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August 24, 2021 – The Debtors filed an Amended 11 Plan and a related Disclosure Statement with each attaching a redline showing changes from the version of the document filed on August 13, 2021 [Docket Nos. 908 and 909, respectively].
At an August 24th hearing Judge David Jones conditionally approved the Disclosure Statement and proposed solicitation/voting procedures [order not yet filed] with changes refelcting in part objections from the Debtors' official committee of unsecured creditors (the "Committee") urging the Court to terminate the Debtors' Plan exclusivity periods and reject the Disclosure Statement as inadequate for solicitation purposes.
As to the latter, the Committee provides [Docket No. 901]: "Regardless of whether the Motion to Terminate Exclusivity is granted, the Debtors’ proposed Disclosure Statement should, at a minimum, include (i) the Committee’s summary analysis of potential Causes of Action against the D&Os, as set forth below, (ii) a conspicuous statement that the Committee does not support the Debtor Plan, (iii) an analysis of potential Avoidance Actions that the Debtors propose to release by virtue of creditor acceptance of the Debtor Plan or failure to affirmatively opt-out of third-party releases, and (iv) a creditor recovery analysis."
The Committee, which argues that "fiduciary duty breaches [on the part of the Debtors' D&Os]…ultimately caused the Debtors’ bankruptcy filing and resulted in unsecured debt potentially in excess of $1 billion," has not gotten its "conspicuous statement" or laundry list of potential avaoidance actions (there is considerable further disclosure on the Greensill Limited liquidation in the UK), but has succeeded in having what it views as up to $65.0mn of potential D&O insurance proceeds affirmatively eft to the wind-down Debtors. The amended Plan introduces a construct whereby "Non-Released D&O Parties" (ie the Debtors’ former directors or officers) are not released or exculpated, albeit with their liability limited to what is recoverable under D&O policies.
The Debtors have also now filed a Recovery Analysis attached below.
- Plan Supplement Filing Deadline: September 16, 2021
- Voting Deadline: September 24, 2021
- Plan and Disclosure Statement Objection Deadline: September 24, 2021
- Combined Hearing on final approval of the adequacy of the Disclosure Statement and confirmation of the Plan: September 30, 2021
The Disclosure Statement [Docket No. 909] notes, “The Plan contemplates a basic ‘waterfall’ structure whereby the estate liquidates its assets and all proceeds thereof are distributed to Holders of Allowed Claims pursuant to the priority established by the Bankruptcy Code. To effectuate this, a Plan Administrator will be appointed on the Effective Date to wind down the Debtors’ estates (such process, the ‘Wind Down’), monetize any remaining assets, and make distributions to creditors in accordance with the Plan. The Plan Administrator will be identified no less than seven days prior to the Confirmation Hearing as part of the Plan Supplement. Upon completion of the Wind Down, the Plan Administrator will take steps to dissolve any remaining Debtor entities. One or more Debtors may continue to exist after the Effective Date only to facilitate the conclusion of the Wind Down. Specifically, under the terms of the Plan, Holders of Claims and Interests will receive the following treatment in full and final satisfaction, compromise, settlement, release and in exchange for such Holders’ Claims and Interests:
- Holders of Allowed Secured Claims will receive: (a) payment in full in Cash of such Holder’s Allowed Secured Claim, (b) the collateral securing such Holder’s Allowed Secured Claim, or (c) such other treatment rendering such Holder’s Allowed Secured Claim Unimpaired.
- Each Holder of an Allowed Other Priority Claim shall receive: (a) payment in full in Cash of such Holder’s Allowed Other Priority Claim, or (b) such other treatment rendering such Holder’s Allowed Other Priority Claim Unimpaired.
- On the Effective Date, or as soon as reasonably practicable, except to the extent that a Holder of an Allowed General Unsecured Claim agrees to less favorable treatment, in full and final satisfaction, compromise, settlement and release of and in exchange for each Allowed General Unsecured Claim, each Holder of an Allowed General Unsecured Claim shall receive its Pro Rata share of the General Unsecured Claims Recovery.
- Each Allowed Other Intercompany Claim shall, at the option of the Debtors or the Wind-Down Debtors, either on or after the Effective Date, be: (a) Reinstated; or (b) distributed, contributed, set off, settled, canceled and released or otherwise addressed without any distribution on account of such Intercompany Claim.
