AMRS - Amyris: Shareholders Likely To Be Wiped Out In Chapter 11 - Sell

2023-08-10 06:41:29 ET

Summary

• As expected, cash-strapped specialty renewable products developer Amyris Inc. has filed for bankruptcy protection with court documents showing more than $1.3 billion in debt.
• The company plans to focus on its core competencies in R&D and the development of sustainable ingredients derived through biofermentation.
• Amyris will exit the consumer business and has started to marketing its remaining brands for sale. Largest stakeholder John Doerr has agreed to provide $190 million in debtor-in-possession financing.
• Should the company fail to achieve a consensual solution with key stakeholders within the next 35 days, all of its assets will be sold in a court-supervised auction pursuant to section 363 of the U.S. Bankruptcy Code.
• Regardless of the company emerging as a healthier, more focused organization or ending up being liquidated in bankruptcy, I do not expect any sort of recovery for common shareholders at this point. Investors should sell existing positions and move on.

Note:

I have covered Amyris, Inc. (AMRS) previously, so investors should view this as an update to my earlier articles on the company.

Very much as expected by me, cash-strapped specialty renewable products developer Amyris Inc. or "Amyris" has filed for chapter 11 in the U.S. Bankruptcy Court for the District of Delaware on Wednesday (emphasis added by author):

Amyris, Inc. (...), today announced that it is moving forward with an operational and financial restructuring to further advance its ongoing strategic transformation and position the Company for long-term success.

The restructuring is intended to improve the Company's cost structure, capital structure, and liquidity position while streamlining Amyris' business portfolio to focus on its core competencies in R&D and the scale-up, commercialization, and applications development of its sustainable ingredients derived through biofermentation.

To facilitate the restructuring, Amyris and certain of its domestic subsidiaries commenced voluntary Chapter 11 proceedings in the U.S. Bankruptcy Court for the District of Delaware (the "Court"). Its entities outside the U.S. are not included in the proceedings.

In tandem, to advance the Company's restructuring goals and maximize the value of its assets, Amyris is planning to exit its consumer brands and will begin marketing them for sale, with a view to having these brands continue to leverage Amyris' cutting-edge science and technology while under new ownership . As the sale process progresses, Amyris will continue to operate these brands, including through retail partners and the brands' e-commerce platforms.

Amyris has secured a commitment from an entity affiliated with existing lender Foris Ventures for $190 million of debtor-in-possession ("DIP") financing to support continued day-to-day operations as the Company works with its key stakeholders to negotiate a consensual go-forward plan centered on Amyris' core capabilities. Subject to Court approval and the DIP budget, this DIP financing will provide liquidity to help fulfill commitments to the Company's valued employees, customers, partners, and vendors during the process.

As predicted, an entity affiliated with the company's long-standing director, largest shareholder and creditor John Doerr will provide a substantial amount of super-senior debtor-in-possession ("DIP") financing to support operations until a plan of reorganization has been negotiated with key stakeholders.

Should the company fail to reach a consensual solution, Amyris will seek to sell all of its assets in a court-supervised auction pursuant to section 363 of the U.S. Bankruptcy Code (emphasis added by author):

However, given the Company's substantial cash burn , if the terms of a consensual restructuring cannot be agreed upon within the next thirty-five days , the proposed DIP financing contemplates that the Debtors will promptly seek to sell all or substantially all of their assets as a going concern through these Chapter 11 Cases.

According to court documents , aggregate principal amount outstanding under secured loan agreements with entities affiliated with John Doerr is " at least $295 million " (plus accrued and unpaid nondefault interest, additional fees, costs, expenses, and other obligations as provided under the loan agreements).

In aggregate, the chapter 11 filing states more than $1.3 billion in debt:

According to interim CEO and CFO Han Kieftenbeld's declaration in support of the chapter 11 petitions, the company's decision to file for bankruptcy was based on " an overleveraged balance sheet, continuing trade losses, mounting litigation risk, deeply unprofitable contracts, and dwindling trade vendor support " (emphasis added by author):

Notably, Amyris' two core businesses-Technology Access (comprising revenue from ingredient product sales, R&D collaboration programs, and technology licensing) and Consumer (brands and services)-continue to incur significant losses; each of the Company's consumer brands are loss-generating and losses generated in the Technology Access business are principally a result of unfavorable margin economics in certain of the Company's contracts .

Going forward, the company intends to focus on its core business of research, formulation, and development of ingredients and ingredient applications, commercial scaling, and commercialization of its sustainable ingredients while selling or liquidating its consumer brands.

Amyris has also started to engage with an ad hoc group formed by certain of the company's convertible noteholders:

Prior to the Petition Date, certain holders of the Company's Convertible Notes formed an ad hoc group (...)) and retained counsel for the purpose of addressing Amyris' financial condition and performance under the Convertible Notes. In an effort to work cooperatively towards a consensual restructuring, subject to confidentiality, the Company began to share information with the Ad Hoc Noteholders Group and its advisors, prior to the Petition Date.

Adding insult to injury, court documents also reveal potential accounting irregularities (emphasis added by author):

Prior to the commencement of the Chapter 11 Cases, the Company became aware of allegations of potential supply-chain administration irregularities that may have resulted in accounting issues during the third quarter of 2021 through the fourth quarter of 2022 . Upon being advised of the allegations, the Audit Committee of the Company's Board of Directors engaged outside legal and forensic experts to undertake an investigation of the alleged irregularities. The investigation was not concluded as of the Petition Date. However, certain individuals that were involved in the alleged irregularities have been separated from the Company and there is no evidence that any of the alleged improper conduct is ongoing.

Amyris currently expects the chapter 11 proceedings to conclude by year-end:

Given the fact that all of the company's brands are generating losses, sales proceeds are likely to be limited. Frankly speaking, I wouldn't be surprised to see some of the remaining brands being closed down, too.

Should the proposed consumer brand sales don't yield sufficient proceeds, Amyris will likely require substantial, additional financing to emerge from bankruptcy as a going concern.

Bottom Line

As expected, Amyris Inc. has filed for bankruptcy protection to address a plethora of operational challenges, shore up liquidity and reset its capital structure.

Given the dismal state of the company's operations and the lack of profitability at the consumer brand level, I would expect sales proceeds to be limited particularly given the fact that many of the company's consumer products are relying on ingredients supplied by Amyris.

With the fate of the core business still unclear at this point, successfully marketing the brands could prove difficult as already evidenced by the fact that the company hasn't been able to line up prospective buyers ahead of the bankruptcy filing.

Should Amyris' secured and unsecured creditors manage to negotiate a consensual solution, I would expect John Doerr to emerge as the controlling shareholder of the restructured company with the remainder of the new equity being allocated to current convertible noteholders.

Regardless of the company emerging as a healthier, more focused organization or ending up being liquidated in bankruptcy, I do not expect any sort of recovery for common shareholders at this point.

Under a worst case scenario, even convertible noteholders could end up being wiped out.

Given the issues discussed above, investors should sell existing positions and move on.

Please note that Nasdaq is likely to delist the shares within the next ten days.

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