INTRODUCTION AND BASIS OF PRESENTATION |
12 Months Ended |
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Dec. 31, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| INTRODUCTION AND BASIS OF PRESENTATION | INTRODUCTION AND BASIS OF PRESENTATION Introduction
CorEnergy Infrastructure Trust, Inc. (referred to as "CorEnergy" or "the Company"), was organized as a Maryland corporation and commenced operations on December 8, 2005. The Company's common stock, par value $0.001 per share ("Common Stock") is traded in the OTC Markets ("OTC") under the symbol "CORRQ" and its depositary shares representing the Company's 7.375% Series A Cumulative Redeemable Preferred Stock, par value $0.001 per share ("Series A Preferred Stock") are traded in the OTC under the symbol "CORLQ". The Company's Class B Common Stock, par value $0.001 per share ("Class B Common Stock"), is not listed on an exchange.
The Company owns and operates critical energy midstream infrastructure connecting the upstream and downstream sectors within the industry. Prior to January 19, 2024, the Company generated revenue from the transportation, via pipeline systems, of crude oil and natural gas for its customers in California and Missouri, respectively. The pipelines are located in areas where it would be difficult to replicate rights-of-way or transport natural gas or crude oil via non-pipeline alternatives, resulting in the Company's assets providing utility-like criticality in the midstream supply chain for its customers. Prior to 2021, the Company focused primarily on entering into long-term triple-net participating leases with energy companies. Over the last 36 months, the Company's asset portfolio has undergone significant changes. The Company divested all of its leased assets, including the Grand Isle Gathering System ("GIGS"), which is described in these notes to consolidated financial statements.
On January 19, 2024, the Company closed the previously announced sale of its MoGas and Omega pipeline systems to Spire Inc. (NYSE: SR) for a cash purchase price of $175.0 million, plus working capital adjustments. The Company then used a portion of the proceeds from the sale to repay the entire $108.5 million outstanding balance of the Crimson Credit Facility.
CorEnergy's Private Letter Rulings ("PLRs") enable the Company to invest in a broader set of revenue contracts within its real estate investment trust ("REIT") structure, including the opportunity to both own, and operate infrastructure assets. CorEnergy considers its investments in these energy infrastructure assets to be a single reportable business segment and reports them accordingly in its consolidated financial statements.
The principal executive office of the Company is located at 1100 Walnut, Suite 3350, Kansas City, Missouri 64106.
Chapter 11 Case and Ability to Continue as a Going Concern
Chapter 11 Bankruptcy
On February 25, 2024 (the "Petition Date"), CorEnergy Infrastructure Trust, Inc. filed a voluntary petition to commence proceedings under Chapter 11 (the "Chapter 11 Case") of Title 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Western District of Missouri (the "Bankruptcy Court"). Neither Crimson Midstream Holdings, LLC ("Crimson"), nor any other CorEnergy subsidiary has filed for bankruptcy.
The Company is currently operating its business as a "debtor in possession" in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. After the Company commenced the Chapter 11 Case, the Bankruptcy Court granted certain relief requested by the Company enabling it to operate in the ordinary course of business and minimize the effect of the bankruptcy on the Company's business, including, among other things, authorizing the Company to pay employee wages and benefits, maintain existing banking practices and additional customary operational and administrative relief.
Subject to certain exceptions, under the Bankruptcy Code, the filing of the Chapter 11 Case automatically enjoined, or stayed, the continuation of most judicial and administrative proceedings or filings of other actions against the Company or its property to recover, collect or secure a claim arising prior to the Petition Date. Accordingly, although the filing of the Chapter 11 Case triggered a default that accelerated obligations under the indenture (the "Indenture") governing the Company's outstanding 5.875% Unsecured Convertible Senior Notes due 2025 (the "Convertible Notes"), creditors are stayed from taking any actions against the Company as a result of such default, subject to certain limited exceptions permitted by the Bankruptcy Code. Absent an order of the Bankruptcy Court, substantially all of the Company's prepetition liabilities are subject to settlement under the Bankruptcy Code. However, as discussed below, the Plan of Reorganization (Exhibit 10.32) contemplates that certain liabilities
would be reinstated or paid in full in the ordinary course of business if the Plan of Reorganization is approved by the Bankruptcy Court.
On February 25, 2024, prior to the commencement of the Chapter 11 Case, the Company entered into the Restructuring Support Agreement (the "RSA") with the holders of approximately 90% of the outstanding aggregate principal amount of the Convertible Notes (the "Consenting Noteholders"). Under the RSA, the Consenting Noteholders have agreed, subject to certain terms and conditions, to support a financial and operational restructuring of the existing debt of, existing equity interests in, and certain obligations of the Company pursuant to the proposed Plan of Reorganization, substantially in the form attached as an exhibit to the RSA (the "Plan of Reorganization") and to this Form 10-K, to be implemented through the Chapter 11 Case.
