Covia Holdings Corporation – Provider of Diversified Mineral Solutions Notifies Court of December 31st Plan Effectiveness Date; Long-Term Debt Cut by $750.0mn

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December 31, 2020 – The Court hearing the Debtors’ cases issued an order confirming the Debtors' Modified First Amended Plan of Reorganization [Docket No. 1069]. The Court confirmed the Plan on December 14, 2020 [Docket No. 1029]. 

As detailed further below, the confirmation order approves a $3.75mn settlement with prepetition majority shareholder SCR-Sibelco NV ("Sibelco") which when combined with an earlier "Plan Settlement" will create a $39.75mn cash pool for general unsecured creditors; enough to induce the Debtors' Debtors’ Official Committee of Unsecured Creditors (the “Committee”) to withdraw its objections.

On June 29, 2020, Covia Holdings Corporation and 27 affiliated Debtors (NYSE:CVIA; “Covia” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-33295. At filing, the Debtors, a leading provider of diversified mineral solutions (eg proppants) to the oil and gas (and other) markets, noted estimated assets of $2,504,740,814; and estimated liabilities of $1,903,952,839 (funded debt $1.575bn).

The Debtors, who reported $1.6bn in revenues for 2019, are controlled (65% equity holding) by Belgium’s Sibelco; upon Covia's emergence from bankruptcy, Sibelco will no longer own any shares, and the two companies will become competitors.  

In a press release announcing the emergence, the Debtors stated, "Covia today announced that it has successfully completed its financial restructuring and emerged from Chapter 11. Through the restructuring, Covia has reduced its long-term debt by approximately $750 million and its fixed costs, including railcar obligations, by an additional $300 million.

Richard Navarre, the Debtors' Chief Executive Officer and President, commented in the release, "Today marks a new beginning for Covia. Through this reorganization process, we emerge as a stronger company that will better serve our customers and other stakeholders with a sustainable capital structure and improved operational flexibility…By emerging as a more streamlined organization backed by owners with strong financial resources and expertise in the industrial minerals space, we have improved our ability to accelerate growth in our higher-margin industrial segment and be the low-cost provider to our customers. We are confident that we are emerging from this process positioned for long-term success.”

Following emergence from the restructuring, the Company said its strengthened capital structure consists of:

  • Approximately $175.0mn in total liquidity, consisting of $105.0mn in cash and $70.0mn of availability under a $135.0mn asset-based lending facility expected to mature in December 2025 and provided by PNC Bank, N.A.; and
  • An $806.0mn term loan B maturing in July 2026.

The Plan effectiveness notice states that Administrative Claims must be filed with the Court no later than 30 days following the Plan Effective date, and requests for final payment of Professional Fee Claims must be filed no later than 60 days following the Plan Effective date.

Plan Overview

The Debtors' memorandum in support of Plan confirmation [Docket No. 945] notes, “The Debtors stand poised to confirm a plan that achieves a value-maximizing restructuring that reduces the Debtors’ funded debt obligations by $735 million, positions their businesses for growth and long-term success and provides a meaningful recovery to the Debtors’ stakeholders. Both prior to and throughout these Chapter 11 Cases, the Debtors have engaged in good faith negotiations with their key constituents on the terms of their restructuring. The Plan is a culmination of those robust discussions and embodies the Plan Settlement among the Debtors, the Ad Hoc Term Lender Group, the Committee and other parties thereto. In addition, the Debtors have reached a settlement with SCR-Sibelco NV (‘Sibelco’), which, if approved, will provide the Debtors with valuable go-forward commercial arrangements with Sibelco, as well as provide an additional $3.75 million of cash to Holders of General Unsecured Claims (beyond what is currently in the Plan).

