Debtors to adequately address the excess cost and capital structure issues without a chapter 11 filing.”
The debtors are represented by Kirkland & Ellis and Jackson Walker as co-counsel and are also working with PJT Partners as investment banker and AlixPartners as financial advisor. Prime Clerk is the claims agent. Ernst & Young is the debtors’ auditor, KPMG is the debtors’ tax consultant, and Kobre & Kim is special counsel. The case has been assigned to Judge David Jones (case No. 20-33295).
Background
Headquartered in Independence, Ohio, Covia and its affiliates provide diversified mineral-based and material supplies for global energy and industrial markets. Across two primary business segments - energy and industrial - the debtors produce a wide range of specialized silica sand, feldspar, nepheline syenite, calcium carbonate, clay and kaolin products, which serve as raw materials for the production of glass, ceramic tiles, sanitaryware, paints, plastics, roofing tiles, filtration media, artificial turf, golfing sands and hydrocarbon recovery. Covia currently has 32 active mining facilities with an active annual mineral processing capacity of 25 million tons, serving more than 2,000 customers. The debtors have approximately 1,600 employees, approximately 24% of whom are parties to 13 collective bargaining contracts in the United States, Canada and Mexico.
Covia was founded in connection with the merger of Unimin and Fairmount Santrol, the largest and third largest U.S. producers of frac sand used in the hydrocarbon industry, respectively, through which Fairmount merged into a wholly owned subsidiary of Unimin, and Unimin changed its name to Covia Holdings Corp.
The debtors’ energy segment, which serves hydraulic fracturing operations in the United States, Canada, Argentina, Mexico, China and northern Europe, represented approximately 54% of Covia’s total revenue for 2019. The industrial segment, which provides whole-grain, value-added and custom-blended products to glass glass, ceramics, coatings, metals, foundry, polymers, construction, water filtration, sports and recreation and various other industries primarily in North America, represented approximately 46% of Covia’s total revenue for 2019.
In addition to the products it supplies, Covia had established one of the largest small-cube-covered hopper rail fleets in the country, the debtors say. At the time of the Unimin-Fairmount merger, Covia had more than 17,000 railcars either owned, leased or otherwise under Covia control. Despite efforts to shed a railcar fleet that became bloated due to a reduction in demand for northern white sand across American shale plays, “Covia remains significantly over-fleeted and has several out-of-the-money terminal operating agreements relative to the depressed demand that exists today and for the foreseeable future.” The debtors forecast that, absent the chapter 11 process, they would have approximately 8,400 excess railcars by the fourth quarter of 2020, costing Covia approximately $90 million in annualized leasing, maintenance, transportation and storage costs.
The debtors did not make lease payments due from April throughJune on all of their railcar leases, and made a proposal to the lessors that included a total base fleet size of approximately 5,000 leased cars, with additional access to approximately 1,700 cars under a “flex” arrangement (allowing the debtors access as-needed), along with staggered lease maturities and lease rates “significantly below” contract. After multiple proposals and counterproposals, the debtors determined to pursue counterproposals with certain railcar lessors because they “are able to supply the Debtors’ railcar needs, provide economically beneficial terms, and are willing to work with the Debtors on the logistics of transitioning the railcar fleet.” The debtors filed a motion to reject railcar leases, seeking to reject the leases with all other existing lessors, and in the “coming days,” the debtors say that they will file motion to assume, as amended and restated, the strategic partner leases. One of the reasons why an out-of-court restructuring did not materialize is that the debtors would not have been able to reject the leases outside of an in-court bankruptcy process, the first day declaration says.
In response to ongoing operational and financial challenges, since late 2018, Covia has instituted a number of measures to reduce costs, maximize free cash flow and strengthen their balance sheet, including: (a) consolidation of over 26 million tons of capacity to mitigate costs of the debtors’ geographic footprint; (b) significant reductions in railcar expenses; (c) termination of certain terminal leases that were no longer needed; and (d) strengthening the company’s financial metrics through working capital improvements and reductions in SG&A costs and capital expenditures.