On March 19, 2024, the Bankruptcy Court entered an order conditionally approving the disclosure statement and approving certain voting and solicitation procedures related to the Chapter 11 Case.
The RSA requires the Company to seek to have the Plan of Reorganization confirmed by the Bankruptcy Court no later than 105 calendar days after the Petition Date and the Plan of Reorganization become effective no later than 30 days after such confirmation date. Before the Bankruptcy Court will confirm the Plan of Reorganization, the Bankruptcy Code requires at least one "impaired" class of claims votes to accept the Plan of Reorganization. A class of claims votes to "accept" the Plan of Reorganization if voting creditors that hold a majority in number and two-thirds in amount of claims in that class approve the Plan of Reorganization. The RSA requires the Consenting Noteholders vote in favor of and support the Plan of Reorganization. On April 30, 2024, the Company filed its declaration regarding the results of voting indicating that all three of the voting classes had voted to accept the Plan of Reorganization.
The Plan of Reorganization contemplates treatment of the claims of the Company's stakeholders as set forth below:
•Each secured claim will be reinstated or paid in full (or otherwise treated such that it will remain unimpaired in accordance with Section 1124 of the Bankruptcy Code).
•Each other priority claim (each claim as defined in Section 101(5) of the Bankruptcy Code entitled to prior in right of payment under Section 507(a) of the Bankruptcy Code, but excluding certain administrative and tax claims), will be reinstated or paid in full in the ordinary course of business (or otherwise treated consistent with Section 1129(a)(9) of the Bankruptcy Code).
•Each unsecured claim will be reinstated or paid in full in the ordinary course of business in accordance with the terms and conditions of the particular transaction giving rise to such claim.
•Each holder of Convertible Notes will receive its pro rata share of the following in exchange for the Convertible Notes: (i) $23.6 million (subject to adjustment upwards based on the amount of Excess Effective Date Cash (as defined below)); (ii) the principal amount of Takeback Debt (as defined below); (iii) 88.96% of the shares of common stock of the reorganized Company (the "New Common Stock") (subject to dilution by the Management Incentive Plan and further subject to adjustment downwards based on the amount of Excess Effective Date Cash, subject to a cap); and (iv) Excess Effective Date Cash (defined as the amount of cash held by the Company on the effective date of the Plan of Reorganization in excess of $12.0 million capped at $8.5 million).
•If the holders of the Company's Series Preferred Stock approve the Plan of Reorganization, each holder will receive such holder's pro rata share of 8.25% of the New Common Stock (subject to dilution by the Management Incentive Plan and further subject to adjustment upwards based on the amount of Excess Effective Date Cash, subject to a cap) in exchange for the Preferred Stock. If the holders of the Series A Preferred Stock do not approve the Plan of Reorganization, (i) each holder will receive such holder's pro rata share of the Company's liquidation value as set forth in the disclosure statement, which amount is estimated to be $0.00 and the Series A Preferred Stock will be cancelled and (ii) the percentage of New Common Stock that would have been allocated to the holders of the Series A Preferred Stock will be reallocated to the holders of Convertible Notes and holders of Crimson Class A-1 Units.
•Each holder of the Company's Common Stock will receive such holder's pro rata share of the Company's liquidation value as set forth in the disclosure statement, which amount is estimated to be $0.00 and the Common Stock will be cancelled.
•With respect to all Crimson Class A-1 Units, the holders thereof will receive the right to exchange such units into 2.79% of the New Common Stock in substitution for their right to exchange such units into the Series A Preferred Stock
(subject to dilution by the Management Incentive Plan and further subject to adjustment upwards based on the amount of Excess Effective Date Cash, subject to a cap) and any tracking dividend or liquidation rights that existed with respect to the Series A Preferred Stock, will now track to the percentage interest in the New Common Stock. With respect to all Class A-2 and Class A-3 Units of Crimson, the holders thereof will have their rights to exchange such units into shares of Common Stock of the Company cancelled.
The Plan of Reorganization includes a term sheet pursuant to which the holders of the Convertible Notes will provide the reorganized Company with a five-year secured term loan in the principal amount of $45.0 million bearing interest at 12.0% per annum with interest starting to accrue on April 4, 2024, and payable on a quarterly basis (the "Takeback Debt"). The term sheet also provides that certain holders of the Convertible Notes and other lenders will provide the reorganized Company with a one-year $10.0 million revolving credit facility the proceeds of which will be limited to certain specified emergency uses. Amounts drawn under the revolving credit facility will bear interest at one-month SOFR plus 3.0% per annum with interest payable on a quarterly basis.
