UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 3, 2004
Covanta Energy Corporation
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(Exact Name of Registrant as Specified in Charter)
Delaware 1-3122 13-5549268
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(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
40 Lane Road, Fairfield, New Jersey 07004
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (973) 882-9000
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Item 3. Bankruptcy or Receivership.
On April 1, 2002 (the "First Petition Date"), Covanta Energy Corporation
("Covanta") and 123 of its domestic subsidiaries filed voluntary petitions for
relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court"). Since the
First Petition Date, thirty-two additional subsidiaries filed their chapter 11
petitions for relief under the Bankruptcy Code. Eight subsidiaries that had
filed petitions on the First Petition Date have been sold as part of
Covanta's disposition of assets during the bankruptcy cases and are no longer
owned by Covanta.
On March 3, 2004, the Bankruptcy Court approved the Debtors' Second Joint Plan
of Reorganization under Chapter 11 of the Bankruptcy Code, as modified at the
confirmation hearing, (the "Reorganization Plan") with respect to Covanta and
seventy-nine of its subsidiaries and the Debtors' Second Joint Plan of
Liquidation under Chapter 11 of the Bankruptcy Code, as modified at the
confirmation hearing, (the "Liquidation Plan" and, together with the
Reorganization Plan, the "Plans") with respect to an additional sixty
subsidiaries. The Reorganization Plan is attached hereto as Exhibit 2.1, and a
copy of the Liquidation Plan is attached hereto as Exhibit 2.2. The orders
confirming the Reorganization Plan and Liquidation Plan were entered on March 5,
2004 (the "Confirmation Orders"). Copies of the Confirmation Orders for
Reorganization Plan and the Liquidation Plan are attached hereto as Exhibit 2.3
and Exhibit 2.4, respectively. Under the terms of the Confirmation Order for the
Reorganization Plan, the Reorganization Plan must be effective no later than
June 15, 2004 or the Confirmation Order shall be deemed vacated.
Six of Covanta's subsidiaries remain in bankruptcy and those cases continue to
be jointly administered under the caption "In re Ogden New York Services, Inc.,
et al., Case Nos. 02-40826 (CB), et al." These subsidiaries (collectively, the
"Remaining Debtors"), which relate to the Company's Lake County and Warren
County waste-to-energy facilities and its Tampa Bay desalination facility,
continue to operate their business as debtors-in-possession pursuant to the
Bankruptcy Code.
In connection with the Reorganization Plan, on December 2, 2003, Danielson
Holding Corporation ("DHC") agreed to acquire Covanta's energy and water
businesses (other than the subsidiaries relating to the Tampa Bay desalination
facility) pursuant to an Investment and Purchase Agreement between the
Reorganizing Debtors and Danielson, dated December 2, 2003 (as amended, the "DHC
Agreement") in connection with Covanta's emergence from bankruptcy (the "DHC
Transaction"). Pursuant to the DHC Agreement, Danielson will not acquire
Covanta's geothermal assets. As previously disclosed, the geothermal assets were
sold to other buyers as part of Covanta's Chapter 11 process.
The DHC Transaction, which is scheduled to be consummated upon the Effective
Date of the Plans, provides for the following: (a) DHC's purchase of 100% of the
equity of Covanta for approximately $30 million in cash; (b) new revolving
credit and letter of credit facilities for Covanta's domestic and international
operations, provided by certain of Covanta's current secured bank lenders and a
group of additional lenders organized by DHC (the "Exit Financing Agreements");
and (c) a Tax Sharing Agreement between DHC and Covanta, pursuant to which
Covanta's share of DHC's consolidated group federal tax liability for taxable
years ending after the Effective Date will be computed taking into account net
operating losses of DHC, and DHC will have an obligation to indemnify and hold
harmless Covanta for its tax liability should such net operating losses not be
available.
Under the Exit Financing Agreements, Covanta and its subsidiaries with domestic
businesses, other than those subject to existing contractual restrictions
prohibiting further borrowings (the "Domestic Borrowers") will have (a) a letter
of credit facility (the "First Lien Facility") for the issuance of a letter of
credit in the aggregate amount of up to $138 million required in connection with
one of Covanta's waste-to-energy facilities, and (b) a letter of credit and
liquidity facility (the "Second Lien Facility"), in the aggregate amount of $118
million, up to $10 million of which shall also be available for cash borrowings
on a revolving basis and the balance for letters of credit. Both facilities will
have a term of five years, and be secured by the assets of the Domestic
Borrowers not otherwise pledged. The lien of the Second Lien Facility will be
junior to that of the First Lien Facility. The Domestic Borrowers will also
issue on account of pre-petition obligations up to a maximum aggregate principal
amount of $230,000,000 in High Yield Notes and up to a maximum aggregate
principal amount of up to $50,000,000 in Unsecured Notes. The High Yield Notes
will be secured by a third priority lien in the same collateral securing the
First Lien Facility and the Second Lien Facility.
In addition to the factors discussed below, the consummation of the DHC
Transaction is subject to material conditions including, without limitation, (i)
the satisfaction or waiver of the conditions precedent under the DHC Agreement,
(ii) all regulatory approvals necessary or desirable in connection therewith
shall have been obtained, (iii) the Exit Financing Agreements shall have been
executed and delivered by the parties thereto, and (iv) Covanta and all its
subsidiaries that are the subject of the Reorganization Plan shall have
sufficient cash to make all payments and establish reserves as contemplated in
accordance with the Plan. Similarly, the consummation of the Liquidation Plan is
subject to a number of material conditions including, without limitation, that
the conditions precedent to the Effective Date of the Reorganization Plan shall
have been satisfied or waived. There can be no assurance that either the
Reorganization Plan or the Liquidation Plan will be consummated.
