Katerra files for Chapter 11 bankruptcy protection

August 2021 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

August 2021 Issue

As part of a marketing and sales process to maximise value for its stakeholders, technology-enabled construction company Katerra and certain of its US and Cayman Island entities have filed for Chapter 11 bankruptcy protection.

The construction start-up, which is backed by SoftBank Group Corp, has also stated that it has secured commitments for $35m in debtor-in-possession (DIP) financing from SB Investment Advisers (UK) Limited to fund operations during the Chapter 11 process.

Under strain for at least three years, in 2019 Katerra announced that it would cut 200 jobs and shut down a factory in Phoenix, Arizona in order to concentrate production on a more efficient plant in Tracy, California.

Furthermore, following a thorough review of its strategic alternatives, Katerra is proceeding with certain active projects in a number of states. The company has also entered into commitments for the sale of its Renovations and Lord Aeck Sargent architecture business lines to private buyers, subject to the approval of the bankruptcy court.

Additionally, Katerra has notified its key stakeholders that many of its US projects will be demobilising and working toward a safe transition in order to honour its commitments to the safety of its sites and the general public. On a more positive note, Katerra’s Chapter 11 filing does not affect its international operations.

“While a number of negative factors have led to Katerra’s current challenges, we are implementing initiatives on multiple fronts to maximise value and provide the best path forward for Katerra and its many stakeholders,” said Marc Liebman, chief transformation officer at Katerra. “Our multistep action plan has rapidly evolved and includes consolidating US activities, continuing our international businesses, advancing key asset sales, securing DIP financing and commencing an in-court restructuring process.”

Katerra intends to file customary motions with the bankruptcy court requesting authorisation to continue paying remaining employees, vendors and others in the ordinary course of business moving forward.

Founded in 2015 by a group of real estate and tech-business executives, Katerra’s original plan was to use customised timber modules fabricated in automated factories to cut production costs. Backed by Softbank and a $2.2bn start-up fund, Katerra expanded quickly through acquisitions, buying architecture firms as well as conventional contractors in an attempt to rationalise and expand its offering of multi-storey timber office and residential buildings.

However, like many construction firms, Katerra’s financial position rapidly deteriorated as a result of the macroeconomic effects of the coronavirus (COVID-19) pandemic on the industry – an impact which saw Katerra unable to procure bonding for construction projects following the unexpected insolvency proceedings of Katerra’s former lender. Katerra was also unsuccessful in its attempts to secure additional capital and business.

Acting as Katerra’s legal adviser during the Chapter 11 process is Kirkland and Ellis. Houlihan Lokey is investment banker and Alvarez & Marsal is financial adviser. Members of Alvarez & Marsal have assumed officer roles at Katerra and are working with regional business unit leadership to manage day-to-day operations.

Mr Liebman concluded: “We are grateful to the extraordinary ongoing work and support of the Katerra team and other core constituencies through this extremely difficult time.”

Fraser Tennant