Synagro in Chapter 11 bankruptcy to complete $455 million asset sale

By Caroline Salls

Pittsburgh, April 24 - Synagro Technologies, Inc. filed Chapter 11 bankruptcy on April 24 in the U.S. Bankruptcy Court for the District of Delaware after reaching an agreement to sell substantially all of its assets to EQT Infrastructure II in a transaction valued at $455 million, according to a news release.

"EQT brings a tremendous amount of industry knowledge and expertise to the table and believes both in our business and in the future of Synagro," Synagro president and chief executive officer Eric Zimmer said in the release.

"Over the past 15 months we have made significant progress in improving operational efficiencies throughout the organization, leading to increased year-over-year profitability.

"This transaction is the culmination of our ongoing efforts to strengthen our balance sheet to match our stable and strong operating results and to provide the financial stability needed to grow the business."

Bid procedures

If the court does not enter the bid procedures order within 21 days or the sale order within 76 days, Synagro will reimburse up to $4.5 million of EQT's expenses.

If the company completes an alternate transaction within one year of the stalking horse agreement termination date, EQT will receive a breakup fee of $13.8 million, minus any previously paid expense reimbursement amount.

However, if the agreement is terminated because of a breach by the sellers or to complete an alternate transaction, EQT will receive the full amount of the breakup fee.

Competing bids are due by 5 p.m. ET on June 3 and must be for at least $20 million more than the stalking horse bid.

If competing bids are received, an auction will be held on June 10.

The company said it expects the sale to be completed in about 60 to 90 days.

Synagro said it will continue all operations as usual throughout the Chapter 11 process. While included as part of the sale of assets, Synagro's special purpose entities, which include its facilities in Philadelphia, Baltimore and Sacramento, were not included in the Chapter 11 filing.

DIP financing

In connection with the filing, some of Synagro's existing lenders have committed to provide $30 million of additional capital in the form of debtor-in-possession financing.

The financing, along with the company's cash flow from operations, will provide ample liquidity to operate the business and meet ongoing obligations to customers, vendors and employees through the completion of the sale process, the release said.

Bank of America, NA is the DIP loan agent.

The financing will mature in the earliest of 270 days from closing, 35 days after entry of the interim order if a final order has not been entered and 15 days after the closing of a sale of substantially all company assets.

Interest will be either Base rate plus 550 basis points or Libor plus 650 bps.

Debt details

According to court documents, Synagro has $10 million to $50 million in assets and $100 million to $500 million in debt.

Specifically, the company had roughly $536 million of long-term debt as of April 24, including $79 million under a first-lien revolving credit facility; $249 million of under a first-lien term loan credit facility; $100 million under a second-lien term loan credit facility; $96 million of structurally senior bond debt; and $12 million of capital leases.

The company's largest unsecured creditor is second-lien lender agent US Bank of Charlotte, N.C., with a $100.44 million loan claim. Synagro listed no other unsecured creditors with claims of $1 million or more.

Synatech Holdings, Inc. owns 100% of Synagro's common stock.

The law firm of Skadden Arps Slate Meagher & Flom, along with financial adviser AlixPartners and investment bankers Evercore Partners, advise the company.

Synagro Technologies is a Houston-based recycler of biosolids and other organic residuals. The Chapter 11 case number is 13-11041.

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