The Plan of Reorganization provides that the reorganized Company will adopt a management incentive plan on the effective date of the plan. All grants under the Management Incentive Plan will ratably dilute all New Common Stock issued pursuant to the Plan of Reorganization. The Management Incentive Plan will reserve exclusively for participants a pool of stock-based awards in the reorganized Company in the form of (i) warrants for 5.0% of New Common Stock and (b) 5.0% of New Common Stock, both determined on a fully diluted and fully distributed basis, which shall be reserved for distribution in accordance with the Management Incentive Plan. The reorganized Company will assume all of the Company's existing employment agreements.
The Plan of Reorganization also provides that the reorganized Company will adopt new governance documents, each in a form to be included in a supplement to the plan. On April 11, 2024, the Company filed its plan supplement consisting of, among other items, the Credit Agreement, Security Agreement, Pledge and Security Agreement, Guaranty Agreement, Stockholder’s Agreement with the Consenting Noteholders, Articles of Amendment and Restatement, Fourth Amended and Restated Bylaws, and Omnibus Equity Plan. The new governance documents filed with the plan supplement govern, among other things, the composition of the reorganized Company's board of directors, board and stockholder approval rights with respect to certain corporate actions, information rights, stock transfer restrictions, tag-along and drag-along rights, preemptive rights and registration rights.
The Company cannot predict the ultimate outcome of the Chapter 11 Case at this time. For the duration of the Chapter 11 proceedings, the Company's operations and ability to develop and execute its business plan are subject to the risks and uncertainties associated with the Chapter 11 process. As a result of these risks and uncertainties, the amount and composition of the Company's assets, liabilities, officers and/or directors could be significantly different following the outcome of the Chapter 11 proceeding, and the description of the Company's operations, properties and liquidity and capital resources included in these consolidated financial statements and the notes hereto may not accurately reflect its operations, properties and liquidity and capital resources following the Chapter 11 process.
Liquidity and Going Concern Considerations
In accordance with the accounting guidance related to the presentation of financial statements, when preparing financial statements for each annual and interim reporting period, management evaluates whether there are conditions or events that, when considered in the aggregate, raise a substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are to be issued. In making its assessment, management considered the Company's current financial condition and liquidity sources, as well as the status of the Chapter 11 Case.
Given the events of default which triggered acceleration of the Convertible Notes, as well as the inherent risks, unknown results and inherent uncertainties associated with the bankruptcy process and the direct correlation between these matters and the Company's ability to satisfy its financial obligations that may arise, the Company believes that there is substantial doubt that it will continue to operate as a going concern within one year after the date its consolidated financial statements are issued. The Company's ability to continue as a going concern is contingent upon its ability to successfully implement the Plan of Reorganization set forth in the RSA, which is pending approval of the Bankruptcy Court. The Company's financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, these consolidated financial statements do not reflect any adjustments related to the recoverability of assets and satisfaction of liabilities that might be necessary should the Company be unable to continue as a going concern.
Delisting of Common Stock and Series A Preferred Stock
On February 27, 2024, the NYSE filed a Form 25 with the SEC to delist the Company's Common Stock and Series A Preferred Stock from the NYSE. The delisting became effective on March 11, 2024. The Company's Common Stock and Series A Preferred Stock currently trade on the OTC Pink Marketplace under the symbols "CORRQ" AND "CORLQ," respectively. While the Company intends to apply for the New Common Stock to be quoted on the OTC market and to make available to stockholders financial and other information concerning the Company in accordance with applicable OTC rules following the Company's emergence from bankruptcy, there can be no assurance as to the development or liquidity of any market for the New Common Stock.
Basis of Presentation and Consolidation
The accompanying consolidated financial statements include CorEnergy accounts and the accounts of its wholly-owned subsidiaries and variable interest entities ("VIE's") for which CorEnergy is the primary beneficiary. The consolidated financial statements have been prepared in accordance with GAAP set forth in the Accounting Standards Codification ("ASC"), as published by the Financial Accounting Standards Board ("FASB"), and with the Securities and Exchange Commission ("SEC") instructions to Form 10-K and Article 10 of Regulation S-X. The accompanying consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the Company's financial position, results of operations and cash flows for the periods presented. There were no adjustments that, in the opinion of management, were not of a normal and recurring nature. All intercompany transactions and balances have been eliminated in consolidation, and the Company's net earnings have been reduced by the portion of net earnings attributable to non-controlling interests, when applicable. Prior reporting period amounts have been recast to conform with the current period presentation. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates.
The Company consolidates a VIE when it is the primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the VIE's economic performance and (ii) through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. In order to determine whether it has a variable interest in a VIE, the Company performs a qualitative analysis of the entity's design, primary decision makers, key agreements governing the VIE, voting interests and significant activities impacting the VIE's economic performance. The Company continually monitors VIEs to determine if any events have occurred that could cause the primary beneficiary to change.