Covia’s corporate organizational structure is shown below:
The debtors' largest unsecured creditors are listed below:
The case representatives are as follows:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
First Day Hearing Agenda
Covia Holdings Corp., an Independence, Ohio-based maker of industrial materials for the energy and industrial markets, and several affiliates filed petitions on Monday night, June 29, in the Bankruptcy Court for the Southern District of Texas. The company has entered into a restructuring support agreement with an ad hoc group of term lenders for a prearranged restructuring. The RSA contemplates filing of a plan and disclosure statement within 30 days and that the plan effective date would occur within 150 days of the petition date. “The Debtors have strategically worked to build a cash position of approximately $250 million prior to entering chapter 11” and as such, do not need DIP financing, but rather seek the use of cash collateral with the consent of the prepetition term lenders (emphasis added).
The proposed plan embodied in the RSA contemplates that holders of term loan claims and swap agreement claims would receive, among other things, $825 million in takeback debt to be issued under a new term loan and 100% of the reorganized equity, minus a certain amount to be agreed upon on account of general unsecured claims, and subject to dilution by a MIP. These claims would also receive all excess cash on the debtors’ balance sheet for payment of professional fees through emergence, subject to certain limitations.
The first day hearing has been scheduled for today, Tuesday, June 30, at 3:30 p.m. ET. The case docket can be found on Reorg HERE.
Under the RSA, the debtors’ post-emergence capital structure would consist of an $825 million senior secured new term loan facility and at least a $100 million senior secured revolving credit facility.
The first day declaration of Andrew Eich, the debtors’ CFO, states that the debtors filed for chapter 11 because their existing debt service and above-market railcar lease arrangements are unsustainable, requiring the debtors to pay approximately $100 million in debt payments per year and about $90 million in railcar-related payments per year. Coupled with a drop in EBIT, Eich says that the debtors are forecasted to collectively result in severe negative cash flow over the course of 2020. Covia filed due to “significant structural change” in the market over the last two years, that it says, “if corrected, will position the Debtors’ Energy and Industrial Segments (as defined below) for growth and long-term success.”
“In lieu of waiting for an inevitable insolvency event to occur, the Debtors have opted to file these chapter 11 cases now to address these issues head-on,” the first day declaration says. Eich’s declaration states that the debtors pursued a number of strategies over the last two years to “proactively address balance sheet challenges head on,” ultimately determining that the debtors’ current financial and liquidity forecasts indicate that a restructuring “is the only course of action remaining.”
According to Eich, during the months preceding the bankruptcy filing, nondebtor affiliate Silbelco informed the debtors that “it desired to submit a proposal to Covia and the Ad Hoc Group regarding a transaction pursuant to which Sibelco would remain the majority shareholder of CHC in exchange for a new money investment.” Sibelco submitted two “plan sponsor” proposals, which were subsequently countered by the ad hoc group of term lenders. In light of this, Sibelco decided not to counter the proposal, and the debtors and Sibelco failed to reach agreement on terms of a Sibelco-sponsored transaction prior to the petition date, the declaration says. The debtors and the ad hoc group thereafter entered into the RSA, which contemplates a comprehensive reorganization under a plan.
Covia Holdings Corp. reports $2.5 billion in assets and $1.9 billion in liabilities. The company’s prepetition capital structure includes approximately $1.6 billion in funded debt, as follows:
The term loan agreement matures June 2025 and is guaranteed by “all of Covia’s wholly-owned, material, domestic, restricted subsidiaries, subject to certain customary exceptions,” and is secured by substantially all of Covia’s assets in the United States and those of each guarantor. Because of a variable interest rate, Covia has entered into interest rate swap agreements, and is party to five interest swap agreements with an aggregate notional value of $450 million at an aggregate fixed rate ranging between 2.81% and 2.87%, and “due in part to the COVID-19 pandemic and related global economic downturn)” the hedges have been negatively affected, leaving Covia with a liability of $35.8 million on the swap agreements as of June 22. The term loan agent Barclays Bank submitted a resignation notice to Covia on June 28, which was posted on June 29. Barclays will serve as agent until the earlier of acceptance of a successor agent or July 29.
