"We are very pleased to have concluded Covanta's reorganization and are now focused on the continued success of our waste-to-energy business," said Orlando. "The plan approved by the court maximizes creditor recovery and affords the company a solid capital structure. In addition, it enables us to embark on a dynamic partnership with the Danielson team. By combining our complementary skill sets, we will position Covanta to do what it does best - provide our clients with world class, reliable service."
"The Covanta management team has performed an excellent job in meeting their client community needs throughout this lengthy reorganization process," said Sam Zell, Danielson's Chairman and Chief Executive Officer. "We look forward to working with them to build on their solid foundation in the energy business."
Pursuant to a definitive investment and purchase agreement executed on December 2, 2003, Danielson has acquired 100% of Covanta's equity for approximately $30 million in cash. In addition, Danielson arranged a new $118 million letter of credit facility for Covanta, secured by a second lien on Covanta's domestic assets. With respect to Covanta's domestic operations, Covanta has obtained a new $138 million first lien secured letter of credit facility and has issued $205 million of senior secured notes accreting to $230 million by 2011, and up to $50 million face amount of unsecured notes. As a result of these transactions and the bankruptcy court's order, Covanta emerged from bankruptcy with over $50 million in cash and revolving credit facility availability.
Covanta's international operations also issued $95 million of secured 3-year term notes to certain of Covanta's creditors.
As previously disclosed, Danielson did not purchase Covanta's geothermal assets, which were sold in December, 2003 to Ormat Nevada, Inc., the winning bidder following the auction of those assets. The financing necessary for Danielson's acquisition of Covanta was provided by three of Danielson's shareholders: SZ Investments, L.L.C. ("SZ Investments"), Third Avenue Trust, on behalf of Third Avenue Value Fund ("Third Avenue"), and D. E. Shaw Laminar Portfolios, L.L.C. ("Laminar"). In addition, Laminar has arranged for the provision of a $10 million secured revolving loan facility to Covanta's international operations. In connection with the financing by such shareholders, Danielson issued notes that have an aggregate principal balance of $40 million and, if not repaid, are convertible into shares of Danielson common stock at a price of $1.53 per share.
The proceeds from this financing remaining after payment of the purchase price will be used to pay certain transaction expenses and for general corporate purposes.
Danielson expects to refinance these convertible notes through a pro rata rights offering to its shareholders. Under the terms of its agreement with SZ Investments, Third Avenue and Laminar, Danielson is required to commence the rights offering within 75 days of the closing of its acquisition of Covanta. As previously announced, under this rights offering Danielson intends to issue rights to purchase 0.75 shares of common stock for each outstanding share of Danielson common stock at an exercise price of $1.53 per share. If Danielson does not refinance all of the notes, the remaining principal balance and unpaid interest of the notes would be convertible into shares of Danielson common stock at the rights offering price of $1.53 per share.
In addition, Laminar has agreed to purchase up to an additional 8.75 million shares of Danielson common stock at $1.53 per share based upon the levels of public participation in the rights offering. The convertible note financing and other related party transactions were approved by a special committee of independent directors of Danielson.
Danielson anticipates that it will issue rights to acquire approximately 27 million shares of its common stock. Assuming exercise of all rights and the purchase of 8.75 million shares by Laminar, Danielson estimates that it will have approximately 71 million shares outstanding following the rights offering. In addition, following completion of the rights offering and sale of shares to Laminar, Danielson has agreed to offer to sell up to 3 million shares of its common stock to certain creditors of Covanta at a purchase price of $1.53 per share.