Cypress Environmental Partners announced its delayed 2021 fourth quarter earnings report on Friday, an announcement that indicated the Tulsa-based company continues with its financial struggles.
“Despite over six months of negotiations, we regret that we have been unable to reach an agreement with our Lenders and therefore face the possibility of restructuring,” said Peter C. Boylan III, Chairman, President, and CEO in announcing the firm had more than $54 million in outstanding borrowings and more than $4 million in losses for the quarter. The company’s total outstanding debt is more than $58 million.
Once again, the company admitted in its report that there is substantial doubt about its ability to continue as a going concern.
It also stated the firm, with the support of the Lenders, has engaged Piper Sandler to solicit potential debt and equity investors to submit proposals to recapitalize Cypress and has received several proposals that are currently being evaluated by the board of directors and the Lenders.
Cypress said it continues to work with Deutsche Bank AG, its credit facility Administrative Agent, Lead Arranger and Bookrunner and the six other banks regarding their credit agreement that matures on May 31 of this year.
Because the credit agreement matures within one year, the financial statements in Cypress’s Annual Report on Form 10-K disclose substantial doubt about its ability to continue as a going concern, as defined under U.S. Generally Accepted Accounting Principles. This condition resulted in the auditor’s report on the financial statements including a “going concern” uncertainty paragraph, which is an event of default of the credit agreement.
Cypress, with the support of the Lenders, has engaged Piper Sandler to solicit potential debt and equity investors to submit proposals to recapitalize Cypress and has received several proposals that are currently being evaluated by the board of directors and the Lenders.
Cypress also continues to negotiate with contingent fee plaintiffs’ lawyers to resolve litigation and arbitration exposure regarding Fair Labor Standards Act (“FLSA”) claims and associated indemnification demands from customers against whom some such claims have been asserted. Cypress has entered into a settlement covering more than 60 plaintiffs and resolving all of the claims asserted directly against the Company.
The ability to resolve such exposure has been an important factor in Cypress’s ability to obtain a renewal from the current Lenders and remains an important element of successfully raising new capital without an in-court restructuring. Cypress and the Lenders may pursue a number of options, including but not limited to the possibility of i) a sale of the debt to a third party; ii) a sale of the debt to a related party; iii) entering into an agreement with a new investor for a stalking horse bid that would lead to an in-court restructuring and section 363 process; or some combination of these actions which may include a court-supervised restructuring.
In the SEC report, Cypress indicated it already had run up legal and advisory bills totaling more than $2.5 million. The company is also at risk of losing its status on the New York Stock Exchange where its trading is being monitored. The NYSE has a requirement of a $15 million market capitalization over 30 trading days and if Cypress failed to reach it, it could result in immediate suspension and the start of delisting by the exchange.
Such a proceeding would also likely lead to Cypress’s common and preferred equity (including accrued and unpaid distributions) having no value, given the amount of Cypress’s senior secured debt, which is currently $58.1 million.
Regardless of the outcome of the negotiations with our Lenders and the FLSA plaintiffs’ lawyers, we are mutually aligned with our Lenders to avoid any adverse impact with operations so that we can continue to serve our customers and maintain our great employees,” said Boylan.
Click here for Cypress press release
