| Business and Summary of Significant Accounting Policies | 1. Nature of Operations Covia Holdings Corporation, including its consolidated subsidiaries (collectively, “we,” “us,” “our,” “Covia,” and “Company”), is a leading provider of diversified mineral-based and material solutions for the Industrial and Energy markets. We provide a wide range of specialized silica sand, nepheline syenite, feldspar, calcium carbonate, clay, and kaolin products for use in the glass, ceramics, coatings, foundry, polymers, construction, water filtration, sports and recreation, and oil and gas markets in North America and around the world. Our Industrial segment provides raw, value-added and custom-blended products to the glass, ceramics, metals, coatings, polymers, construction, foundry, filtration, sports and recreation and various other industries, primarily in North America. Our Energy segment offers the oil and gas industry a comprehensive portfolio of raw frac sand, value-added-proppants, well-cementing additives, gravel-packing media and drilling mud additives. Our products serve hydraulic fracturing operations in the U.S., Canada, Argentina, Mexico, China, and northern Europe. Covia began operating in its current form following a business combination between Fairmount Santrol Holdings Inc. (“Fairmount Santrol”) and Unimin Corporation (“Unimin”) pursuant to which Fairmount Santrol was merged into a wholly-owned subsidiary of Unimin, Bison Merger Sub, LLC (“Merger Sub”), with Merger Sub as the surviving entity following the merger (the “Merger”). The Merger was completed on June 1, 2018 (the “Merger Date”), after which Unimin changed its name to Covia Holdings Corporation. Reclassifications Certain reclassifications of prior period presentations have been made to conform to the current period presentation. Basis of Presentation Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (which are of a normal, recurring nature) and disclosures necessary for a fair statement of the financial position, results of operations, comprehensive loss, and cash flows of the reported interim periods. The Condensed Consolidated Balance Sheet as of December 31, 2019 was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP. Interim results are not necessarily indicative of the results to be expected for the full year or any other interim period. These unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto and for each of the three years in the period ended December 31, 2019, which are included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (“SEC” or the “Commission”) on March 16, 2020 (“Form 10-K”), and information included elsewhere in this Quarterly Report on Form 10-Q (“Report”). Going Concern The Company’s financial statements have been prepared under the assumption that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the normal course of business. In connection with the preparation of our condensed consolidated financial statements, we conducted an evaluation as to whether there were conditions and events, considered in the aggregate, that raised substantial doubt as to the Company’s ability to continue as a going concern. On June 29, 2020 (“Petition Date”), Covia Holdings Corporation and certain of its direct and indirect U.S. subsidiaries filed petitions for reorganization under Chapter 11 of title 11 of the Bankruptcy Code, and in connection therewith, entered into a Restructuring Support Agreement (as defined below) as part of a prearranged plan of reorganization (see further description below). In light of the Company’s Chapter 11 proceedings, our ability to continue as a going concern is contingent upon, among other things, our ability to, subject to the approval by the Bankruptcy Court (as defined below), implement a business plan of reorganization, emerge from the Chapter 11 proceedings and generate sufficient liquidity following the reorganization to meet our contractual obligations and operating needs. The Chapter 11 proceedings create certain risks and uncertainties related to, among other things, (i) the Company’s ability to obtain requisite support for the business plan of reorganization from various stakeholders, and (ii) the disruptive effects of the Chapter 11 proceedings on our business making it potentially more difficult to maintain business, financing and operational relationships. Although management believes that the reorganization of the Company through the Chapter 11 Cases (as defined below) will position the Company for sustainable growth opportunities, the Chapter 11 filing caused an event of default under certain instruments governing the Company’s indebtedness, which is stayed during the pendency of the Company’s bankruptcy proceeding. Further, there are several risks and uncertainties associated with the Company’s bankruptcy, including, among others: (a) the Company’s prearranged plan of reorganization may never be confirmed or become effective, (b) the Restructuring Support Agreement (as defined below) may be terminated by one or more of the parties thereto, (c) the Bankruptcy Court may grant or deny motions in a manner that is adverse to the Company and its subsidiaries, and (d) the Company’s Chapter 11 Cases may be converted into a Chapter 7 liquidation. These factors, together with the Company’s recurring losses and accumulated deficit, create substantial doubt regarding our ability to continue as a going concern. See those risk factors discussed under “Risk Factors” in Part II, Item 1A of this Report. Voluntary Reorganization under Chapter 11 On June 29, 2020, Covia Holdings Corporation and certain of its direct and indirect U.S. subsidiaries (collectively, the “Company Parties”) filed voluntary petitions