What does bankruptcy mean for AppHarvest’s future? Answering questions about what’s next

AppHarvest, the financially struggling, Morehead-based produce grower, filed for voluntary Chapter 11 bankruptcy protection in Texas on Sunday because it doesn’t have enough assets to cover all of its liabilities.

You might have questions about what this means. Here’s what we know so far about some key elements.

What is Chapter 11 bankruptcy?

There are several varieties of bankruptcy. Chapter 11 is the kind that lets restructured corporations pay back their creditors under more generous terms that are approved by a judge. In theory, the corporations can stay in business the entire time and have a successful future once they’ve emerged from bankruptcy.

In 14 separate bankruptcy filings Sunday, covering its different subsidiaries, AppHarvest claimed between $50 million and $100 million in assets and liabilities. It identified its 30 largest unsecured creditors, who hold about $26 million in unsecured claims.

Its largest creditor by far is Dalsem Greenhouse Technology of the Netherlands, which built AppHarvest’s enormous greenhouses. AppHarvest says Dalsem holds $14.8 million in unsecured claims.

Incidentally, Chapter 11 bankruptcy also acts as a shield against litigation, putting all pending cases on hold. In the last few years, AppHarvest has been hit with a number of investor lawsuits alleging fraud after the collapse of the company’s stock price.

Why go to Texas?

AppHarvest chose the U.S. Bankruptcy Court in the Southern District of Texas, in Houston, which in recent years has become the nation’s most popular venue for Chapter 11. Neiman Marcus, J.C. Penney, Men’s Warehouse and other famous corporate names have flocked to this court to ask for help with their debts.

The Houston Chronicle credits the court’s chief judge, David R. Jones, for streamlining the local dockets into a relatively speedy machine that can process even the most complex corporate reorganizations. Jones is the judge assigned to the AppHarvest bankruptcy.

Jones now must approve every significant step AppHarvest takes until it emerges from bankruptcy.

Will AppHarvest stay in business?

AppHarvest grows produce in four huge, indoor farms around Eastern Kentucky — in Morehead, Richmond, Berea and Somerset.

But that might not be true for much longer.

It’s handing over the Berea farm, either to its partner and distributor Mastronardi Produce Ltd. or another affiliate, AppHarvest said, “in exchange for approximately $3.75 million, additional incremental funding and support for the company’s restructuring plan.”

One possible wrinkle: Mastronardi already has taken possession of the Berea farm through a sale-leaseback agreement, generating much-needed cash for AppHarvest, and it recently announced that it plans to terminate AppHarvest’s lease on the facility. A section of the lease related to “minimum production volumes” had been violated, Mastronardi alleged.

As for the other three farms: “Over the next 60 days, we’ll be working to sell the farms to investors with the hope that they stay operational and continue to employ about the same number of folks as now. The goal is to minimize any disruption to employees,” company spokesman Travis Parman said Monday.

“We have funding to keep the business running as usual for the next 60 days at Morehead, Richmond and Somerset,” Parman added.

Equilibrium, which filed a foreclosure suit against AppHarvest demanding repayment of more than $60 million in debt, will provide the cash necessary to help AppHarvest continue operations, AppHarvest said in a statement Monday.

This is what’s known as “debtor-in-possession” financing. It bumps Equilibrium to the front of the line among creditors should money start to run dry toward the end of the bankruptcy process.

As for AppHarvest’s leased office space in downtown Lexington, “the company will be evaluating existing contracts over the next 60 days.”

Will AppHarvest employees lose their jobs?

The company talks about restructured operations and accumulated debts in its bankruptcy filings, which often means layoffs.

But most people working at the farms today should still be working there tomorrow, Parman said.

“We do not currently anticipate any significant job cuts,” Parman said. “Unless the court rules otherwise, employees can expect to continue to have access to their benefits such as vacation days.”

AppHarvest expects Mastronardi to make employment offers to the workers at the Berea farm, he said.

What does this mean for my AppHarvest stock?

Nothing good. Generally, shareholders are among the last in line of creditors to collect from what assets are left during a Chapter 11 bankruptcy.

AppHarvest stock had plunged to 10 cents a share by 1:30 p.m. Monday as news of the bankruptcy filing spread, down from a recent high of $2.64 on Feb. 23. In early 2021, the stock sold for more than $35 a share.