The Amended Disclosure Statement [Docket No. 628] notes, “The proposed Plan achieves a value-maximizing restructuring that comprehensively addresses the Debtors’ funded debt obligations and positions their businesses for growth and long-term success. Following extensive negotiations between the Debtors and an ad hoc group of their prepetition senior secured term lenders, on June 29, 2020, the Debtors entered into a restructuring support agreement, which was amended and restated on July 7, 2020 (…the ‘Restructuring Support Agreement’). As a result, the transactions embodied by the Plan enjoy the support of Holders of approximately $993 million, or 63.7%, of the Debtors’ prepetition term loan indebtedness. The Plan will reduce the Debtors’ funded debt by nearly half; a reduction of approximately $735 million. The consensus embodied in the Restructuring Support Agreement provides a sound foundation for the Debtors’ Chapter 11 Cases to proceed in an efficient, cost-effective, and value-maximizing manner.”

The Disclosure Statement continues, “The agreement in principle, as reflected in the Restructuring Support Agreement and embodied in the Plan, provides for a global compromise and settlement of all Claims, Interests, Causes of Action and controversies released, settled, compromised, discharged or otherwise resolved pursuant to the Plan. The Reorganized Debtors will emerge from Chapter 11 with a New Term Loan of $825mn (subject to reduction by up to $25mn), which will be guaranteed by each of the material wholly-owned direct and indirect subsidiaries of Reorganized Debtors (including, for the avoidance of doubt, subsidiaries domiciled in Canada and Mexico), subject to certain exceptions, and secured by liens on substantially all assets of the Reorganized Debtors and the subsidiaries providing such guarantees. In addition, the Debtors are required to obtain a senior secured revolving credit facility of at least $100mn, which will be available to the Reorganized Debtors upon emergence.

The material terms of the Plan and Restructuring Support Agreement include the following [recent amendments highlighted in bold]: 