for relief (the “Chapter 11 Cases”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) with the Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”). The Chapter 11 Cases are being jointly administered under the caption In re: Covia Holdings Corporation, et al. The Company Parties continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. As discussed further below, to ensure ordinary course operations, the Company Parties obtained approval from the Bankruptcy Court for certain “first day” motions, including motions to obtain customary relief intended to continue ordinary course operations after the Petition Date. However, the Chapter 11 process can be unpredictable and involves significant risks and uncertainties. As a result of these risks and uncertainties, the amount and composition of the Company’s assets, liabilities, officers and/or directors could be significantly different following the outcome of the Chapter 11 cases, and the description of the Company’s operations, properties and liquidity and capital resources included in this Report may not accurately reflect its operations, properties and liquidity and capital resources following the Chapter 11 process. On June 29, 2020, and in connection with the filing of the Chapter 11 Cases, the Company Parties entered into a Restructuring Support Agreement (as amended, the “Restructuring Support Agreement”) with certain creditors (the “Consenting Stakeholders”) under its Credit and Guaranty Agreement, dated as of June 1, 2018 (as amended or otherwise modified from time to time, the “Term Loan Agreement”), by and among the Company, as borrower, certain subsidiaries of the Company, as guarantors, Barclays Bank plc, as administrative agent, and the lenders party thereto from time to time (the “Term Loan Lenders”). The Restructuring Support Agreement contemplates agreed-upon terms for a prearranged plan of reorganization (the “Plan”). Under the Restructuring Support Agreement, the Plan must be confirmed and declared effective by the Bankruptcy Court no later than 150 days after the Petition Date. Under the Bankruptcy Code, a majority in number and two-thirds in amount of each impaired class of claims must approve the Plan. The Restructuring Support Agreement requires the Consenting Stakeholders to vote in favor of and support the Plan, and the Consenting Stakeholders represent the requisite number of votes for the Term Loan Agreement’s class of creditors entitled to vote on the Plan. The Plan is expected to be implemented in accordance with the restructuring term sheet attached to, and incorporated into, the Restructuring Support Agreement (the “Term Sheet”) (such transactions described in, and in accordance with the Restructuring Support Agreement and the Term Sheet, the “Restructuring Transactions”) which, among other things, contemplates that:
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the Restructuring Transactions are to be implemented through the prearranged Chapter 11 Cases by the Company Parties to pursue confirmation of the Plan, on which votes will be solicited from (i) the Term Loan Lenders and holders of claims under certain interest rate swap agreements to which the Company is a party (such claims, “Swap Agreement Claims”) and (ii) certain holders of general unsecured claims;
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the Receivables Facility is to be terminated and replaced with a letter of credit facility (the “L/C Facility”) pursuant to an interim order of the Bankruptcy Court authorizing, among other things (i) the Company’s funding of a new letter of credit collateral account held at Covia Financing, (ii) entry into the Payoff and Reassignment Agreement (the “Payoff Agreement”), among the Company, Covia Financing, the sub-originators party thereto (the “RSA Sub-Originators”), PNC, and PNC Capital Markets LLC (“PNC Capital”), (iii) the Company’s and the RSA Sub-Originators’ entry into, and performance of, their respective obligations under the Payoff Agreement and, as applicable, the Reimbursement Agreement for Cash-Collateralized Standby Letters of Credit, among PNC, Covia Financing, and the Company (the “Reimbursement Agreement” and, together with the Payoff Agreement, the “Letter of Credit Agreements”), and (iv) execution of the transactions contemplated by the Letter of Credit Agreements (see below and Note 25 for further detail on the termination of the Receivables Facility);
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on the effective date of the Plan, the reorganized Company Parties expect to enter into a $825 million senior secured term loan (the “New Term Loan”) with an interest rate of LIBOR + 400 bps (100 bps floor), payable in cash unless the Company elects a PIK and cash option, a minimum liquidity covenant of $50 million to be tested quarterly, and on other terms reasonably acceptable to the Company and the Consenting Stakeholders as set forth in a supplement to the Plan;
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on the effective date of the Plan, the reorganized Company Parties may enter into at least a $100 million senior secured revolving credit facility (the “Exit Facility”) on terms reasonably acceptable to the Company and the Consenting Stakeholders, with the terms of the Exit Facility being set forth in a supplement to the Plan and sufficient to replace the Company Parties’ existing letters of credit and fund their ongoing liquidity;
