AMRS - Amyris Warns Of Potential Bankruptcy - Sell

2023-08-07 14:50:08 ET

Summary

• Cash-strapped specialty renewable products developer Amyris remains on life support by largest shareholder and creditor John Doerr.
• In recent months, Doerr has provided another $157.5 million in secured debt financing thus increasing his total secured debtholdings to $290 million with more likely to come.
• Last week, the company warned investors of a potential in-court restructuring as part of its ongoing restructuring efforts.
• Under a bankruptcy scenario, I would expect John Doerr to emerge as the restructured company's controlling shareholder with existing convertible noteholders being allocated the remainder of the new equity while current shareholders are likely to be wiped out.
• With bankruptcy an increasingly likely outcome in my opinion, investors should consider selling existing positions and moving on.

Note:

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

Six weeks ago, I outlined my expectations for cash-strapped specialty renewable products developer Amyris Inc. or "Amyris" to restructure in bankruptcy following the resignation of long-standing President and CEO John Melo and the appointment of CFO Han Kieftenbeld as interim CEO without the Board of Directors ("BoD") having initiated a search for a new, permanent CEO.

The company remains on life support by John Doerr, the company's largest shareholder and a long-standing member of the BoD. Including shares underlying convertible debt and warrants, he currently controls approximately 30.8% of Amyris' outstanding common stock.

Since March, entities affiliated with Mr. Doerr have provided an additional $157.5 million in senior secured loans to the ailing company thus increasing his total senior secured debtholdings to $290 million:

Please note that all recent loan facilities accrue interest at a rate of 12% per annum with interest being capitalized thus increasing Mr. Doerr's senior secured debtholdings even further.

Last week, Amyris disclosed a new, $20 million senior secured term loan facility provided by an entity affiliated with Mr. Doerr and for the first time warned of a potential bankruptcy filing (emphasis added by author):

As previously disclosed, the Company has initiated and is continuing a strategic review of all aspects of its cost structure under the direction of its Restructuring Committee of the Board of Directors.

In connection therewith, it continues to explore a range of strategic alternatives, including in or out of court restructuring of its outstanding debt , additional financing and sales of assets.

On the same day, Mr. Doerr filed an amended Schedule 13D with the SEC which directly referred to the company's disclosures:

On August 3, 2023, the Company announced that it is continuing a strategic review of all aspects of its cost structure under the direction of its Restructuring Committee of the Company’s board of directors, and in connection therewith, the Company continues to explore a range of strategic alternatives, including in or out of court restructuring of its outstanding debt, additional financing and sales of assets.

The Reporting Persons have discussed the Muirisc Loan Agreement with the Company’s management and board of directors in connection with such strategic alternatives, including providing additional financing or otherwise supporting such alternatives, including in or out of court restructuring of the Company’s outstanding debt and sales of the Company’s assets, and intend to continue such discussions.

According to my calculations, the company's total outstanding debt principal has increased from $962 million at the end of Q1 to $1,054 million as of today.

In addition, accounts payable exceeded receivable balances by more than $150 million at the end of Q1.

While Amyris also notes the possibility to restructure its debt obligations out of court, addressing the company' senior unsecured convertible notes without utilizing chapter 11 appears almost impossible due to the holdout problem in combination with the requirement for virtually all noteholders to agree on a proposed transaction.

In contrast, a restructuring under chapter 11 would only require a majority of creditors to approve the plan of reorganization. In addition, even in case junior creditors dissent to the proposed plan, the court might very well require them to comply by imposing the so-called " cram-down " provision of the bankruptcy code.

Moreover, under chapter 11 the company would be able to reject unfavorable leases, deal with existing lawsuits and address the accounts payable overhang.

In addition, Amyris might be able to avoid fire sales of its assets as debt would be converted to new equity while liquidity could be shored up by a super-senior debtor-in-possession ("DIP-") financing.

My expectation would be for John Doerr to use his ever-increasing secured debt holdings in combination with a required DIP-financing to grab a controlling stake in the restructured company by successfully negotiating a restructuring support with fellow secured creditor DSM-Firmenich ( KDKSF , OTC:DSMFF ) and a majority of convertible noteholders.

Under the plan of reorganization, I would expect the debt owed to DSM-Firmenich either being reinstated as the loan effectively represents an advance of future earnout payments or addressed by terminating the respective earnout agreements with the remaining debt being equitized and John Doerr emerging as the majority owner of the restructured company with the remainder being allocated to convertible noteholders. Under this scenario, I expect existing common equity holders would end up being wiped out.

In case a majority of secured and unsecured creditors agrees on a plan of reorganization, I would expect court approval within weeks following the chapter 11 filing.

Please note that the company's convertible bonds are currently changing hands at just 17% of face value thus very much reflecting market participants' expectations for a significant haircut. With unsecured creditors likely to recover only a fraction of their claims, I believe a recovery for common equity holders appears out of reach.

As discussed in my previous article, I do not expect material near-term proceeds from potential asset sales. Quite frankly, Amyris might be way better off by first stabilizing the performance of its brand portfolio rather than hastily selling assets at fire sale prices following the recent deterioration in the business.

Given the likely near-term changes to the company's business model and capital structure, I do not expect Amyris to file its quarterly report on form 10-Q until the original due date on August 9.

In addition, I wouldn't be surprised to see interim management abstaining from holding a quarterly conference call as restructuring discussions with key stakeholders continue.

Bottom Line

Amyris remains on life support by its largest shareholder and creditor John Doerr. Last week, the company warned investors of a potential bankruptcy filing as part of its ongoing restructuring efforts.

With virtually no chance to address the company's senior unsecured convertible notes out of court, I fully expect Amyris to file for bankruptcy with John Doerr likely to emerge as the restructured company's controlling shareholder with the remainder of the new equity being allocated to existing convertible noteholders while current equity holders would be facing a wipeout under this scenario.

Given these issues, I would advise investors to sell existing positions and move on.

For further details see: