Cypress Environmental Partners L.P. (CELP) is on the verge of delisting from the NYSE given the substantial doubt raised by its financial statements to continue as a going concern. With restructuring proceedings in the near term, CELP succeeded to solicit a debt investor. On April 22, the company announced that its senior secured debt has all been acquired by an affiliate of Argonaut Private Equity, along with a deregistration plan.
Consequently, the stock plunged deep in the after-hours to reach a value of $0.4100. Thus, the stock marked a new low in the session after declining by 36.27%. The prior session had the stock trading at $0.6433 at the close.
CELP’s New Lender & Deregistration Plan
Recently, CELP had engaged Pipe Sandler & Co. along with the support of its lenders to solicit potential debt and equity investors. The reason for this was to recapitalize the company in advance of the May 31, 2022 maturity date of its credit facility. The extensive marketing resulted in Argonaut being the company’s new lender as it acquired 100% of the company’s senior secured debt from the seven existing lenders.
Subsequently, with the support of Argonaut, the company will now pursue a court-supervised restructuring.
As the NYSE continues to monitor CELP units for compliance with its $15 million market capitalization requirement, it is very much expected that its common units would be delisted from the exchange in the event of restructuring proceedings. Hence, possibly rendering the company’s common and preferred equity valueless due to its senior secured debt of $58.1 million. Therefore, the company would probably commence the deregistration process with the SEC following which its common units would cease to trade publicly. Ultimately, ceasing its public disclosure obligations.
What’s going on??
Prior to the pandemic, the company’s business was booming with 2019 being its best year ever. But, the pandemic caused a heavy blow to CELP’s business, leaving it with too much debt and very little time left in its maturity. On top of this, Fair Labor Standards Act (FLSA) litigation over the inspection industry also proved extremely expensive to deal with. Thus, its recent financial statements raised substantial doubt about the company’s ability to continue as a going concern.
What Now?
While Argonaut, the private equity firm’s interest in CELP will help it recapitalize and grow its business, there is a huge downside to it. The company’s equity holders will lose their investments including the 76% owned by insiders. Additionally, Argonaut has also requested some of the company’s current insiders to co-invest with them as minority investors.
While there is a haze, Argonaut hopes to have CELP emerge with a strong balance sheet positioned for growth.
