"USEC Inc. to Implement Financial Restructuring Plan" $USU

USEC filed Chapter 11 this morning.

USEC Inc. (USU) announced today that it is implementing the agreement reached with a majority of the holders of its senior unsecured convertible notes that was announced in December 2013. This agreement sets forth the terms of a financial restructuring plan to strengthen the company’s balance sheet, enhance its ability to sponsor the American Centrifuge project and improve its long-term business opportunities. The company also announced today that it reached agreement with its preferred equity investors, Toshiba Corporation and The Babcock & Wilcox Company, to support the restructuring plan.

In order to implement the agreement, USEC today filed a voluntary petition and a plan of reorganization under Chapter 11 of the bankruptcy code in the U.S. Bankruptcy Court for the District of Delaware. USEC anticipates receiving Court approval for its prearranged plan of reorganization and emerging from Chapter 11 in 90 to 120 days. None of USEC’s subsidiaries, including its primary operating subsidiary the United States Enrichment Corporation, have filed for bankruptcy protection.

The Company had positive cash flow from operations in 2013 and ended the year with a cash balance of $314 million. During the restructuring process, USEC’s subsidiary, the United States Enrichment Corporation, will provide debtor-in-possession (DIP) financing to USEC that will support continued operations. No third-party DIP financing will be required. After meeting its significant payables in the first quarter, the Company anticipates a cash balance of at least $60 million at March 31, 2014.

This filing has no impact on USEC’s daily operations, which includes the company’s efforts to deploy the American Centrifuge uranium enrichment technology and perform the research, development and demonstration program partially funded by the U.S. Department of Energy. As a non-debtor, United States Enrichment Corporation’s operations, which include the transition of the Paducah Gaseous Diffusion Plant back to the U.S. Department of Energy (DOE) and the sale of SWU from its inventory and purchases of Russian low enriched uranium, continue unaffected.

“By addressing the October 2014 maturity of the convertible notes, USEC will be able to pursue its ongoing business objectives with greater certainty,” said John K. Welch, USEC president and chief executive officer. “The restructuring will strengthen USEC’s balance sheet and enhance the company’s ability to sponsor the American Centrifuge project. Throughout this process our operations will continue. We will continue to make customer deliveries, execute the RD&D program and continue progress on transitioning the Paducah GDP.”

The plan of reorganization, which is supported by those holding approximately 65 percent of USEC’s debt, as well as Toshiba and Babcock & Wilcox, 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 subject to certain conditions. The noteholders would receive $200 million of the new debt and approximately 79 percent of the common stock, Toshiba and Babcock & Wilcox would each receive $20.19 million of the new debt and approximately 8 percent of the new common stock. Existing stockholders would receive 5 percent of the new common stock. USEC’s 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.

USEC 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. The company’s 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 devastating tsunami in Japan that resulted in extensive damage to reactors at Fukushima in 2011. More than 50 nuclear power reactors in Japan and Germany were shut down. 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. 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 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. B&W and Toshiba each retain the right to representation on the board of directors.

The restructuring plan support agreements entered into by Toshiba and Babcock & Wilcox and other materials related to the filing can be found in an 8-K filed today with the Securities and Exchange Commission and is available in the Investors section of the company’s website, www.usec.com. In addition, documents related to the Chapter 11 filing are available at www.loganandco.com.

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 September 29, 2014. The plan has been amended to accelerate the expiration date to March 4, 2014, effectively terminating the plan as of that date.

USEC expects to issue its fourth quarter 2013 earnings and its Annual Report on Form 10-K in late March. During the period its case is pending in Bankruptcy Court, USEC will not hold quarterly telephonic conference calls with investors.

USEC has informed and discussed the Chapter 11 filing with the New York Stock Exchange. The Company’s most recent quarterly update on its plan of compliance to meet the Exchange’s continued listing standards was accepted and the stock has traded since the Company’s December 16 announcement that it had reached a restructuring agreement. The NYSE will continue to monitor the Company under its continued listing standards throughout the Chapter 11 process.

USEC’s legal advisor for the restructuring is Latham & Watkins LLP, its financial advisor is Lazard, and its restructuring advisor is Alix Partners LLP. An ad hoc group of holders of USEC's senior convertible notes is advised by Akin Gump Strauss Hauer & Feld LLP and Houlihan Lokey.

The petition is available at the case administrator website.