The debtors’ other funded secured debt of $16 million consists of: (a) $10 million industrial revenue bond related to the construction of a mining facility in Wisconsin (matures Sept. 1, 2027, and is collateralized by a $10 million LC), and (b) $5.9 million in capital leases and $145,000 in promissory notes with three unrelated third parties that Unimin entered into on Jan. 17, 2011.
The company is also party to a receivables financing facility with PNC Bank with up to $75 million of borrowing capacity. “The security interests securing Term Loan Agreement obligations are subordinated to the security interests securing RFA obligations with respect to any AR Rights, but RFA security interests are subordinated to Term Loan Agreement security interests in all other respects,” according to the first day declaration. However, the debtors entered into prepetition agreements with PNC to effect the termination of the receivables financing facility and to transition to a stand-alone letter of credit facility with PNC Bank. The debtors say that these agreements, once consummated, will allow the debtors to “freely access” cash collections on account of $75 million of receivables currently held, “which will no longer be subject to the Administrator’s security interest under the Securitization Agreements, and to avoid the accrual of default interest on amounts outstanding under the RFA.” The debtors filed a related motion, providing, among other things, that the receivables financing facility would terminate upon Covia Financing’s payment of amounts set forth in a payoff agreement.
The debtors have used the receivables financing facility to obtain letters of credit, of which there are currently eight outstanding with an aggregate undrawn face amount of $36.98 million.
Shares of Covia Holding Corp.’s common stock have traded on the New York Stock Exchange since June 1, 2018. Approximately 65% of Covia common stock is owned by Sibelco, previously the parent company of Unimin.
The company attributes the bankruptcy filing to a substantial decline in the availability of debt and equity capital to E&P companies, the primary end customers for proppants, that negatively affected well completion activity and, as a result, the demand for the debtors’ proppants. In addition, in-basin proppant supply nearly doubled since 2017, while demand remained relatively flat, leading to a glut in the proppants market. Capital restraints by E&P companies also led to an increased shift in demand from northern white sand, or NWS, to lower cost in-basin sand, which reduced the overall addressable market for NWS proppants.
While proppant market volatility has created challenges for the debtors’ energy segment in recent years, the onset of the Covid-19 pandemic has exacerbated struggles within the energy industry and hastened a considerable reduction in the U.S. gross domestic product, which has had a negative flow-through impact on many facets of the debtors’ industrial business, the debtors lament. The compounded effects of these macroeconomic drivers have magnified the existing contraction in EBITDA and free cash flow over the past three years, the debtors add, which they say is expected to accelerate through fiscal year 2020 and 2021 “in light of worsening economic circumstances.”
The debtors say that they have “struggled under the weight of their funded debt obligations since the end of 2018, and, despite significant success in reducing costs, strengthening the balance sheet, and navigating the challenging commodity market’s effect on the Energy Segment, the exacerbation of these problems in recent months, together with the onslaught of the COVID-19 pandemic and its wide-ranging effects, ultimately made it impracticable for the Debtors to adequately address the excess cost and capital structure issues without a chapter 11 filing.”
The debtors are represented by Kirkland & Ellis and Jackson Walker as co-counsel and are also working with PJT Partners as investment banker and AlixPartners as financial advisor. Prime Clerk is the claims agent. Ernst & Young is the debtors’ auditor, KPMG is the debtors’ tax consultant, and Kobre & Kim is special counsel. The case has been assigned to Judge David Jones (case No. 20-33295).