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the Term Loan Lenders and holders of Swap Agreement Claims are expected to receive, in exchange for their claims under the Term Loan Agreement (the “Term Loan Claims”) and Swap Agreement Claims, respectively, their pro rata share of (i) all excess cash on the Company’s balance sheet pro forma for all remaining professional fees expected to be paid through the date upon which the Company emerges from bankruptcy (the “Emergence Date”) as of the date of the last available month-end balance sheet as of ten business days prior to the Emergence Date as of the effective date of the Plan, subject to minimum liquidity and cash requirements and working capital adjustments, net of any proceeds associated with receipt of the CARES Act Tax Refund; (ii) $825 million in take-back debt pursuant to the New Term Loan; and (iii) 100% of the equity in the reorganized Company, subject to adjustment for treatment of general unsecured claims and dilution from a new management incentive plan of the reorganized Company (the “MIP”);
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the holders of claims under an industrial revenue bond issued by the Company and certain other secured debt of the Company (such claims, the “Other Secured Claims”) will have such claims reinstated;
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the holders of general unsecured claims will receive their pro rata share of a to be determined portion of the equity in the reorganized Company, subject to dilution from the MIP; and
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on the effective date of the Plan, (i) the Term Loan Claims, Swap Agreement Claims, general unsecured claims, and existing equity interests of the Company will be cancelled, released, and extinguished and will be of no further force and effect, (ii) the L/C Facility may be reinstated (or refinanced with the Exit Facility), and (iii) the Other Secured Claims will be reinstated. In accordance with the Restructuring Support Agreement, the Consenting Stakeholders agreed, among other things, to: (i) support the Restructuring Transactions and vote and exercise any powers or rights available to it (including in any board, shareholders’, or creditors’ meeting or in any process requiring voting or approval to which they are legally entitled to participate), in each case, in favor of any matter requiring approval to the extent necessary to implement the Restructuring Transactions; (ii) use commercially reasonable efforts to cooperate with and assist the Company Parties in obtaining additional support for the Restructuring Transactions from the Company Parties’ other stakeholders; (iii) vote and consent to accept the Plan; (iv) negotiate in good faith and use commercially reasonable efforts to execute and implement the Definitive Documents and any other required agreements to effectuate and consummate the Restructuring Transactions as contemplated by this Restructuring Support Agreement to which it is required to be a party; (v) not to object to, delay, impede, or take any other action to interfere with acceptance, implementation, or consummation of the Restructuring Transactions; and (vi) except as permitted in the Restructuring Support Agreement, not transfer any ownership (including any beneficial ownership as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) held by each Consenting Stakeholder. In accordance with the Restructuring Support Agreement, the Company Parties agreed, among other things, to: (i) support and take all steps necessary and desirable to consummate the Restructuring Transactions in accordance with the Restructuring Support Agreement; (ii) not take any action, that is inconsistent in any material respect, or that would reasonably be expected to prevent, interfere with, delay, frustrate or impede approval, implementation and consummation of the Restructuring Transactions; (iii) to the extent any legal or structural impediment arises that would prevent, hinder, or delay the consummation of the Restructuring Transactions contemplated in the Restructuring Support Agreement or the Plan, support and take all steps reasonably necessary and desirable to address any such impediment; (iv) use commercially reasonable efforts to obtain any and all required governmental, regulatory and/or third-party approvals for the Restructuring Transactions; (v) negotiate in good faith and execute and deliver the Definitive Documents and any other required agreements to effectuate and consummate the Restructuring Transactions as contemplated by this Restructuring Support Agreement; and (vi) use commercially reasonable efforts to seek additional support for the Restructuring Transactions from their other material stakeholders to the extent reasonably prudent. The Restructuring Support Agreement may be terminated upon the occurrence of certain events set forth therein, including, among other things, the failure to meet specified milestones specified in the Restructuring Term Sheet. To implement the Plan, on June 29, 2020, the Company Parties filed the Chapter 11 Cases. Further, with the approval of the Bankruptcy Court, the Receivables Facility was replaced with a letter of credit facility pursuant to an interim order of the Bankruptcy Court authorizing, among other things, (i) the Company’s funding of a new letter of credit collateral account held at Covia Financing, (ii) entry into the Payoff and Reassignment Agreement (the “Payoff Agreement”), among the Company, Covia Financing, the Sub-Originators, PNC, and PNC Capital, (iii) the Company’s, Covia Financing’s and the Sub-Originators’ entry into, and performance of, their respective obligations under the Payoff Agreement and, as applicable, the Reimbursement Agreement for Cash-Collateralized Standby Letters of Credit, among PNC, Covia Financing, and the Company (the “Reimbursement Agreement” and, together with the Payoff Agreement, the “Letter of Credit Agreements”), and (iv) execution of the transactions contemplated by the Letter of Credit Agreements. In July 2020, we cash collateralized our $37.0 million of outstanding standby letters of credit. See Note 25 for further detail on the Receivables Facility Further, the commencement of the Chapter 11 Cases constituted an event of default under, and resulted in the acceleration of, certain of the Company Parties’ debt obligations, including under the following debt instruments (the “Debt Instruments”):
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$1.56 billion in aggregate principal amount under the Term Loan Agreement;
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$37.0 million in principal amount, including reimbursement obligations in respect of letters of credit, plus accrued and unpaid interest (at the non-default rate), fees, and other expenses arising and payable under the Receivables Facility;
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Approximately $35.8 million in obligations under five separate interest rate swap transactions that were entered into pursuant to either (i) that certain 2002 ISDA Master Agreement, dated as of May 30, 2018, by and between BNP Paribas and the Company, as successor in interest to Unimin Corporation, or (ii) that certain 1992 ISDA Master Agreement, dated as of June 28, 2018, by and between Barclays Bank PLC and the Company; and
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Approximately $10.0 million in aggregate principal amount of other indebtedness, consisting of an industrial revenue bond. The Debt Instruments provide that as a result of the Chapter 11 Cases, the principal and interest due thereunder shall be immediately due and payable. The Company Parties believe that any efforts to enforce the financial obligations under the Debt Instruments are stayed as a result of the filing of the Chapter 11 Cases in the Bankruptcy Court. The Company cannot predict the ultimate outcome of the Chapter 11 Cases. Although the Company expects the Chapter 11 Cases to proceed in accordance with the milestones set forth in the Restructuring Support Agreement, third parties may propose alternative plans of reorganization. Further, the Restructuring Support Agreement may be terminated upon the occurrence of certain events set forth in the Definitive Documents (as defined in the Restructuring Support Agreement), including the failure to meet specified milestones specified in the Restructuring Term Sheet. In the event the Plan is not confirmed or the Restructuring Support Agreement is terminated, the duration of the Chapter 11 Cases will be extended which will increase the Company’s expenses and reduce the Company’s capital resources. Further, even if the Plan is confirmed, although the Company expects the exit financing provided for in the Plan will be sufficient to make all payments required by the Plan, the Company faces many risks and uncertainties that it cannot predict and consequently, there is no guarantee that the exit financing provided for in the Plan will be sufficient to accomplish the Company’s reorganization strategy. See “Risk Factors” in Part II, Item 1A of this Report for additional information. NYSE Notice of Delisting Proceedings On June 30, 2020, the Company was notified by the staff of NYSE Regulation, Inc. (“NYSE Regulation”) that it had determined to commence proceedings to delist the Company’s common stock from the New York Stock Exchange (“NYSE”). NYSE Regulation reached its decision that the Company is no longer suitable for listing pursuant to NYSE Listed Company Manual Section 802.01D after the Company commenced the Chapter 11 Cases. See Note 25 for further detail on the delisting proceedings. Bankruptcy Accounting For the periods following the Petition Date, the Company has applied Accounting Standards Codification 852 - Reorganizations ASC 852 requires certain additional reporting for financial statements prepared between the bankruptcy filing date and the date of emergence from bankruptcy, including:
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Reclassification of Company Parties pre-petition liabilities that are unsecured, under-secured or where it cannot be determined that the liabilities are fully secured, to a separate line item in the Condensed Consolidated Balance Sheets called, “Liabilities subject to compromise”; and
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Segregation of “Reorganization items, net” as a separate line in the Condensed Consolidated Statements of Loss, outside of loss from operations. Debtor-In-Possession The Company Parties are currently operating as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code. The Bankruptcy Court has approved motions filed by the Company Parties that were designed primarily to mitigate the impact of the Chapter 11 Cases on the Company’s operations, customers and employees. In general, as debtors-in-possession under the Bankruptcy Code, the Company Parties are authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Pursuant to first day motions filed with the Bankruptcy Court, the Bankruptcy Court authorized the Company Parties to conduct their business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing the Company Parties to: (i) pay employees’ wages and related obligations; (ii) continue to operate their cash management system in a form substantially similar to pre-petition practice; (iii) use cash collateral on an interim basis; (iv) pay taxes in the ordinary course; and (v) maintain their insurance program in the ordinary course. Automatic Stay Subject to certain specific exceptions under the Bankruptcy Code, the filing of the petitions for the Chapter 11 