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May 17, 2024

Kramer Levin Advises Indenture Trustee in Securing Substantial Distribution of Cash to Bondholders Early in Enviva Inc.’s Chapter 11 Bankruptcy Cases

Kramer Levin represented Wilmington Trust N.A., the indenture trustee for two municipal bond issuances totaling $350 million, in obtaining a court-approved settlement in Enviva Inc.’s (Enviva or the Company) Chapter 11 bankruptcy cases pending in the Bankruptcy Court for the Eastern District of Virginia. The settlement secures bondholders’ ability to benefit from the approximately $122 million held in construction fund accounts. The vast majority of such construction funds will be distributed to bondholders less than three months into Enviva Inc.’s bankruptcy case, giving bondholders a certain recovery before the debtors have proposed a Chapter 11 plan.

The underlying tax-exempt “Green Bonds” were each issued to fund the construction of wood pellet production plants by Enviva — one in Epes, Alabama, and one in Bond, Mississippi. In connection with both issuances and pursuant to the indentures for the Green Bonds, the proceeds of the bonds’ issuance were deposited in a construction fund to be held in trust by Wilmington Trust for the benefit of bondholders and were to be distributed to the Company to fund construction of the respective projects after certain conditions had been met.

As Enviva’s financial condition began to worsen in the fall of 2023, Kramer Levin moved quickly to identify and address the Company’s defaults under the governing documents for each of the Green Bonds, including ensuring the monies held in the construction funds were not withdrawn improperly in the months preceding Enviva’s bankruptcy filing. Over the next several months, Kramer Levin engaged in lengthy negotiations with advisers to the Company over a resolution to the prepetition defaults. The negotiations culminated in a prepetition restructuring support agreement pursuant to which Enviva sought court approval of a settlement with the following key terms: (i) monies held in the construction funds — over $70 million with respect to the Bond Green Bonds and over $52 million with respect to the Epes Green Bonds — are to be distributed to bondholders in partial satisfaction of the bond debt (after amounts are reserved to fund the trustee’s continued advocacy through the duration of the Chapter 11 cases); (ii) any amounts owed after the distribution are to be treated as an allowed claim; and (iii) approving and authorizing approximately $4 million in fee and expense reimbursements to the trustee that had been made on the eve of bankruptcy or that would be reimbursed postpetition in cash by the debtors. On May 3, 2024, the Bankruptcy Court approved the settlement.

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