Background
Headquartered in Independence, Ohio, Covia and its affiliates provide diversified mineral-based and material supplies for global energy and industrial markets. Across two primary business segments - energy and industrial - the debtors produce a wide range of specialized silica sand, feldspar, nepheline syenite, calcium carbonate, clay and kaolin products, which serve as raw materials for the production of glass, ceramic tiles, sanitaryware, paints, plastics, roofing tiles, filtration media, artificial turf, golfing sands and hydrocarbon recovery. Covia currently has 32 active mining facilities with an active annual mineral processing capacity of 25 million tons, serving more than 2,000 customers. The debtors have approximately 1,600 employees, approximately 24% of whom are parties to 13 collective bargaining contracts in the United States, Canada and Mexico.
Covia was founded in connection with the merger of Unimin and Fairmount Santrol, the largest and third largest U.S. producers of frac sand used in the hydrocarbon industry, respectively, through which Fairmount merged into a wholly owned subsidiary of Unimin, and Unimin changed its name to Covia Holdings Corp.
The debtors’ energy segment, which serves hydraulic fracturing operations in the United States, Canada, Argentina, Mexico, China and northern Europe, represented approximately 54% of Covia’s total revenue for 2019. The industrial segment, which provides whole-grain, value-added and custom-blended products to glass glass, ceramics, coatings, metals, foundry, polymers, construction, water filtration, sports and recreation and various other industries primarily in North America, represented approximately 46% of Covia’s total revenue for 2019.
In addition to the products it supplies, Covia had established one of the largest small-cube-covered hopper rail fleets in the country, the debtors say. At the time of the Unimin-Fairmount merger, Covia had more than 17,000 railcars either owned, leased or otherwise under Covia control. Despite efforts to shed a railcar fleet that became bloated due to a reduction in demand for northern white sand across American shale plays, “Covia remains significantly over-fleeted and has several out-of-the-money terminal operating agreements relative to the depressed demand that exists today and for the foreseeable future.” The debtors forecast that, absent the chapter 11 process, they would have approximately 8,400 excess railcars by the fourth quarter of 2020, costing Covia approximately $90 million in annualized leasing, maintenance, transportation and storage costs.
The debtors did not make lease payments due from April throughJune on all of their railcar leases, and made a proposal to the lessors that included a total base fleet size of approximately 5,000 leased cars, with additional access to approximately 1,700 cars under a “flex” arrangement (allowing the debtors access as-needed), along with staggered lease maturities and lease rates “significantly below” contract. After multiple proposals and counterproposals, the debtors determined to pursue counterproposals with certain railcar lessors because they “are able to supply the Debtors’ railcar needs, provide economically beneficial terms, and are willing to work with the Debtors on the logistics of transitioning the railcar fleet.” The debtors filed a motion to reject railcar leases, seeking to reject the leases with all other existing lessors, and in the “coming days,” the debtors say that they will file motion to assume, as amended and restated, the strategic partner leases. One of the reasons why an out-of-court restructuring did not materialize is that the debtors would not have been able to reject the leases outside of an in-court bankruptcy process, the first day declaration says.
In response to ongoing operational and financial challenges, since late 2018, Covia has instituted a number of measures to reduce costs, maximize free cash flow and strengthen their balance sheet, including: (a) consolidation of over 26 million tons of capacity to mitigate costs of the debtors’ geographic footprint; (b) significant reductions in railcar expenses; (c) termination of certain terminal leases that were no longer needed; and (d) strengthening the company’s financial metrics through working capital improvements and reductions in SG&A costs and capital expenditures.
Covia’s corporate organizational structure is shown below:
(Click HERE to enlarge.)