Cases on the Petition Date automatically stayed most judicial or administrative actions against the Company Parties and efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. Absent an order from the Bankruptcy Court, substantially all of the Company Parties’ pre-petition liabilities are subject to settlement under the Bankruptcy Code. See Note 24, Condensed Combined Debtor-In-Possession Financial Information for additional information. Executory Contracts Subject to certain exceptions, under the Bankruptcy Code, the Company Parties may assume, amend or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Company Parties from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Generally, the assumption of an executory contract or unexpired lease requires the Company Parties to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease with the Company Parties in this document, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease of the Company Parties, is qualified by any overriding rejection rights the Company has under the Bankruptcy Code. Potential Claims The Company Parties expect to file schedules and statements (the “Schedules and Statements”) and reports required under Federal Rule of Bankruptcy Procedure 2015.3 (the “2015.3 Reports”) on August 12, 2020, and August 13, 2020, respectively. The Schedules and Statements set forth, among other things, the assets and liabilities of each of the Company Parties, subject to the assumptions filed in connection therewith. The 2015.3 Reports set forth, among other things, financial information of entities in which a chapter 11 estate holds a controlling or substantial interest. The Schedules and Statements and 2015.3 Reports may be subject to further amendment or modification after filing. The Bankruptcy Court entered an order on August 3, 2020, setting claim bar dates for certain types of claims. Certain holders of pre-petition claims that are not governmental units are required to file proofs of claim by September 18, 2020 (the “Bar Date”). These claims will be reconciled to amounts recorded in the Company's accounting records. Differences in amounts recorded and claims filed by creditors will be investigated and resolved, including through the filing of objections with the Bankruptcy Court, where appropriate. The Company may ask the Bankruptcy Court to disallow claims that the Company believes are duplicative, have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. In addition, as a result of this process, the Company may identify additional liabilities that will need to be recorded or reclassified to Liabilities subject to compromise. In light of the substantial number of claims expected to be filed, the claims resolution process may take considerable time to complete and likely will continue after the Company Parties emerge from bankruptcy. Reorganization Items, Net The Company Parties have incurred and will continue to incur significant costs associated with the reorganization, primarily legal, investment banking, financial advisory and other professional fees as well as the write-off of deferred long-term debt fees on debt subject to compromise. The amount of these costs, which since the Petition Date are being expensed as incurred, are expected to significantly affect the Company’s results of operations. Professional fees incurred prior to the Petition Date but related to the bankruptcy filing have been recorded as Restructuring and Other Charges on the Income Statement. In accordance with applicable guidance, costs associated with the bankruptcy proceedings subsequent to the Petition Date have been recorded as Reorganization items, net within the Company’s accompanying Condensed Consolidated Statement of Loss for the three months ended June 30, 2020. See Note 23, Reorganization Items, Net. Financial Statement Classification of Liabilities Subject to Compromise The accompanying Condensed Consolidated Balance Sheets as of June 30, 2020 includes amounts classified as “Liabilities subject to compromise,” which represent liabilities the Company anticipates will be allowed as claims in the Chapter 11 Cases. These amounts represent the Company Parties’ current estimate of known or potential obligations to be resolved in connection with the Chapter 11 Cases, and may differ from actual future settlement amounts paid. Differences between liabilities estimated and claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process. The Company will continue to evaluate these liabilities throughout the Chapter 11 process and adjust amounts as necessary. Such adjustments may be material. See Note 22, Liabilities Subject to Compromise. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to: the useful life of definite-lived intangible assets; asset retirement obligations; estimates of allowance for doubtful accounts; estimates of fair value for reporting units and asset impairments (including impairments of goodwill and other long-lived assets); adjustments of inventories to net realizable value; post-employment, post-retirement and other employee benefit liabilities; valuation allowances for deferred tax assets; and reserves for contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, including the use of valuation experts. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements Allowance for Doubtful Accounts On January 1, 2020, we adopted ASU No. 2016-13 – Financial Instruments – Credit Losses (Topic 326) Income Taxes In December 2019, the FASB issued ASU No. 2019-12 – Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes Recently Issued Accounting Pronouncements In August 2018, the FASB issued ASU No. 2018-14 – Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans |
