Cypress Environmental Partners, L.P., reported that an affiliate of Argonaut Private Equity, which is headquartered in Tulsa, Oklahoma, has acquired 100% of Cypress’s senior secured debt from the seven existing lenders.
As previously reported, Cypress, with the support of its lenders, engaged Piper Sandler & Co. to solicit potential debt and equity investors to submit proposals to recapitalize Cypress in advance of the May 31, 2022 maturity date of Cypress’s credit facility. Cypress and its lenders worked together to ensure business continuity and normal operations for Cypress’s customers and employees. Piper Sandler reported the results of this extensive marketing process to the board of directors of Cypress’s general partner and made a recommendation regarding which proposal was superior. Cypress’s board of directors and the lenders independently agreed with this recommendation. Cypress plans to pursue a court-supervised restructuring with the support of Argonaut, the new senior secured lender.
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The New York Stock Exchange continues to monitor trading in Cypress’s common units for compliance with the NYSE’s requirement of a $15 million market capitalization over 30 trading days; the failure to satisfy this requirement would result in immediate suspension and commencement of delisting procedures. It is highly likely that Cypress’s common units would be delisted from the NYSE in the event of a restructuring proceeding. Such a proceeding would also likely lead to Cypress’s common and preferred equity (including accrued and unpaid distributions) having no value, given the amount of Cypress’s senior secured debt, which is currently $58.1 million. Further, Cypress would likely initiate the deregistration process with the Securities and Exchange Commission and, following completion of that process, its common units would no longer be publicly traded, and Cypress’s public disclosure obligations would cease.
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“The Piper Sandler team did a thorough job, approaching approximately one hundred parties. I want to thank our board of directors, who have been heavily engaged in helping us evaluate alternatives to recapitalize Cypress. Argonaut is a highly respected Tulsa, Oklahoma based private equity firm that we have known since inception. In 2020 Cypress had discussions with Argonaut about potentially investing in Cypress. Steve Mitchell, Argonaut’s CEO and Managing Director, is a highly regarded successful investor and has been a friend for over a decade. Argonaut had been interested in the inspection industry for several years and cares deeply about our employees, customers, and community. Our board of directors is pleased that Argonaut is interested in recapitalizing Cypress and growing its business, and that Argonaut is committed to the Tulsa community. Regrettably, our equity holders will lose their investment, including insiders (management, board, and individuals that control the general partner) who own ~ 76% of our equity (common and preferred units) and remain fully aligned with the minority unitholders. The pandemic drove a steep decline in our business that left us with too much debt. Additionally, the Fair Labor Standards Act (“FLSA”) litigation that swept through the inspection industry over the last several years has been expensive and time consuming for our customers, our competitors, and Cypress. Considering this is a people-intensive business, Argonaut has requested that some of Cypress’s current insiders co-invest with them as minority investors,” said Peter C. Boylan III, Chairman, President, and CEO.
“Pete and the leadership team have built a great business that offers excellent paying jobs in Tulsa and in over 40 states, serving blue chip customers. Cypress enjoyed its best year ever in 2019 prior to COVID and the collapse in energy prices. The FLSA litigation impacting the entire inspection industry and its customers is unfortunate but was not unique to Cypress. A combination of these events left them with too much debt and the need for recapitalization. Argonaut has been interested in this industry for several years and we looked at several other acquisition opportunities over the years. As the new senior secured lender, we look forward to expeditiously working with Cypress’s management, board of directors, and advisors on a court-supervised restructuring. We plan to have Cypress emerge with a strong balance sheet that will position them for growth. We remain committed to the Tulsa community and working with the talented management and employees,” said Steve Mitchell.
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