The debtors' largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Claim Amount |
|---|---|---|---|
| Wells Fargo Vendor Financial Services LLC |
Rosemont, Ill. | Trade | $ 3,160,244 |
| Trinity Industrial Leasing Company |
Dallas | Trade | 2,898,857 |
| Citizens Asset Finance Inc. | Chicago | Trade | 1,995,892 |
| Banc of America Leasing & Capital LLC |
Chicago | Trade | 1,482,453 |
| Truist Bank | Raleigh, N.C. | Trade | 1,407,011 |
| Rango Inc. | Mesa, Ariz. | Trade | 1,132,642 |
| SMBC Rail Investment LLC |
Chicago | Trade | 1,008,829 |
| Greenbrier Leasing Co. |
Lake Oswego, Ore. | Trade | 953,280 |
| Illinois Power Marketing D/B/A Homefield Energy |
Collinsville, Ill. | Trade | 933,827 |
| Constellation New Energy Inc. |
Louisville, Ky. | Trade | 889,015 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Co-Counsel | Jonathan S. Henes | Kirkland & Ellis |
New York |
| Joshua A. Sussberg | |||
| Benjamin M. Rhode | Chicago | ||
| Scott J. Vail | |||
| Debtors' Co-Counsel | Matthew D. Cavenaugh | Jackson Walker |
Houston |
| Vienna F. Anaya | |||
| Genevieve M. Graham | |||
| Victoria N. Argeroplos | |||
| Debtors' Investment Banker |
N/A | PJT Partners |
N/A |
| Debtors' Financial Advisor |
N/A | AlixPartners | N/A |
| Counsel to PNC Bank |
Brian Trust | Mayer Brown |
New York |
| Charles S. Kelley | Houston | ||
| James B. Danford, Jr. | |||
| Co-Counsel to the Ad Hoc Term Lender Group |
Brian S. Hermann | Paul, Weiss, Rifkind, Wharton & Garrison |
New York |
| Andrew Parlen | |||
| Sean A. Mitchell | |||
| Co-Counsel to the Ad Hoc Term Lender Group |
N/A | Porter Hedges |
N/A |
| Financial Advisor to the Ad Hoc Term Lender Group |
N/A | Centerview Partners |
N/a |
| Counsel to the Term Loan Agent |
N/A | Simpson Thacher & Bartlett |
N/A |
| United States Trustee | Jayson B. Ruff | Office of the U.S. Trustee |
Houston |
| Debtors' Claims Agent | Benjamin J. Steele | Prime Clerk | New York |
Restructuring Support Agreement
The RSA contains a restructuring term sheet dated June 29, attached as an exhibit to the first day declaration, which outlines the key terms of the RSA below.
Treatment of Claims and Interests
Votes on the plan would be solicited from (i) the term loan lenders and holders of swap agreement claims and (ii) certain holders of general unsecured claims, says the restructuring term sheet.
Post-Emergence Capital Structure
As of the effective date, the company’s pro forma exit capital structure would consist of:
The RSA is subject to the following milestones:
Governance
The reorganized board would be determined by the required consenting stakeholders and would include the CEO of the reorganized company.
Management Incentive Plan
The terms of a MIP would be established by the reorganized board within 90 days after emergence.
Releases and Exculpation
“Released parties” under the RSA would include each of the debtors, each of the reorganized debtors, each of the consenting stakeholders, the term loan agent, each current and former affiliate of the previous parties and each related party of the released parties described above. Any claimholder or equityholder that votes against or objects to the plan, or opts out of the third-party release, would not be a released party.
In addition, the RSA would provide for an exculpation in favor of: each of the debtors, each of the reorganized debtors, each of the consenting stakeholders, the term loan agent, each current and former affiliate of the previous parties and each related party of the exculpated parties outlined above.
Cash Collateral Motion
The debtors request the use of cash collateral pursuant to a budget, with the consent of the prepetition term lenders.
The debtors propose as adequate protection to the prepetition term lenders: replacement liens, superpriority administrative expense claims, payment of professional fees of the term loan agent and the ad hoc group and financial reporting requirements. In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b). The carveout for professional fees is $10 million.
The use of cash collateral is subject to milestones consistent with the RSA milestones.