In February 2021, the Company acquired a 49.50% voting interest in Crimson, which is a legal entity that meets the VIE criteria. As a result of its consolidation analysis more fully described in Note 17 ("Variable Interest Entity"), the Company determined it is the primary beneficiary of Crimson due to its related-party relationship with Crimson's 50.50% voting interest holder. Therefore, beginning February 1, 2021 (the effective date of the acquisition), Crimson is consolidated in the Company's consolidated financial statements and the non-controlling interest is presented as a component of equity. Net income from Crimson is allocated to the non-controlling interest based on Crimson's contractual rights to earnings and distributions associated with the Crimson Class A-1, A-2 and A-3 Units. Refer to Note 15 ("Stockholders' Equity") for further discussion of the non-controlling interest in Crimson. The consolidated financial statements also include the accounts of any limited partnerships where the Company represents the general partner and, based on all facts and circumstances, controls such limited partnerships, unless the limited partner has substantive participating rights or substantive kick-out rights. Refer to Note 17 ("Variable Interest Entity"), for further discussion of the Company's consolidated VIEs.
The FASB issued Accounting Standards Update ("ASU") 2015-02 Consolidations (Topic 810) - Amendments to the Consolidation Analysis ("ASU 2015-02"), which amended previous consolidation guidance and introduced a separate consolidation analysis specific to limited partnerships and other similar entities. Under this analysis, limited partnerships and other similar entities are considered a VIE unless the limited partners hold substantive kick-out rights or participating rights. Management determined that Crimson is a VIE under the amended guidance because the limited partner lacks both substantive kick-out rights and participating rights. As such, management evaluated the qualitative criteria under FASB ASC Topic 810 in conjunction with ASU 2015-02 to make a determination whether these partnerships should be consolidated in the Company's financial statements. ASC Topic 810-10 requires the primary beneficiary of a VIE's activities to consolidate the VIE. The primary beneficiary is identified as the enterprise that has (i) the power to direct the activities of the VIE that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. The standard requires an ongoing analysis to determine whether the variable interest gives rise to a controlling financial interest in the VIE. Based on the general partners' roles and rights under the partnership agreements and its exposure to losses and benefits of each of the partnerships through its significant limited partner interests, management determined that CorEnergy is the primary beneficiary of Crimson, Pinedale LP, and Grand Isle
Corridor LP. Based upon this evaluation, and the Company's 100% ownership interest in Pinedale LP, and Grand Isle Corridor LP, the consolidated financial statements presented include full consolidation with respect to these partnerships.
Crimson is managed by a board of managers (the "Crimson Board"), which is made up of four managers of which the Company and the Grier Members (as defined below) are each represented by two managers. The Crimson Board is responsible for governing the significant activities that impact Crimson's economic performance, including a number of activities that are managed by an approved budget requiring super-majority approval or joint approval. In assessing the primary beneficiary, the Company determined that power is shared; however, the Company and the Grier Members as a related-party group have characteristics of a primary beneficiary. The Company performed the "most closely associated" test and determined that CorEnergy is the entity in the related-party group most closely associated with the VIE. In performing this assessment, the Company considered, among other factors, that (i) its influence over the tax structure of Crimson so its operations could be included in the Company's REIT structure under its PLR, which allows fees received for the usage of storage and pipeline capacity to qualify as rents from real property; (ii) the activities of the Company are substantially similar in nature to the activities of Crimson because the Company owns existing transportation and distribution assets in MoGas Pipeline LLC ("MoGas") and Omega Pipeline Company, LLC ("Omega"); (iii) Crimson's assets represent a substantial portion of the Company's total assets; and (iv) the Grier Members' interest in Crimson in Class A-1, Class A-2, and Class A-3 Units of Crimson will earn distributions if the CorEnergy Board declares a common or preferred dividend for Series A Preferred, and Class B Common Stock. Therefore, CorEnergy was determined as the primary beneficiary of Crimson and, therefore, consolidates the Crimson VIE. The Grier Members' ownership interest in Crimson is reflected as a non-controlling interest in the consolidated financial statements.
MoGas and Omega
During March 2023, the Company determined that the MoGas and Omega pipeline assets have met the criteria of "held-for-sale" accounting, as specified by FASB's ASC 360, "Property, Plant and Equipment." The carrying value of the assets and liabilities of this component is less than the fair value less costs to sell. Therefore, amounts are presented at carrying value within the Company's Consolidated Balance Sheet.
On January 19, 2024, CorEnergy closed the sale of its MoGas and Omega pipeline systems to Spire Midstream, a subsidiary of Spire Inc. (NYSE: SR), in an all-cash transaction for $175.0 million, plus post close working capital adjustments. At closing, CorEnergy repaid and canceled the Crimson Credit Facility, for a total of $108.5 million. Subsequent to this transaction, Crimson is the sole remaining operation of CorEnergy. Refer to Note 3 ("Held-For-Sale") for further discussion.
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