[Just filed. Developing story.] July 23, 2023 – AppHarvest Products, LLC and 11 affiliated debtors (Nasdaq: APPH; together “AppHarvest” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case No. 23-90745 (Judge David R. Jones). The Kentucky-based Debtors, "a sustainable food company in Appalachia developing and operating some of the world’s largest high-tech indoor farms," are represented by Matthew D. Cavenaugh of Jackson Walker LLP. Further Board authorized appointments include: (i) Sidley Austin LLP as general bankruptcy counsel, (ii) Portage Point Partners as financial advisors, (iii) Jefferies LLC as investment bankers and (iv) Stretto as claims agent.
The Debtors’ lead petition notes between 1 and 50 creditors; estimated assets between $500.0mn and $1.0bn; and estimated liabilities between $1.0mn and $10.0mn*. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Dalsem Greenhouse Technology BV ($14.8mn disputed trade claim), (ii) Walker Construction & Materials, LLC ($1.1mn trade claim) and (iii) C&G AG LLC ($932k trade claim).
*These are the figures filed with the publicly traded TopCo AppHarvest Inc. which noted assets of $609.8mn and liabilities of $341.1mn in a 10-Q filed in respect of the quarter ended March 31, 2023.
In a press release announcing the filing, the Debtors stated that they are “pursuing a financial and operational transition to enable the company to reduce its outstanding liabilities. Business operations will continue at the farms, including shipping product to top national grocery store chains, restaurants and food service outlets.
AppHarvest is pursuing a transition of its AppHarvest Berea operations to AppHarvest’s distribution partner, Mastronardi Produce, or one of its affiliates, in exchange for approximately $3.75 million, additional incremental funding and support for the company’s restructuring plan."
AppHarvest CEO Tony Martin commented: “The AppHarvest board of directors and executive leadership evaluated several strategic alternatives to maximize value for all stakeholders prior to the Chapter 11 filing….The Chapter 11 filing provides protection while we work to transition operation of our strategic plan, Project New Leaf[**], which has shown strong progress toward operational efficiencies resulting in higher sales, cost savings and product quality.”
**There is no reference to such a named project in either the Debtors most recent 10-Q or 10-K but this may be a reference to the Debtors' controlled environment agriculture (“CEA”) facility in Richmond, Kentucky which is funded by proposed DIP lender Equilibriumand and is referred to in SEC filings as "the Project."
Petition Date Highlights
- Kentucky-Based Indoor Farming Specialist Files for Bankruptcy with $341.1mn (on a Group Basis as at March 31, 2023) of Debt
- Debtors Had Received Notice of Acceleration from Lender Rabo AgriFinance LLC on July 11th
- Debtors Line Up $30.0mn of DIP financing from Prepetition Lender Equilibrium
Goals of the Chapter 11 Filing
AppHarvest is diligently working to restructure the operations at the company in an effort to maximize the value creditors can expect to achieve and to preserve jobs.
Events Leading to the Chapter 11 Filing
In a July 17th 8-K, the Debtors noted: "On July 11, 2023, AppHarvest Morehead Farm, LLC (the 'Borrower Subsidiary') received a Notice of Acceleration; Demand for Payment; and Reservation of Rights (the 'Notice of Acceleration') from Rabo AgriFinance LLC, a Delaware limited liability company, as lender ('Rabo'), under that certain Master Credit Agreement, dated as of June 15, 2021 (as amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, the “Credit Agreement”) between Rabo and Borrower Subsidiary.
The Notice of Acceleration asserts certain defaults relating to non-payment of certain principal and interest amounts due and payable under the Credit Agreement on July 3, 2023. Pursuant to the Notice of Acceleration, Rabo demanded immediate repayment of $47.213,671.03 consisting of principal and accrued interest, as well as repayment of any additional fees, costs, charges and other obligations as may be payable or become payable under the Credit Agreement.
Following the alleged event of default, Rabo has the right to pursue, among other things, (i) judicial foreclosure of the Morehead Property, (ii) the court-ordered appointment of a receiver to take possession of the Morehead Property, and/or (iii) a suit against the Borrower Subsidiary to recover the debt, including any deficiency resulting in the event that the net revenue from a court-ordered sale of the Morehead Property is less than the amount then-owing to Rabo under the Credit Agreement.
The Company…is working with Rabo to come to a resolution, and will pursue a defense to any enforcement action taken by Rabo, but the Company cannot guarantee a resolution on a timely basis, on favorable terms, or at all. If the Company is unable to resolve the alleged defaults under the Credit Agreement, it would have a material adverse effect on the Company’s liquidity, financial condition and results of operations, and could cause the Company to become bankrupt or insolvent."
DIP Financing
The Debtors have commitments for $30.0mn of debtor-in-possession (“DIP”) financing from Equilibrium, the company’s largest secured creditor, "to provide the necessary liquidity to support operations at the AppHarvest Morehead, AppHarvest Richmond and AppHarvest Somerset farms during the Chapter 11 process."
On July 23, 2021, the Debtors entered into a credit agreement with CEFF, an affiliate of Equilibrium, for a construction loan in the original principal amount of $91.0 million (the 'Equilibrium Loan') for the development of a CEA facility at our property in Richmond, Kentucky (the “Project”). The Equilibrium Loan provides monthly disbursements to fund capital costs of the Project in excess of our required equity contribution of 34.5% of the capital costs of the Project.
About the Debtors
According to the Debtors: “AppHarvest is a sustainable food company in Appalachia developing and operating some of the world’s largest high-tech indoor farms, designed to grow produce using sunshine, rainwater and up to 90% less water than open-field growing while producing yields up to 30 times that of traditional agriculture on the same amount of land without agricultural runoff. We boost nature with world-class technology including artificial intelligence and robotics to improve access for all to nutritious food—farming more sustainably, building a resilient domestic food supply and providing good jobs in Appalachia. AppHarvest is a public benefit corporation and a Certified B Corp.
AppHarvest currently operates its 60-acre flagship farm in Morehead, Ky., producing tomatoes, a 15-acre indoor farm for salad greens in Berea, Ky., a 30-acre farm for strawberries and cucumbers in Somerset, Ky., and a 60-acre farm in Richmond, Ky., for tomatoes. The four-farm network consists of 165 acres under glass.”
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