  • Each Holder of a Secured Tax Claim shall receive, at the option of the Reorganized Debtors: (1) payment in full in Cash of such Holder’s Secured Tax Claim; or (2) equal semi-annual Cash payments commencing as of the Effective Date or as soon as reasonably practicable thereafter and continuing for five years, in an aggregate amount equal to such Secured Tax Claim, together with interest at the applicable non-default rate under applicable non-bankruptcy law, subject to the option of the applicable Reorganized Debtor to prepay the entire amount of such Secured Tax Claim during such time period.
  • Each Holder of an Other Secured Claim shall receive at the option of the Reorganized Debtors (1) payment in full in Cash; (2) Reinstatement of such Other Secured Claim, notwithstanding any contractual provision or applicable non-bankruptcy law that entitles the holder of such claim to demand or to receive payment prior to the stated maturity of such Other Secured Claim from and after the occurrence of default; (3) delivery of the collateral securing such Other Secured Claim; or (4) such other treatment rendering such Other Secured Claim Unimpaired. 
  • Each Holder of an Other Priority Claim shall receive at the option of the Reorganized Debtors: (1) Cash in an amount equal to such Other Priority Claim; or (2) such other treatment rendering such Other Priority Claim Unimpaired.
  • Each Holder of a Secured Term Loan Claim or a Secured Swap Agreements Claim, respectively, shall receive its Pro Rata share of (1) the Excess Cash; (2) the New Term Loan; and (3) the Financing Claims Equity Pool. 
  • Each Holder of a Claim against Covia that is a General Unsecured Claim, Term Loan Deficiency Claim or Swap Agreements Deficiency Claim shall receive its Pro Rata share of the Parent Unsecured Claims Equity Pool. 
  • Each Holder of a Claim against TechniSand that is a General Unsecured Claim, Term Loan Deficiency Claim or Swap Agreements Deficiency Claim shall receive its Pro Rata share of the TechniSand Unsecured Claims Equity Pool.
  • Each Holder of a Claim against Cheyenne that is a General Unsecured Claim, Term Loan Deficiency Claim, or Swap Agreements Deficiency Claim shall receive its Pro Rata share of the Cheyenne Unsecured Claims Equity Pool.
  • Each Holder of a Claim against one or more Debtors other than Covia, TechniSand and Cheyenne that is a General Unsecured Claim, Term Loan Deficiency Claim, or Swap Agreements Deficiency Claim shall receive its Pro Rata share of the Other Unsecured Claims Equity Pool.
  • All Intercompany Claims shall be, at the option of the Reorganized Debtors with the consent of the Required Consenting Stakeholders, (1) Reinstated or (2) distributed, contributed, set off, settled, cancelled, released or otherwise addressed. 
  • All Intercompany Interests shall be, at the option of the Reorganized Debtors with the consent of the Required Consenting Stakeholders, (1) Reinstated in accordance with Article III.G of the Plan, distributed, contributed or (2) cancelled, released or otherwise addressed.
  • On the Effective Date, Covia Interests will be cancelled, released and extinguished without any distribution on account of such Covia Interests.
  • All Section 510(b) Claims, if any, will be discharged, cancelled, released and extinguished as of the Effective Date and will be of no further force or effect, and Holders of Allowed Section 510(b) Claims will not receive any distribution on account of such Section 510(b) Claims. 
  • The Plan incorporates a settlement between the Debtors and the Senior Creditors regarding the amount of the Debtors’ unencumbered going concern distributable value and the form in which that value will be distributed (the “Unencumbered Value Settlement”). The Unencumbered Value Settlement takes into account certain disputed issues, including: (1) how the Debtors’ estimated total enterprise value should be allocated among the Debtors and their non-Debtor foreign subsidiaries and (2) whether certain of the Debtors’ accounts receivable are subject to the security interests securing the Debtors’ obligations under the Term Loan Credit Agreement. In addition, solely as part of the Unencumbered Value Settlement, the Senior Creditors have agreed that a change of control with respect to the Reorganized Debtors will not constitute an event of default or an acceleration event under the New Term Loan Documents. The Debtors believe that the Unencumbered Value Settlement provides for reasonable recoveries to the Debtors’ stakeholders – both secured and unsecured. Moreover, the recoveries to the Debtors’ stakeholders under the Unencumbered Value Settlement significantly exceed those that the Debtors anticipate would be available in a liquidation, satisfying the “floor” established by section 1129(a)(7) of the Bankruptcy Code. A more detailed discussion of the Unencumbered Value Settlement is provided in Article II.E of the Revised Second Amended Disclosure Statement.
  • Contrary to the Debtors’ view, the Committee does not believe that the Unencumbered Value Settlement represents a fair or reasonable settlement of the Debtors’ unencumbered going concern distributable value for Holders of General Unsecured Claims. The Committee believes that the Unencumbered Value Settlement undervalues unencumbered assets, thereby providing for distributions to unsecured creditors that are lower than what is required by law. A more detailed discussion of the Committee’s views regarding the Unencumbered Value Settlement and its various components is provided in Article II.E.4 of this Disclosure Statement.
  • The Plan also provides for the releases of estate claims against the Senior Creditors and various insiders, including the Debtors’ present and former shareholders, directors and officers. The Committee believes that the Debtors’ estates have colorable claims against these parties related to the UFS Merger and that the pursuit of these claims could produce significant recoveries that could materially improve returns to unsecured creditors under the Plan. For this reason, the Committee does not believe that the releases contained in the Plan are appropriate. The Committee also believes that claims could be preserved without significantly delaying confirmation of a Plan. In other words, the Committee believes that a revised Plan (with acceptable terms and revised releases) could be confirmed that preserves the litigation for resolution after the revised Plan is confirmed. The Senior Creditors vigorously disagree that such a Plan could be confirmed because, among other reasons, they will not support a Plan that preserves claims against them or escrows their recoveries. Further, the Debtors disagree with the Committee’s assessment of potential estate claims related to the UFS Merger and the propriety of the Plan’s release provisions. The Debtors do not believe there are any colorable claims related to the UFS Merger and thus consider the Plan’s release of any such claims to be appropriate. The Debtors’ assessment of potential estate claims related to the UFS Merger is reinforced by the conclusions of an independent investigation regarding these matters.”

