USEC to Restructure, Seek Bankruptcy to Stimulate American Centrifuge Project

U.S. nuclear reactor enriched uranium fuel supplier USEC will voluntarily file for bankruptcy protection as part of a restructuring plan to boost financial support for its much-watched gas centrifuge uranium enrichment project at the American Centrifuge Plant in Piketon, Ohio. 

The company announced on Dec. 16 that it had reached an agreement with majority shareholders on a financial restructuring plan that could “strengthen the company’s balance sheet and improve its long-term business opportunities.” The plan calls for USEC to continue operations to meet customer needs as well as to continue research, development, and demonstration (RD&D) activities for its American Centrifuge technology.

But the agreement also calls for the company’s $530 million debt to be replaced with a new debt issue totaling $200 million, and to replace existing equity with new equity. Noteholders would get 79% of the new equity as common stock, with Toshiba Corp. and Babcock & Wilcox (B&W) jointly obtaining 16% of the new common stock as well as $40 million debt on the same terms as the noteholders. Detailed terms for restructuring B&W and Toshiba’s preferred equity investment are being negotiated, USEC said.

“Once implemented, the new capital structure will increase USEC’s financial flexibility and support the company’s continuing sponsorship of the American Centrifuge project,” it said. But before it can implement terms of the agreement, the company will file a “prearranged and voluntary” Chapter 11 petition in U.S. Bankruptcy Court in the first quarter of 2014, it added. “Such a filing is not expected to have any effect on on-going operations, suppliers, deliveries to customers or the American Centrifuge research, development and demonstration program.”

Created as a government corporation to restructure the government’s uranium enrichment operations in the early 1990s, USEC was privatized in 1998. It’s American Centrifuge project stems from a DOE-developed, classified centrifuge technology that was demonstrated in the 1980s. USEC, which has been building the plant in Piketon, Ohio—on the same site where the DOE’s research and development plant operated—says it has improved the DOE technology through advanced materials, updated electronics, and design enhancements. The company estimates the plant will have an initial annual capacity of 3.8 million separative work units (SWU), though a license application calls for 7 million SWU.

A demonstration cascade at the plant began in September 2007 and a lead cascade of commercial centrifuges started operation in March 2010. This year, USEC successfully completed three major milestones set by the DOE for the program, announcing that its full production-scale cascade of 120 machines achieved 20 machine-years of operations at commercial plant specifications.

Yet the company has repeatedly warned that the “economics of the project are severely challenged by the current supply/demand imbalance in the [post-Fukushima] market for low enriched uranium and related downward pressure on market prices for SWU, which are now at their lowest levels in more than a decade.” At current market prices, USEC has admitted that the American Centrifuge project cannot be “economically viable” without government support and significant additional financing.

“In order to successfully raise this capital, USEC needs to develop and validate a viable business plan that supports loan repayment and provides potential investors with an attractive return on investment based on the project’s risk profile,” it said.

A number of factors could affect this plan, including key variables related to project cost, schedule, market demand and market prices for low enriched uranium, financing costs, and other financing terms. Meanwhile, USEC has experienced snowballing cost pressures due to delays in deployment of the project.

The DOE has been pivotal in keeping the project alive, even though it rejected USEC’s 2008 request for a $2 billion loan guarantee because USEC had not yet demonstrated a viable commercialization plan. In the fall of 2011, the agency instead proposed a two-year RD&D program for the project (due to end this month). An 80-20 cost-share agreement reached in June 2012 calls for the DOE to provide a total of $280 million (USEC will provide $70 million). As part of the agreement, USEC granted the DOE a non-exclusive royalty-free license in centrifuge intellectual property for government purposes, as well as ownership of equipment produced or acquired as part of the RD&D program.

The DOE has to date poured $256.9 million into USEC’s RD&D program to support building, installing, operating, and testing commercial plant support systems, and a 120-machine cascade that would be incorporated into the full commercial American Centrifuge Plant, which is planned to operate 96 identical cascades. USEC expects cumulative spending for the RD&D program to be about $320 million at the end of this year.

The “DOE’s ongoing support for the project is a condition to implementing the company’s agreement with its noteholders,” USEC said. “The company is currently in ongoing discussions with DOE officials regarding the American Centrifuge project and the proposed restructuring.”

At the same time, USEC said, it has had discussions with Japanese export credit agencies regarding financing of up to $1 billion of the cost of completing the project—though it notes that financing is “predicated on USEC receiving a DOE loan guarantee.”

Meanwhile, earlier this year USEC began ceasing uranium enrichment at the Paducah Gaseous Diffusion Plant in Kentucky—the only U.S-owned and operated uranium enrichment facility—because it was unable to conclude a deal with the DOE to extend enrichment. Operations at that site are expected to continue into 2014, however, so that the company can manage inventory and continue to meet customer orders.

USEC said it is now uncertain about how much cash generated from its own operations can be used to boost commercial deployment of the American Centrifuge Plant, especially because it is seeing a “reduced cash flow” as a result of ceasing enrichment at Paducah. However, the restructuring plan announced on Dec. 16 should at least help the company continue transition activities at Paducah, it said.

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)