The lien challenge deadline is 60 days from formation of an official committee of unsecured creditors or 75 days after entry of the interim order for other parties in interest. The UCC investigation budget is $150,000.
Other Motions
The debtors also filed various standard first day motions, including the following:
The cases will be jointly administered under case No. 20- 20-33295. The debtors lease a fleet of approximately 14,082 railcars from 22 lease counterparties, with aggregate costs exceeding approximately $5.9 million per month. Because the debtors hold a significant portion of excess unused railcars, the motion says, the debtors incur “significant costs without any benefit.” A list of the railcar leases the debtors seek to reject can be found HERE.
The company has bank accounts with Bank of America, HSBC, PNC Bank and PNC Bank CD.
The RSA contains a restructuring term sheet dated June 29, attached as an exhibit to the first day declaration, which outlines the key terms of the RSA below.
Treatment of Claims and Interests
Votes on the plan would be solicited from (i) the term loan lenders and holders of swap agreement claims and (ii) certain holders of general unsecured claims, says the restructuring term sheet.
- Administrative, priority tax, other priority claims and other secured claims: On or as soon as reasonably practicable following the restructuring effective date, each claimholder would receive: payment in full in cash; reinstatement pursuant to section 1124 of the Bankruptcy Code; delivery of the collateral securing any such secured claim and payment of any interest required under section 506(b) of the Bankruptcy Code; or such other treatment rendering such claim unimpaired.
- Term loan claims and swap agreement claims: Term loan lenders and holders of swap agreement claims would receive their pro rata share of the following consideration in accordance with the plan:
- (i) The “excess cash distribution,” consisting of all excess cash on the company’s balance sheet as of the measurement date pro forma for all remaining professional fees expected to be paid through the emergence date, subject to minimum liquidity at emergence and minimum cash at emergence requirements, which would be (a) increased or decreased by the net working capital adjustment, and which would be (b) increased if any proceeds associated with early receipt of the CARES Act tax refunds scheduled to be received in FY 2021 have been received as of the measurement date (for the avoidance of doubt, any CARES act tax refunds adjustment cannot exceed the amount included in FY 2021 in the Covia management business plan dated May 12);
- If the excess cash distribution is (i) less than a “termination threshold” of $90 million, then the consenting stakeholders may terminate the RSA; or (ii) more than $110 million, such excess cash distribution would reduce the amount of new term loans on a dollar-for-dollar basis, subject to a maximum new term loan reduction of $25 million, “(i.e., minimum New Term Loan amount of $800 million and no cap on maximum Excess Cash Distribution),” under a “cash adjustment”;
- If the excess cash distribution is (i) less than a “termination threshold” of $90 million, then the consenting stakeholders may terminate the RSA; or (ii) more than $110 million, such excess cash distribution would reduce the amount of new term loans on a dollar-for-dollar basis, subject to a maximum new term loan reduction of $25 million, “(i.e., minimum New Term Loan amount of $800 million and no cap on maximum Excess Cash Distribution),” under a “cash adjustment”;
- (ii) $825 million in new term loans pursuant to the new term loan facility, subject to the cash adjustment; and
- (iii) 100% of reorganized Covia equity, less an amount that is acceptable to the required consenting stakeholders and Covia on account of the treatment of general unsecured claims and dilution from the MIP.
