Capstone Green Energy Enters Into Transaction Support Agreement With Senior Secured Lender

Author: Benzinga Newsdesk | September 28, 2023 10:05am

Initiates Prepackaged Chapter 11 Process with Support from Senior Secured Lender;

Obtains Commitment for Significant Balance Sheet Improvements and New Financing

Capstone Green Energy Corporation (NASDAQ:CGRN) (the Company or Capstone) has entered into a transaction support agreement (TSA) with Goldman Sachs Specialty Lending Group, L.P., in its capacity as collateral agent (the "Collateral Agent") under that certain Amended and Restated Note Purchase Agreement, dated as of October 1, 2020 (as amended, the Note Purchase Agreement), and Broad Street Credit Holdings LLC, an affiliate of the Collateral Agent, in its capacity as purchaser (Consenting Lender) under the Note Purchase Agreement, and in connection therewith has initiated a prepackaged restructuring. This is a significant step towards expediting the Company's corporate restructuring efforts, with the primary objectives of significantly reducing Capstone's debt burden, injecting additional liquidity into its operations, and ultimately paving the way for the sustained and prosperous future of its business.

"The transactions contemplated by the TSA have been carefully designed to preserve and enhance value for all our stakeholders," said Robert C. Flexon, Interim President and Chief Executive Officer. "The new financings provide much-needed liquidity to ensure near-term stable operations and, importantly, upon emergence, our pre-petition debt and accrued interest of more than $56.0 million will decrease to $25.0 million resulting in significantly improved financial health and longer-term financial stability."

To implement Capstone's prepackaged restructuring, Capstone and certain of its subsidiaries (the Debtors) filed voluntary Chapter 11 petitions for relief in the U.S. Bankruptcy Court for the District of Delaware (the Bankruptcy Court). The TSA and the joint prepackaged Chapter 11 plan of reorganization (the Plan) contemplate the Debtors effectuating certain transactions pursuant to which the Company will become a private company (Reorganized PrivateCo) that will continue to own assets consisting of (i) right, title, and interest in and to the certain trademarks of Capstone and (ii) all assets relating to distributor support services (the Retained Assets). Capstone Turbine International, Inc., a subsidiary of the Company, will be renamed Capstone Green Energy Corporation (Reorganized PublicCo), which expects to be the successor to Capstone for purposes of Securities and Exchange Commission reporting and will be the successor to Capstone with respect to certain of its business, assets, and liabilities through its ownership interest in a new operating subsidiary.

Under the Plan, all holders of Allowed General Unsecured Claims will receive payment in full in cash in the ordinary course or such other treatment so as to render such claim unimpaired under the Bankruptcy Code. Existing stockholders of the Company will receive their pro rata share of 100% of the equity in Reorganized PublicCo, subject to dilution from any stock that may be issued as equity incentive compensation to employees. All existing warrants and restricted stock units will be canceled and will not receive any distribution. Other than the Retained Assets described above, the existing operating assets and liabilities of the Company will be transferred to a "New Subsidiary" (with certain limited exceptions), the common shares of which will be 100% held by Reorganized PublicCo, and 100% of its non-dilutable preferred shares will be held by Reorganized PrivateCo. On a fully diluted basis, Reorganized PublicCo will own 62.5% of New Subsidiary, and Reorganized PrivateCo will own 37.5%.

The Company is filing a series of customary motions with the Bankruptcy Court to maintain business-as-usual operations and uphold its commitments to its valued stakeholders. These "first-day" motions, which Capstone expects to be approved promptly following a hearing to be set by the Bankruptcy Court, include requests to continue to pay wages and provide benefits to the Company's employees as usual, as well as honor customer programs and policies. The Company is expected to operate in the ordinary course of business through the Chapter 11 process.

Capstone has secured a commitment from its Consenting Lender for $12.0 million in new money debtor-in-possession financing, which is in addition to the $3.0 million of new money financing provided on September 22, 2023. Subject to Bankruptcy Court approval, this "new money" financing will provide liquidity to support continued operations during the Chapter 11 process. This $12.0 million, plus an additional $8.0 million of pre-petition debt, will be converted into exit financing at emergence along with a new $5.0 million revolver facility, also from the Consenting Lender. This added liquidity will be used for operating purposes, primarily to bring the Company's outstanding vendor payable balances more in line with the associated commercial terms.

"The significant agreement and investment of our senior secured lender demonstrates its support of the Company and our long-term strategy," said Mr. Flexon. "Today's Chapter 11 filings represent an important step toward strengthening our financial position, and we intend to move through this process quickly and without disruption for our employees, customers, distribution partners and vendors. Notably, the restructuring will provide that the Company's public stockholders receive their pro rata share of equity in the new public company. We believe that implementing these transactions will enable us to continue manufacturing and producing customized microgrid solutions and on-site energy technology systems that provide the significant energy cost and carbon savings that Capstone customers are seeking."

The restructuring is expected to be expeditious, with emergence occurring within 45 days after the filing of the petitions, subject to the Bankruptcy Court's scheduling and availability.

Nasdaq Delisting Letter

As previously disclosed, the Company received written notice (Notification Letter) from the listing qualifications department of The Nasdaq Stock Market (Nasdaq) on March 28, 2023, stating that the Company's market value of listed securities (MVLS) for the last 30 consecutive business was below the required minimum of $35 million for continued listing on Nasdaq under Nasdaq Listing Rule 5550(b)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company had 180 calendar days (or until September 25, 2023) to regain compliance (Compliance Period). The Notification Letter stated that Nasdaq will close the matter and provide written confirmation that the Company has achieved compliance with rule 5550(b)(2) if at any time before September 25, 2023, the Company's MVLS closes at $35 million or more for a minimum of ten (10) consecutive business days.

On September 26, 2023, the Company received written notice (Delisting Letter) from Nasdaq that the Company has not regained compliance with Nasdaq Listing Rule 5550(b)(2) for the MVLS within the Compliance Period in accordance with Nasdaq Listing Rule 5810(c)(3)(C). Accordingly, unless the Company requests an appeal of this determination, the Company's securities will be delisted from The Nasdaq Capital Market, trading of the Company's common stock will be suspended at the opening of business on October 5, 2023, and a Form 25-NSE will be filed with the Securities and Exchange Commission to remove the Company's securities from listing and registration on Nasdaq. Because the bankruptcy filing is expected to result in a delisting, the Company does not intend to appeal Nasdaq's determination and, therefore, it is expected that its common stock will be delisted. The Common Stock may be quoted and traded on an over-the-counter market

Posted In: CGRN