- On the Effective Date, Intercompany Interests shall, at the option of the Debtors or the Wind-Down Debtors, either be: (a) Reinstated; or (b) discharged, canceled, released and extinguished and of no further force or effect without any distribution on account of such Intercompany Interests.
- Each Allowed Existing Interest in the Debtors shall be canceled, released and extinguished and will be of no further force or effect and no Holder of Existing Interests in the Debtors shall be entitled to any recovery or distribution under the Plan on account of such Existing Interests.
- Allowed Section 510(b) Claims, if any, shall be canceled, 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, if any, will not receive any distribution on account of such Allowed Section 510(b) Claims.”
The following is an amended summary of classes, claims, voting rights and expected recoveries showing highlight changes (defined terms are as defined in the Plan and/or Disclosure Statement; see also the Recovery Analysis below):
- Class 1 (“Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $5.0mn. FN Based on their review of the applicable proofs of claim, the Debtors believe certain claims were filed as secured claims on account of contracts that were assigned to various project owners and/or where third parties have remitted payment on account of such liabilities. Therefore, the Debtors do not believe such liabilities are owed by the Debtors and the Debtors have excluded such claims from their analysis of potential distributions and recoveries.
- Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $11.0mn-18.0mn.
- Class 3 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $800.0mn–$1.6bn and in aggregate projected recoveries are 1.1-7.4% (recoveries vary by Debtor as oulined in the Recovery Analysis below). Each Holder of a General Unsecured Claim will receive its Pro Rata share of the General Unsecured Claims Recovery ("Distributable Cash, if any, after all senior Classes of Claims are paid in full") until paid in full.
- Class 4 (“Intercompany Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 5 (“Intercompany Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 6 (“Existing Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 7 (“Section 510(b) Claims”) is impaired deemed to reject and not entitled to vote on the Plan.
On August 4, 2021, the Court hearing the Katerra cases issued an order approving the Debtors’ sale of their CLT Assets ($50.0mn cash) and Tracy Assets ($21.25mn cash) to Blue Varsity and VBC Tracy, respectively [Docket No. 793 and 794, respectively]. The asset purchase agreements (the “APAs”) governing the terms of each sale are attached to the respective orders at Exhibit 1.
Previously, on July 30th, the Debtors notified the Court that absent any further qualified bids in advance of a July 29th deadline, they had cancelled an August 2nd auction and selected stalking horses Blue Varsity LLC and VBC Tracy LLC as the successful bidders [Docket No. 745].
On August 19, 2020, absent any further qualified bidders, the Debtors notified the Court that they had cancelled a scheduled August 17th auction and designated stalking horse bidder, BMC Corporate Services, LLC (“BMC” or the “Stalking Horse Bidder,” $4.5mn cash bid) as the successful bidder with respect to their Apollo software and certain related intellectual property (the “Apollo Assets”) [Docket No. 877].
In addition, Katerra is in the process of marketing and selling certain assets of non-Debtor subsidiaries, including the Debtors’ operations in the Kingdom of Saudi Arabia and India.
Prepetition Capital Structure
As of the Petition Date, the Debtors and certain of their non-debtor subsidiaries have an aggregate principal amount of approximately $1.29 billion to $1.55 billion in estimated obligations, consisting primarily of (i) prepetition funded debt of certain of the Debtors’ foreign non-Debtor subsidiaries, (ii) surety bond obligations, (iii) letters of credit, and (iv) corporate guarantees. The aggregate outstanding amount of each debt obligation is as follows:
Recovery Analysis (see Exhibit B of the Disclosure Statement)
About the Debtors
Petition date filings note: "Katerra is a technology-driven construction company that develops, manufactures, and markets products and services in the commercial and residential construction spaces. Katerra delivers a comprehensive suite of products and services for its clients through a distinct model that combines end-to-end integration with significant investment in technological and design innovation. Katerra offers services to its clients through three distinct offerings: (a) end-to-end new build; (b) construction services; and (c) renovations. Katerra has approximately 6,400 employees who are primarily located in nine countries. In the year ending 2020, Katerra’s operations generated revenue of approximately $1.75 billion.
According to the Debtors: “Katerra is on a mission to transform construction through innovation of process and technology. As a new breed of company within industry, Katerra is powered through vertical integration and technology investment to provide a range of services and products to clients across the construction value chain. Founded in 2015, Katerra's demonstrated progress includes advanced manufacturing facilities, design and construction services, a large number of completed projects, and a growing product portfolio that includes whole-building platforms and sustainable mass timber.
Corporate Structure Chart
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