- (i) The “excess cash distribution,” consisting of all excess cash on the company’s balance sheet as of the measurement date pro forma for all remaining professional fees expected to be paid through the emergence date, subject to minimum liquidity at emergence and minimum cash at emergence requirements, which would be (a) increased or decreased by the net working capital adjustment, and which would be (b) increased if any proceeds associated with early receipt of the CARES Act tax refunds scheduled to be received in FY 2021 have been received as of the measurement date (for the avoidance of doubt, any CARES act tax refunds adjustment cannot exceed the amount included in FY 2021 in the Covia management business plan dated May 12);
- Receivables financing claims: All receivables financing claims (other than certain indemnifications surviving under the receivables financing agreement) would be terminated pursuant to the L/C facility order. Among other forms of relief, the L/C facility order would:
- Authorize Covia to make a cash capital contribution to Covia Financing LLC in an amount sufficient to pay all obligations under the receivables financing agreement and to fund an L/C collateral account held at Covia Financing LLC with cash to secure Covia Financing LLC’s reimbursement obligations under the reimbursement agreement in an amount at all times equal to 105% of the undrawn face amount of the outstanding letters of credit;
- Authorize Covia to make cash capital contributions to Covia Financing LLC in the future to cash collateralize additional letters of credit in accordance with the reimbursement agreement in amounts up to 105% of the undrawn face amount of such future letters of credit;
- Authorizes Covia to accept the transfer from Covia Financing LLC of the pool receivables held by Covia Financing LLC in connection with the receivables financing; and
- Pursuant to section 364(c)(1) of the Bankruptcy Code, would grant (i) PNC Bank NA superpriority administrative claims with priority in payment with respect to the indemnity obligations of Covia under the reimbursement agreement and (ii) Covia Financing LLC and PNC Bank administrative claims with priority in payment with respect to indemnity obligations of the applicable debtors under the receivables financing agreement, in each case over any and all administrative expenses of the kinds specified in sections 503(b) and 507(b) of the Bankruptcy Code, other than with respect to the “carve out” under the cash collateral order.
- Authorize Covia to make a cash capital contribution to Covia Financing LLC in an amount sufficient to pay all obligations under the receivables financing agreement and to fund an L/C collateral account held at Covia Financing LLC with cash to secure Covia Financing LLC’s reimbursement obligations under the reimbursement agreement in an amount at all times equal to 105% of the undrawn face amount of the outstanding letters of credit;
- HoldCo general unsecured claims: Claimholders would receive their pro rata share of an amount to be determined of the reorganized Covia equity, subject to dilution from the MIP.
- Non-HoldCo general unsecured claims: Claimholders would receive their pro rata share of an amount to be determined of the reorganized Covia equity, subject to dilution from the MIP.
- Section 510(b) claims: On the effective date, all claims arising under section 510(b) of the Bankruptcy Code would be discharged without any distribution.
- Equity interests: Canceled, released and extinguished as of the effective date without distribution.
- Intercompany claims: All claims held by one debtor or an affiliate thereof in any other debtor or an affiliate thereof would be, at the option of reorganized Covia with the consent of the required consenting stakeholders, (a) reinstated or (b) distributed, contributed, set off, settled, canceled and released, or otherwise addressed at the option of the debtors; provided that no distributions shall be made on account of any such intercompany claims.
- Intercompany interests: All interests held by one debtor in any other debtor would be, at the option of Covia, (a) reinstated or (b) canceled, released and extinguished without any distribution at the debtors’ election with the consent of the required consenting stakeholders.
Post-Emergence Capital Structure
As of the effective date, the company’s pro forma exit capital structure would consist of:
- New term loan: a $825 million senior secured term loan facility, subject to the cash adjustment, with an interest rate of L + 400 bps (with 100 bps floor), payable in cash unless the company elects the PIK and cash option. The new term loans would be subject to a minimum liquidity covenant of $50 million, to be tested quarterly and would mature on July 31, 2026. The company would be required to obtain ratings for the new term loans from S&P and Moody's. Further, the new term loan would have other terms reasonably acceptable to the company and the required consenting stakeholders as set forth in the forthcoming plan supplement.
The new term loans would be secured by liens on substantially all assets of reorganized Covia and each of its direct and indirect subsidiaries (including, for the avoidance of doubt, subsidiaries domiciled in Canada and Mexico) and would be guaranteed by each of its direct and indirect subsidiaries of reorganized Covia (including subsidiaries domiciled in Canada and Mexico).
