Gold producer Banro Corporation and its Barbados based subsidiaries have commenced restructuring proceedings under the Companies' Creditors Arrangement Act (CCAA).This is pursuant to an initial order granted by the Ontario Superior Court of Justice on 22 December 2017 where Banro has obtained protection from its creditors under the CCAA for an initial period expiring 19 January 2018, and approval of interim financing of up to US$20 million.
The company has also entered into a support agreement with major stakeholders representing in excess of 74% of claims for the support of a recapitalisation plan to be implemented by the end of March or mid-April 2018, in the event that a superior transaction is not identified and implemented under a CCAA court-approved sales and investment solicitation process anticipated to commence on or around 22 January 2018.
The key features of the recapitalisation plan pursuant to the support agreement include:
- an exchange of certain parity lien debt, including the amounts owing under the US$197.5 million 10.00% secured notes due 1 March 2021, the company's US$10 million dore loan and the US$20 million gold forward sale agreement for production at the Namoya mine, for all of the equity of restructured Banro (subject to dilution on account of certain equity warrants to be issued as discussed below);
- consensual amendment of priority lien debt and streaming obligations held by Baiyin International Investment and Gramercy Funds Management or related parties of those entities, including deferrals or partial forgiveness of certain obligations owing thereunder;
- compromising certain unsecured claims at Banro for nominal consideration; and
- a cancellation of all existing equity of Banro and any and all equity related claims.
All debt and other obligations of Banro within the Democratic Republic of the Congo (DRC) will be unaffected under the recapitalisation plan.
It is expected that the company's operations in the DRC will continue in the ordinary course of business and that obligations to DRC lenders, employees and key suppliers of goods and services, both during the CCAA proceedings and after the reorganisation is completed, will continue to be met on an ongoing basis.
To enable the company to maintain normal business operations, the initial order provides a stay of certain creditor claims and the exercise of contractual rights arising out of the CCAA process.
Banro also announced that, in order to provide additional liquidity for the company's operations, it has agreed with certain affiliates of Baiyin and funds and accounts managed by Gramercy to continue to defer certain gold deliveries that would otherwise be due to Gramercy and such Baiyin affiliates under gold purchase and sale agreements until 30 June 2019.
The amounts deferred are estimated to provide US$30.9 million of liquidity relief to the company through mid-2019.
In addition, the gold streaming agreements between Banro, Gramercy and Baiyin will be amended to modify the terms to increase the proceeds to Banro from gold delivered under these agreements from US$150 per ounce to the then prevailing gold price for the first 200 000 oz of production delivered at each mine from 1 January 2018 (equal to 22 000 oz for Twangiza and 16 660 oz for Namoya).
This will be in exchange for a maximum amount of 8% of the fully-diluted equity of reorganised Banro (depending on go-forward production levels and gold prices through the relevant period), effectively forgiving over an estimated US$42.5 million of obligatory deliveries through mid-2019, after which the proceeds to Banro from each delivery under the agreements will revert to US$150 per ounce.
An additional amount of approximately US$8.9 million of stream deliveries previously deferred will be further deferred to late-2019. The Gold Forward Deferrals and Gold Stream Forgiveness will terminate if the CCAA proceedings terminate for any reason other than the implementation of the recapitalisation plan.
The company has also received commitments from Baiyin and Gramercy for up to US$20 million in interim financing to support its continued operations, which interim financing was approved by the court in the initial order.
This funding is subject to the satisfaction of a number of conditions precedent, including the receipt of approvals from the relevant subdivision of the Government of the People's Republic of China, which is also a condition precedent to effectiveness of the Support Agreement.
Subject to the satisfaction of these conditions precedent, the funding is expected to be available to Banro by the third week of January 2018 to provide liquidity to support the company's business during the CCAA proceedings.
Feature image credit: Banro (Namoya mine)