The following is a summary of material provisions of the Plans. The summary does
not purport to be complete and is qualified in its entirety by reference to all
of the provisions of the Plans, including those exhibits and documents described
therein, which have been filed with the Bankruptcy Court, and as may be further
amended and/or supplemented.
The Reorganization Plan provides for, among other things, the following
distributions:
(i) Secured Bank and 9.25% Debenture Holder Claims
Bank lenders and the 9.25% Debenture holders would receive, in respect of their
prepetition obligations, in the aggregate, a distribution consisting of (i) the
cash available for distribution after payment and establishment of reserves by
Covanta of exit costs necessary to consummate the Plans, (ii) $205 million in
principal amount of new high-yield secured notes accreting to an aggregate
principal amount of $230 million at the stated maturity of 7 years, and (iii) a
term loan obligation of Covanta Power International Holdings, Inc. ("CPIH") in
the principal amount of $90 million, subject to increase in certain
circumstances by an amount not to exceed $5 million with a stated maturity of 3
years.
Additionally, the Reorganization Plan incorporates the proposed settlement of
litigation in the Chapter 11 proceedings brought by the Creditors Committee.
This litigation challenged the validity of the lien claimed by the holders of
Covanta's 9.25% Debentures. Pursuant to the proposed settlement, holders of
general unsecured prepetition claims against Covanta would receive 12.5% of the
value that would otherwise be distributable to holders of 9.25% Debenture claims
that participate in the settlement who would receive in exchange a release with
respect to claims asserted by the Creditors Committee.
(ii) Unsecured Claims against Operating Company Subsidiaries
The holders of allowed unsecured claims against any of Covanta's operating
subsidiaries would receive new unsecured subordinated notes in a principal
amount equal to the amount of their allowed unsecured claims with a stated
maturity of 8 years (the "Unsecured Notes").
(iii) Unsecured Claims against Covanta Energy Corporation and Holding
Company Subsidiaries
The holders of allowed unsecured claims against Covanta or certain of its
holding company subsidiaries would receive, in the aggregate, a distribution
consisting of (i) $4 million in principal amount of Unsecured Notes, (ii) an
interest in five percent of the net proceeds received from the sale or other
disposition of CPIH and its subsidiaries not to exceed the amount of $4 million
in the aggregate, and (iii) the recoveries, if any, from avoidance actions
brought on behalf of Covanta and its subsidiaries. Each holder of an allowed
unsecured claim against Covanta or certain of its holding company subsidiaries
would also receive its pro-rata share of amounts due under the settlement of the
litigation brought by the Creditors Committee described above.
(iv) Subordinated Claims of holders of Convertible Subordinated Bonds
The holders of Covanta's convertible subordinated bonds would not receive any
distribution or retain any property pursuant to the proposed Reorganization
Plan. The convertible subordinated bonds would be cancelled on the effective
date of the proposed Reorganization Plan.
(v) Equity interests of common and preferred stockholders
The holders of Covanta's preferred and common stock would not receive any
distribution or retain any property pursuant to the Reorganization Plan. The
preferred stock and common stock would be cancelled on the effective date of the
proposed Reorganization Plan.
As of March 8, 2004, Covanta had 49,824,251 shares of common stock and 33,049
shares of preferred stock outstanding. Upon implementation of the Plans, Covanta
will issue all of its common stock to DHC.
The Liquidation Plan provides for the complete liquidation of those of Covanta's
subsidiaries that have been designated as liquidating entities. Substantially
all of the assets of these liquidating entities have already been sold. The
Liquidation Plan contemplates that unsecured creditors of the liquidating
entities would not receive any distribution. Creditors holding allowed
administrative and priority claims would be paid in accordance with the
Liquidation Plan.
Other significant provisions in the Plans are as follows:
The Board of Directors of Covanta will consist of Anthony J. Orlando, its
current President and Chief Executive Officer, Philip G. Tinkler, the Chief
Financial Officer of DHC, and Joseph P. Sullivan, a director of DHC.
For financial information regarding the assets and liabilities of Covanta refer
to the Quarterly Report for Covanta on Form 10-Q for the quarterly period ended
September 30, 2003. Upon emergence from the Chapter 11 proceedings, Covanta will
be required to adopt "fresh start" accounting. Generally, Covanta will restate
all assets and liabilities at their respective fair values based upon the terms
of the Plans. Covanta has not yet determined the impact of fresh start
accounting on the historical consolidated financial statements.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of business acquired: Not applicable.
(b) Pro forma financial information: Not applicable.
(c) Exhibits:
2.1 Debtors' Second Joint Plan of Reorganization under Chapter
11 of the Bankruptcy Code.
2.2 Debtors' Second Joint Plan of Liquidation under Chapter 11
of the Bankruptcy Code.
2.3 Findings of Fact, Conclusions of Law and Order confirming
the Debtors' Second Joint Plan of Reorganization under
Chapter 11 of the Bankruptcy Code
2.4 Findings of Fact, Conclusions of Law and Order confirming
the Debtors' Second Joint Plan of Liquidation under Chapter
11 of the Bankruptcy Code
2.5 Second Disclosure Statement with respect to Reorganizing
Debtors' Second Joint Plan of Reorganization and Liquidating
Debtors' Second Joint Plan of Liquidation under Chapter 11
of the Bankruptcy Code previously filed as Exhibit T3E-3 to
the Company's T-3/A (Amendment No. 3) filed with the
Commission on January 26, 2004 and incorporated herein by
reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
Date: March 8, 2004
COVANTA ENERGY CORPORATION
By: /s/ Jeffrey R. Horowitz
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Name: Jeffrey R. Horowitz
Title: Senior Vice President, General Counsel and Secretary