Mr. Yaniv Scherson reports

ANAERGIA ANNOUNCES COMMENCEMENT OF RESTRUCTURING PROCEEDINGS BY RIALTO BIOENERGY FACILITY, LLC

One of Anaergia Inc.'s subsidiaries, Rialto Bioenergy Facility LLC (RBF), has initiated voluntary Chapter 11 restructuring proceedings in the U.S. Bankruptcy Court for the Southern District of California. RBF is 51 per cent owned by Anaergia's wholly owned subsidiary, Anaergia Services LLC. RBF anticipates that, during the restructuring proceeding, it will continue to operate its state-of-the-art, multifeedstock bioenergy facility in Rialto, Calif., which is capable of converting organic waste, such as food and yard waste and biosolids, into carbon-negative renewable natural gas, with the capability to generate renewable electricity and soil amendment/fertilizer.

The following is a brief summary of the matters the company considered:

• The voluntary action by RBF was taken after much discussion and review of alternatives. The company supports this decision as a necessary step to protect its long-term interests in RBF.
• As a result of a lack of feedstock available to the facility, RBF has been unable to produce sufficient revenue to cover its costs and debt service. The feedstock shortfall is due to a delay in the implementation and enforcement of laws requiring organic waste diversion from landfills by the City of Los Angeles as required under the city's contracts with private waste management companies as well under California State Law SB 1383. The city is operating under a corrective action plan stemming from its delayed efforts to adopt and enforce the law's waste diversion requirements. State Law SB 1383's implementation was previously delayed because of the effects of the pandemic. The city only adopted an implementation ordinance in late 2022, which is fully enforceable in January, 2024.
• Anaergia anticipates that with future adequate feedstock for the RBF facility, made possible with additional time and relief from debt service and other payments provided under a Chapter 11 restructuring to allow ramp-up, the asset will retain long-term value for all stakeholders.
• The company expects the restructuring to have a positive impact on its 2023 cash flows, as during the restructuring process Anaergia would cease supporting RBF with further loans or equity contributions.
• Subject to the company completing its in-depth review of the relevant accounting standards and guidance, it is anticipated that Anaergia will cease to control RBF from an accounting perspective and therefore cease consolidating RBF in its financial statements for the quarter ending June 30, 2023. Anaergia, on a preliminary basis, would expect the following financial impacts to result from such a deconsolidation and restructuring:
  • The company's loans and invested capital in RBF that were previously eliminated on consolidation have a carrying value as at March 31, 2023, of approximately $115-million. Anaergia anticipates recognizing a provision for up to the full amount of loans of $60-million. The company is assessing the value of its retained equity interest in RBF as impacted by the initiation of restructuring proceedings, which could decrease to nil.
  • Since the debt of RBF is not guaranteed by and is non-recourse to the company, as a result of the anticipated deconsolidation, assuming the worst-case scenario of the ranges above, the company estimates that Anaergia's total assets would decrease by approximately 35 per cent to 40 per cent, and its total liabilities would decrease by approximately 40 per cent. Also, as a result of the anticipated deconsolidation, the company expects to reverse a significant amount that has been recognized through non-controlling interest. Under the same assumptions, with an estimated 20-per-cent decrease, the net equity attributable to the company's common shareholders is expected to be less impacted than the net equity attributable to the non-controlling interest.
• Anaergia is in the process of completing the analysis of the accounting and financial impacts for the quarter ended June 30, 2023. Anaergia's 2023 guidance is not expected to be materially changed by the anticipated deconsolidation of RBF.
• Anaergia anticipates that RBF will exit bankruptcy retaining equity value and will continue to be a valuable part of Anaergia's portfolio of global renewable natural gas assets.

Subject to court approval, RBF, as borrower, intends to enter into a debtor-in-possession (DIP) financing facility with a lender, pursuant to which the lender will make available to RBF a non-revolving secured credit facility. This financing facility will enable RBF to continue to operate its business and meet its financial obligations, including the timely payment of charges for labour, supplies and other obligations as approved by the court. Additionally, the company will not be guarantying the DIP financing facility, as RBF has more than sufficient value to support the new loan. RBF is committed to working closely with its stakeholders to minimize the impact of the bankruptcy process and to ensure that its creditors are treated fairly.

"After careful evaluation by the managers of RBF, with due consideration of a range of alternatives, the RBF board believes that the Chapter 11 process is in the best interests of RBF and its stakeholders. Debt restructuring will allow RBF to address its liquidity challenges, preserve its ability to ramp up operations as the availability of feedstock is expected to increase in tandem with enforcement by the City of Los Angeles of subscription to organic waste collection and landfill diversion requirements mandated by ordinance and state law," said Yaniv Scherson, RBF board member and vice-president of RBF, and chief operating officer of Anaergia. "RBF is strongly supported by the State of California and is critical to the success of SB 1383. We are confident that these actions will help protect the value of RBF and allow it to emerge as a stronger company."

About Anaergia Inc.

Anaergia was created to eliminate a major source of greenhouse gases by cost-effectively turning organic waste into renewable natural gas (RNG), fertilizer and water, using proprietary technologies. With a proven record from delivering world-leading projects on four continents, Anaergia is uniquely positioned to provide end-to-end solutions for extracting organics from waste, implementing high-efficiency anaerobic digestion, upgrading biogas, producing fertilizer and cleaning water. The company's customers are in the municipal solid waste, municipal waste water, agriculture and food processing industries. In each of these markets, Anaergia has built many successful plants including some of the largest in the world. Anaergia owns and operates some of the plants it builds, and it also operates plants that are owned by its customers.

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