The Diligent Investor
Evergreen Energy, Inc., Trustee Announces Potential Sales of Company’s Assets
Posted: 31 Aug 2012 07:22 PM PDT
Before I begin, I wanted to acknowledge that it has been a while since I posted anything on the blog but it is not so much from a lack of interest in doing so but more a product of a lack of available time. On a nightly basis I am following about 12 active bankruptcies and two legacy cases and also monitor another 5 or 6 active cases less frequently. Considering that distressed investing and case monitoring is still a part-time job (but a full-time passion) for me and that I have another full-time job elsewhere, my inventory of time is extremely limited. I see things all the time that I want to write about, be it compelling investing opportunities or bad people doing bad things in the distressed world that need to be called out publicly, but to do so invokes an opportunity cost that I am not willing to assume at present because there are more interesting distressed and special situations than I can remember in quite some timea nd more than I have time to fully vet out.
At any rate, things slowed down a bit as we approached the extended holiday weekend and I found an article related to Evergreen Energy, Inc. (EVEIQ); one of my favorite distressed situations in terms of the combination of the compelling backstory and future return potential (ranking just behind Trident Microsystems and Point Blank Solutions). That article provoked me to start writing. The article linked below (subscription required) ran on Law360 yesterday regarding the sale of the boiler parts and other assets in Germany.
http://www.law360.com/bankruptcy/articles/373783/evergreen-energy-gets-ok-for-sale-of-clean-coal-equipment
The article itself and the sale process it describes are in and of themselves relatively unremarkable. However, the chosen scope of the article juxtaposed with the other interesting and more meaningful events going on in the case evinces an informational inefficiency that often exists in the distressed markets (leading to inefficiencies in price discovery) and these inefficiencies become increasingly more pronounced as the market capitalization of the distressed firm decreases. These inefficiencies can become even more pronounced where, as here, we have a Chapter 7 case as opposed to the more widely followed Chapter 11 cases.
By way of example, the article addresses [Dkt. No. 91] from the Evergreen Energy, Inc., Chapter 7 cases describing the sale of spare parts for $75,000 that actually cost more to ship back to the U.S. than they are worth. Perhaps this is a topic relevant to other aspiring Chapter 7 liquidators that might face the same dilemma; however, [Dkt. No. 88 ex. A] and [Dkt. No. 93] hold much more interest for a larger subset of the distressed world. Docket #88 was exciting for those that like to read the tea leaves because it hinted at the sale of substantially all of the Company’s assets but left open the possibility that the attempt to find interested bidders had been unfruitful.
[Dkt. No. 88 ex. A] also contained the terms of an important settlement between the Company and the lessor of the Company’s headquarters. The Lessor had filed an unliquidated claim for the remaining lease payments that would have aggregated to more than $2 million over the next 5 years and the company would have had to bear in excess of $1.25 million in taxes and operating costs over that same time on account of the property. The company got out from under these obligations without having to burn any of its cash on hand, rather they agreed that $550k their $713k security deposit with the lessor would go to the lessor in satisfaction of the terminated lease and the Company would receive about $160k of its cash deposits which it can use to administer its Estates or to continue its litigation against Ilyas Khan and related entities. Khan is the erstwhile Board Chairman of Evergreen Energy, Inc. and Founding Director and large shareholder of one of Evergreen’s largest competitors, Australian based White Energy Company. Khan and other defendants are alleged to have acted in bad faith to purposefully, and with malicious intent, set about the demise of Evergreen Energy, either to permanently eliminate it from the market as a competitor to White Energy Company or to drive the Company into financial ruin with the intent of picking up the Company’s assets at depressed prices.
If Dkt. No. 88 piqued the interest of those following this sleepy case, Dkt. No.93 confirmed what the bullish tea leaf readers might have previously surmised when the statutorily appointed Chapter 7 Trustee, Charles Stanziale, Jr., announced that he had in fact extensively marketed the Debtors’ assets and was negotiating a term sheet with a stalking horse bidder for the sale of substantially all of the assets of the Debtors. While the terms of the potential Stalking Horse Bid and the identity of the potential Bidder have not been announced and while no motion for any sale is currently before the Court, I will be shocked if the potential bidder doesn’t turn out to be Australian based WPG Resources with whom Evergreen Energy, Inc., has a 50/50 joint venture partnership called Southern Coal Holdings.
If the Stalking Horse Bidder does not turn out to be WPG Resources this could get very interesting because WPG, by its own admission, in its publicly filed financials released on July 27, 2012, announced that “WPG is continuing to review its options for participation in the liquidation of Evergreen Energy Inc, which filed for bankruptcy protection in the United States on 24 January 2012.” In any regard, this phase of the case is getting interesting and if the potential Stalking Horse Bidder referenced in Docket #93 relates to someone other than WPG Resources, it may very well lead to a competitive auction.
The Case is in re Evergreen Energy, Inc., et al. Case No. 12-10289 (KJC)
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