- New revolving credit facility: A senior secured revolving credit facility of at least $100 million on terms reasonably acceptable to the company and the required consenting stakeholders sufficient to replace existing letters of credit and fund the ongoing liquidity needs of reorganized Covia and its subsidiaries. Terms would be set forth in the plan supplement.
- Reorganized Covia equity: Reorganized Covia would issue equity on the effective date to term loan lenders, holders of swap agreement claims and holders of general unsecured claims in accordance with their treatment.
The RSA is subject to the following milestones:
- Filing of plan, disclosure statement, DS approval motion: 30 days after the petition date, or July 29;
- Railcar lease rejection order: Entered within 60 days of the petition date, or Aug. 28, unless the Bankruptcy Code section 365(d)(5) deadline is extended (in which case this deadline would be correspondingly extended);
- Disclosure statement approval order: Entered within 60 days of the filing of the plan and DS;
- Confirmation order: Entered within 45 days of entry of DS order; and
- Restructuring effective date: Within 150 days of the petition date.
Governance
The reorganized board would be determined by the required consenting stakeholders and would include the CEO of the reorganized company.
Management Incentive Plan
The terms of a MIP would be established by the reorganized board within 90 days after emergence.
Releases and Exculpation
“Released parties” under the RSA would include each of the debtors, each of the reorganized debtors, each of the consenting stakeholders, the term loan agent, each current and former affiliate of the previous parties and each related party of the released parties described above. Any claimholder or equityholder that votes against or objects to the plan, or opts out of the third-party release, would not be a released party.
In addition, the RSA would provide for an exculpation in favor of: each of the debtors, each of the reorganized debtors, each of the consenting stakeholders, the term loan agent, each current and former affiliate of the previous parties and each related party of the exculpated parties outlined above.
Cash Collateral Motion
The debtors request the use of cash collateral pursuant to a budget, with the consent of the prepetition term lenders.
The debtors propose as adequate protection to the prepetition term lenders: replacement liens, superpriority administrative expense claims, payment of professional fees of the term loan agent and the ad hoc group and financial reporting requirements. In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b). The carveout for professional fees is $10 million.
The use of cash collateral is subject to milestones consistent with the RSA milestones.
The lien challenge deadline is 60 days from formation of an official committee of unsecured creditors or 75 days after entry of the interim order for other parties in interest. The UCC investigation budget is $150,000.
Other Motions
The debtors also filed various standard first day motions, including the following:
The cases will be jointly administered under case No. 20- 20-33295. The debtors lease a fleet of approximately 14,082 railcars from 22 lease counterparties, with aggregate costs exceeding approximately $5.9 million per month. Because the debtors hold a significant portion of excess unused railcars, the motion says, the debtors incur “significant costs without any benefit.” A list of the railcar leases the debtors seek to reject can be found HERE.
- Motion to terminate the securitization facility and cash collateralize existing letters of credit under the securitization facility
- Motion to pay trade and royalty claimants
- Motion to pay employee wages and benefits
- The debtors request authority to pay employee obligations as follows:
- Motion to honor customer programs
- Motion to continue surety bond program
- Covia has approximately 116 surety bonds that have an aggregate value of approximately $50.3 million and generally cover obligations associated with the debtors’ mining activities, including reclamation, mining permits and licenses, taxes, conservation and environmental obligations, and other miscellaneous mining obligations. The annual premiums for the debtors’ surety bonds total approximately $382,299. The debtors say that, as of the petition date, they do not believe there are any unpaid prepetition obligations due and owing in connection with the premiums.
- Motion to maintain insurance programs
- Motion to pay taxes and fees
- The debtors have approximately $32.2 million in obligations owed to taxing authorities, of which approximately $5.6 million will become due within 21 days of after the petition date.
- Motion to provide utilities with adequate assurance
- Motion to file consolidated creditors lists
- Motion to extend the deadline for filing schedules/statements to Aug. 12
- Application to appoint Prime Clerk as claims agent
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