| 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 the September 30, 2020 Form 10-Q does not include all disclosures required by GAAP for complete financial statements. 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”) 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 (the “Company Parties”) filed petitions for reorganization under Chapter 11 of T itle 11 of the United States Code (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, the Company Parties filed voluntary petitions for relief (the “Chapter 11 Cases”) under Chapter 11 of the Bankruptcy Code (“Chapter 11”) 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 (the “Original 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 Original Agreement contemplates agreed-upon terms between the Company Parties and Consenting Stakeholders for a prearranged plan of reorganization. On July 7, 2020, the Consenting Stakeholders and the Company Parties entered into an Amended and Restated Restructuring Support Agreement (the “Restructuring Support Agreement”) to (a) revise the defined term “Required Consenting Stakeholders” to mean those Consenting Stakeholders holding 60.01% instead of 50.01% of the aggregate outstanding principal amount of the term loans under the Term Loan Agreement that are held by the Consenting Stakeholders and (b) provide that the Bankruptcy Court must enter, instead of enforce, an order setting the general claims bar date in the Chapter 11 Cases within 60 days of the petition date, which was June 29, 2020. 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. On September 25, 2020, the Company Parties filed a proposed Joint Chapter 11 Plan of Reorganization of Covia Holdings Corporation and Its Debtor Affiliates
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Each Holder of an Allowed Secured Tax Claim shall receive at the option of the Reorganized Debtors: (1) payment in full in Cash of such Holder’s Allowed Secured Tax Claim; or (2) equal semi-annual Cash payments commencing as of the Effective Date or as soon as reasonably practicable thereafter and continuing for five years, in an aggregate amount equal to such Allowed Secured Tax Claim, together with interest at the applicable non-default rate under applicable non-bankruptcy law, subject to the option of the applicable Reorganized Debtor to prepay the entire amount of such Allowed Secured Tax Claim during such time period.
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Each Holder of an Allowed Other Secured Claim shall receive at the option of the Reorganized Debtors (1) payment in full in Cash; (2) Reinstatement of such Allowed Other Secured Claim, notwithstanding any contractual provision or applicable non-bankruptcy law that entitles the holder of such claim to demand or to receive payment prior to the stated maturity of such Allowed Other Secured Claim from and after the occurrence of default; (3) delivery of the collateral securing such Allowed Other Secured Claim; or (4) such other treatment rendering such Allowed Other Secured Claim Unimpaired.
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Each Holder of an Allowed Other Priority Claim shall receive at the option of the Reorganized Debtors: (1) Cash in an amount equal to such Allowed Other Priority Claim; or (2) such other treatment rendering such Allowed Other Priority Claim Unimpaired.
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Each Holder of an Allowed Secured Term Loan Claim or an Allowed Secured Swap Agreements Claim, respectively, shall receive its Pro Rata share of (1) the Excess Cash; (2) the New Term Loan; and (3) the Financing Claims Equity Pool.
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Each Holder of a Claim against Covia that is an Allowed General Unsecured Claim, Term Loan Deficiency Claim, or Swap Agreements Deficiency Claim shall receive, in full and final satisfaction of such Allowed Claim, its Pro Rata share of the Parent Unsecured Claims Equity Pool.
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Each Holder of a Claim against one or more Debtors other than Covia that is an Allowed General Unsecured Claim, Term Loan Deficiency Claim, or Swap Agreements Deficiency Claim shall receive, in full and final satisfaction of such Allowed Claim, its Pro Rata share of the Non-Parent Unsecured Claims Equity Pool.
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All Intercompany Claims shall be, at the option of the Reorganized Debtors with the consent of the Required Consenting Stakeholders, (1) Reinstated or (2) distributed, contributed, set off, settled, cancelled, released, or otherwise addressed.
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A ll Intercompany Interests shall be, at the option of the Reorganized Debtors with the consent of the Required Consenting Stakeholders, (1) Reinstated in accordance with Article III.G of the Plan, distributed, contributed, or (2) cancelled, released, or otherwise addressed.
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On the Effective Date, Covia Interests will be cancelled, released, and extinguished without any distribution on account of such Existing Equity Interests. All Section 510(b) Claims, if any, will be discharged, cancelled, released, and extinguished as of the Effective Date, and will be of no further force or effect, and Holders of Allowed Section 510(b) Claims will not receive any distribution on account of such Allowed Section 510(b) Claims. 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 the 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 Delisting and Deregistration under Section 12(b) of the Exchange Act On July 21, 2020, NYSE Regulation, Inc. filed a Form 25 with the SEC to delist Covia Holdings Corporation’s common stock (the “common stock”) from the New York Stock Exchange at the opening of business on August 3, 2020. The deregistration of the common stock under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), was effective on October 19, 2020. After the delisting on August 3, 2020, the common stock began trading on the OTC Pink Market maintained by the OTC Markets Group, Inc. under the symbol “CVIAQ”. 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 the ordinary course of business consistent with pre-petition practice; (iii) use cash collateral on a final 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 Report, 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 rights the Company has under the Bankruptcy Code. Potential Claims The Company Parties filed 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, N et 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, the write-off of deferred long-term debt fees on debt subject to compromise and the net expenses incurred due to the termination and modification of lease agreements. 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 and nine months ended September 30, 2020. See Note 23, Reorganization Items, Net. Financial Statement Classification of Liabilities Subject to Compromise The accompanying Condensed Consolidated Balance Sheets as of September 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. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less, which are generally time deposits with banks and money market funds. The carrying amount of these investments approximates fair value. Restricted cash primarily represents legally restricted amounts being held as a compensating balance for certain outstanding letters of credit. 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 |