The following a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below):

  • Class 1 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0 and the estimated recovery is 100%.
  • Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $13.6mn and the estimated recovery is 100%.
  • Class 3 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $1.5mn and the estimated recovery is 100%.
  • Class 4 (“Term/Swap Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of Term Loan claims is $1,578,974,199.57 and Swap Agreements Claims is $35,808,543.09. Each Holder of a Term Loan Claim or a Swap Agreements Claim, respectively, shall receive its Pro Rata share of: (i) the Excess Cash, (ii) ) the New Term Loan; and (iii) the Financing Claims Equity Pool.
  • Class 5A (“Parent General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $782.0mn – $857.0mn. Each Holder of a Claim against Covia that is a General Unsecured Claim shall receive its Pro Rata share of the Parent Unsecured Claims Cash Pool.
  • Class 5B (“TechniSand General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $633.0mn – $1.726bn. Each Holder of a Claim against TechniSand that is an Allowed General Unsecured Claim shall receive, in full and final satisfaction of such Claim, its Pro Rata share of the TechniSand Unsecured Claims Cash Pool.
  • Class 5C (“Other General Unsecured Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is $713.0mn – $1.822bn and the estimated recovery is 0%.
  • Class 6 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept or deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 100% or 0%. 
  • Class 7 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept or deemed to reject and not entitled to vote on the Plan. The aggregate amount of interests is N/A and the estimated recovery is 100% or 0%.
  • Class 8 (“Covia Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of interests is N/A and the estimated recovery is 0%.
  • Class 9 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is N/A. Claims, if any, will be discharged, cancelled, released and extinguished as of the Effective Date and will be of no further force or effect, and Holders of Section 510(b) Claims will not receive any distribution on account of such Claims.

Voting Results

On December 3, 2020, the Debtors' claims agent notified the Court of the Plan voting results [Docket No. 892], which were as follows.

  • Class 4 (“Term/Swap Claims”): 506 claim holders, representing $1,432,131,665.19 (100%) in amount and 100% in number, voted in favor of the Plan.
  • Class 5A (“Parent General Unsecured Claims”): 40 claim holders, representing $149,031,081.20 (65.78%) in amount and 35.71% in number, voted in favor of the Plan. 72 claims holders, representing $77,531,359.71 (34.22%) in amount and 64.29% in number, rejected the Plan.
  • Class 5B (“TechniSand General Unsecured Claims”): 4 claim holders, representing $35,684,026.88 (79.81%) in amount and 8.51% in number, voted in favor of the Plan. 43 claims holders, representing $9,028,596.68 (20.19%) in amount and 91.49% in number, rejected the Plan.

Withdrawal of Committee Objections to Plan Settlement and Sibelco Settlement

The confirmation order notes that objections filed by the Committee in respect of the Plan Settlement and the Sibelco Settlement (each defined below) had each been withdrawn with prejudice; together, the two settlements, reflected in amended Plans filed on November 28th and December 11th, will fund a $39.75mn cash pool for general unsecured creditors.

On November 28th, further to a settlement amongst the Debtors, the Committee, an ad hoc group of prepetition term loan lenders (the "Ad Hoc Term Lender Group") and other parties thereto (the "Plan Settlement"), the Debtors filed a First Amended Plan of Reorganization and a related redline which reflected the terms of the Plan Settlement, notably the creation of a $36.0mn cash pool for general unsecured creditors holding claims against Debtor Covia (Class 5A) and Debtor TechniSand (Class 5B). 

The Debtors also filed "supplemental Disclosure" to reflect the Plan Settlement (the Debtors' Disclosure Statement was approved on October 13th).

The supplemental disclosure reads:, “The Amended Plan incorporates a settlement among the Debtors, the Committee, the Ad Hoc Term Lender Group and other parties thereto (the ‘Plan Settlement’)…. The Plan Settlement, as incorporated into the Amended Plan, provides for a new $36 million General Unsecured Recovery Cash Pool to fund cash distributions (rather than distributions of new equity) to Holders of Allowed General Unsecured Claims against Debtor Covia (Class 5A) and Debtor TechniSand (Class 5B) under the Amended Plan. The General Unsecured Recovery Cash Pool is allocated between Class 5A and Class 5B based on the agreed unencumbered value under the Plan Settlement as follows: (i) 95.2% (or $34,272,000) for pro rata cash distributions to Holders of Allowed General Unsecured Claims against Debtor Covia; and (ii) 4.8% (or $1,728,000) for pro rata cash distributions to Holders of Allowed General Unsecured Claims against Debtor TechniSand; provided that a portion of the cash distribution may be allocated to the Litigation Trust as described below.

On December 11th, the Debtors filed a Modified First Amended Plan of Reorganization and a related blackline [Docket No. 1017] which reflects additional $3.75mn of funding for the “General Unsecured Recovery Cash Pool" to be provided by SCR-Sibelco NV in the form of a settlement payment. This "Sibelco Settlement" was approved by the Court at the December 14, 2020 Plan confirmation hearing.

Goals of the Chapter 11 Filings

The Eich Declaration (defined below) provides: "The Debtors committed to a chapter 11 filing because their existing debt service and above-market railcar lease arrangements are unsustainable. The Debtors’ debt payments of approximately $100 million per year and railcar-related payments of approximately $90 million per year (including lease, maintenance, and storage costs), together with the Debtors’ drop in EBIT, are forecasted to collectively result in severe negative cash flow over the course of 2020. 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. Although the Debtors have strategically built a cash position sufficient to operate their business in the ordinary course, using this liquidity to service unsustainable debt and lease obligations is not in the Debtors’ best interests."

Events Leading to the Chapter 11 Filings

In a declaration in support of the Chapter 11 filing (the “Eich Declaration”), Andrew Eich, the Debtors’ Chief Financial Officer, detailed the events leading to Covia's Chapter 11 filing. The Eich Declaration provides: “Beginning in the months immediately following the completion of the UFS Merger and continuing to the present day, U.S. energy markets have been embroiled in turmoil. A substantial decline in the availability of debt and equity capital to E&P companies, the primary end customers for proppants, negatively affected well completion activity and, as a result, the demand for proppants. In addition, in-basin proppant supply nearly doubled since 2017, while demand remained relatively flat, leading to a gross oversupply of proppants to the market, resulting in downward pressure on both volumes and pricing. Capital restraints by E&P companies also led to an increased shift in demand from 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. Moreover, the oil price war between the Kingdom of Saudi Arabia and Russia and the resulting sudden crash of oil prices has significantly worsened outlooks on current and future production. 

The compounded effects of these macro-economic drivers have magnified the existing contraction in the Debtors’ EBITDA and free cash flow over the past three years, which is expected to accelerate through fiscal year 2020 and 2021 in light of worsening economic circumstances. 

The Debtors 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.”

Prepetition Debt

As of the Petition Date, the Debtors were liable for approximately $1.6bn of funded-debt obligations. The table below summarizes the Debtors’ prepetition capital structure:

Debt

Principal (US$ millions)

Guarantors

Term Loan Agreement

1,559.0mn

Guarantor Debtors

Other Secured Debt

16.0mn

None

Total Funded Debt Obligations

$1,575.0mn

 

Key Documents

The Disclosure Statement [Docket No. 685] attached the following exhibits

  • Exhibit A: Plan of Reorganization
  • Exhibit B: Restructuring Support Agreement
  • Exhibit C: Corporate Organization Chart
  • Exhibit D: Disclosure Statement Order (not filed)
  • Exhibit E: Liquidation Analysi
  • Exhibit F: Financial Projections
  • Exhibit G: Valuation Analysis

On December 5, 2020, the Debtors filed an amended Plan Supplement [Docket No. 952] and attached the following exhibits:

  • Exhibit B: Schedule of Assumed Executory Contracts and Unexpired Leases
  • Exhibit B-1: Redline of the Schedule of Assumed Executory Contracts and Unexpired Leases to the version Filed at Docket No. 811
  • Exhibit C: Schedule of Rejected Executory Contracts and Unexpired Leases
  • Exhibit C-1: Redline of the Schedule of Rejected Executory Contracts and Unexpired Leases to the version Filed at Docket No. 811
  • Exhibit D: Schedule of Retained Causes of Action Exhibit D-1 Redline of the Schedule of Retained Causes of Action to the version Filed at Docket No. 811
  • Exhibit E: Members of the New Board of Reorganized Covia
  • Exhibit E-1: Redline of the Members of the New Board of Reorganized Covia to the version Filed at Docket No. 811
  • Exhibit G: Exit Facility Agreement
  • Exhibit H: Restructuring Transactions Exhibit 
  • Exhibit I: Management Incentive Plan Term Sheet
  • Exhibit J: New Employment Agreements

Liquidation Analysis (see Exhibit E of Disclosure Statement [Docket No. 585] for notes)

High Recovery Case:

Middle Recovery Case

Low Recovery Case

About the Debtors

According to the Debtors: “Covia is a leading provider of diversified mineral solutions to the oil and gas, glass, ceramics, coatings, metals, foundry, polymers, construction, water filtration, sports and recreation markets. The Company serves its Industrial customers through a broad array of high-quality products, including high-purity silica sand, nepheline syenite, feldspar, clay, kaolin, resin systems and coated materials, delivered through its comprehensive distribution network. Covia offers its Energy customers an unparalleled selection of proppant solutions, additives, and coated products to enhance well productivity and to address both surface and down-hole challenges in all well environments. Covia has built long-standing relationships with a broad customer base consisting of blue-chip customers. Underpinning these strengths is an unwavering commitment to safety and to sustainable development, further enhancing the value that Covia delivers to all of its stakeholders.”

The Debtors’ 10-K adds: “Covia, a Delaware corporation incorporated in 1970, is a leading provider of diversified mineral-based and material solutions for the Industrial and Energy markets in North America and around the world.  We produce a wide range of specialized silica sand, feldspar, nepheline syenite, calcium carbonate, clay, and kaolin products for use in the glass, ceramics, coatings, foundry, polymers, construction, water filtration, sports and recreation, and oil and gas markets.  We currently have 36 active mining facilities with over 40 million tons of annual mineral processing capacity.  Our mining and coating facilities span North America and have many sites in close proximity to our customer base.”

Our operations are organized into two segments based on the primary end markets we serve – Energy and Industrial.  Our Energy segment offers the oil and gas industry a comprehensive portfolio of raw frac sand, value-added proppants, well-cementing additives, gravel-packing media and drilling mud additives, and a fully-integrated, last mile logistic service which delivers product directly to the well site.  Our Energy segment products serve hydraulic fracturing operations in the U.S., Canada, Argentina, Mexico, China, and northern Europe.  The Energy segment represented approximately 54% of our total revenues for 2019.

Our Industrial segment provides whole-grain, value-added, and custom-blended products to the glass, ceramics, coatings, foundry, polymers, construction, water filtration, sports and recreation, and various other industries, primarily in North America.  The Industrial segment represented approximately 46% of total revenues for 2019.”

Headquartered in Independence, Ohio, the Debtors and their non-Debtor subsidiaries employ approximately 1,600 employees in the United State, and reported revenues of approximately $1.6 billion for the period ending December 31, 2019. As of the Petition Date, the Debtors have funded-debt obligations of approximately $1.6 billion.”

Corporate Structure Chart

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