USEC Inc. (USU:US), a producer of enriched uranium for nuclear power plants that was sold by the U.S. government in 1998, sought bankruptcy protection with a plan to hand control to noteholders after an oversupply of the fuel hurt its business. The shares fell (USU:US) as much as 29 percent.
The Bethesda, Maryland-based company, which buys some uranium from Russia under a 10-year contract, listed assets of $70 million and debt of $1.07 billion in Chapter 11 papers filed today in U.S. Bankruptcy Court in Wilmington, Delaware. USEC said in December that it would file bankruptcy to replace $530 million in senior convertible notes coming due in October.
USEC is seeking to clean up its balance sheet as it teams with the U.S. government to finance construction of the American Centrifuge plant in Ohio, which will replace USEC’s facility in Paducah, Kentucky. USEC posted net losses in the past two years over costs to end uranium enrichment at the Kentucky plant and return the site to the Energy Department.
“By addressing the October 2014 maturity of the convertible notes, USEC will be able to pursue its ongoing business objectives with greater certainty,” Chief Executive Officer John K. Welch said today in a statement.
The 3 percent notes traded at 39.5 cents on the dollar at 9:49 a.m. in New York, up from 39 cents yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. They stood at 17 cents before USEC announced the restructuring deal in December.
Existing shareholders would get 5 percent of USEC’s new shares under the reorganization plan. BlackRock Inc. (BLK:US) was USEC’s biggest holder of common stock with about 6.5 percent, followed by Dimensional Fund Advisors LP, with 5 percent, and Tradewinds Global Investors LLC, with 3.7 percent, according to data compiled by Bloomberg.
USEC dropped 21 percent to $4.37 at 10:24 a.m. in New York trading. The shares (USU:US) earlier touched $3.94, the lowest since Dec. 20. The company in June announced a 1-for-25 reverse stock split to boost the price for New York Stock Exchange trading.
The American Centrifuge project is on schedule and under budget, according to a Nov. 4 company release. The Energy Department is covering 80 percent of the cost and USEC the remainder under a June 2012 agreement. In October, USEC said the U.S. was providing $13.6 million more for the project, bringing total government funding to $241.3 million.
Construction has been delayed by difficulties in obtaining permanent financing and a global oversupply of nuclear fuel following the tsunami that damaged Japan’s Fukushima reactors in 2011 and led to reactor shutdowns in Germany, USEC said.
“The resulting oversupply caused nuclear fuel prices to drop to their lowest levels in a decade, which has negatively affected the economics of deploying the American Centrifuge technology in the near term,” USEC said in today’s statement.
USEC expects to leave court protection within 120 days and suppliers and customers won’t be affected, according to the statement. United States Enrichment Corp., a USEC operating unit that didn’t enter bankruptcy, will provide $50 million in financing for the holding company’s business while it reorganizes, USEC said.
The proposed restructuring is supported by holders of about 65 percent of USEC’s debt and preferred shareholders Toshiba Corp. (6502) and Babcock & Wilcox (BWC:US) Co., the company said. The convertible notes and all of USEC’s preferred and common shares would be swapped for $240.4 million in new debt and new common stock, according to the statement.
Noteholders would receive $200 million of the new debt and 79 percent of the new equity. Toshiba and Babcock & Wilcox would each get $20.2 million of the new debt and about 8 percent of the new stock. The noteholders will have a recovery of 39 percent and the preferred shareholders 35 percent from the new debt, USEC said, adding that the new stock is too speculative to be valued.
The company said it expects to hold at least $60 million in cash on March 31. USEC reported a net loss of $87.2 million for the first nine months of 2013 as revenue fell 38 percent to $909 million.
CSC Trust Co. of Delaware is listed as the largest unsecured creditor with a $536.7 million claim.
The case is In re USEC Inc., 14-bk-10475, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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