Good day, ladies and gentlemen, and welcome to the Capstone Green Energy Go Forward Restructuring Plan conference call and webcast. All lines have been placed in a listen-only mode, and there will be a question and answer session following the presentation. As a reminder, today's program will be recorded. At this time, it is my pleasure to turn the floor over to your host, Robert Flexon, Executive Chairman and Interim President and CEO. Sir, the floor is yours.
Thank you, Holly. Good morning, and thank you for joining today's Business Update webcast. The speaker on today's call will be myself, Robert Flexon, Capstone Green Energy's Executive Chairman and Interim President and Chief Executive Officer, John Juric, Chief Financial Officer, and Jen Derstine, Vice President of Marketing and Distribution. This morning, Capstone Green Energy filed its restructuring plan, which will be the focus of today's webinar, and we will also cover the 8-K filed on September 22, 2023 . We will be referring to slides that can be found on the Capstone website under the Investor Relations section during the call today. This conference call contains estimates and forward-looking statements representing the company's views as of today, September 28, 2023 . Capstone disclaims any obligations to update or revise these statements to reflect future events or circumstances.
You should not place undue reliance on these forward-looking statements because they involve known and unknown risks, uncertainties, and other factors that are, in some cases, beyond our control. Please refer to the Safe Harbor provisions as set forth on slide two of the slides accompanying this presentation and today's earnings release, and in Capstone's filings with the Securities and Exchange Commission for information concerning factors that could cause actual results to differ materially from those expressed or implied by such statements. Please note that as John and I go through the discussion today, when we mention EBITDA, we are referring to Adjusted EBITDA and the reconciliations in the appendix to the presentation slides. Throughout the live broadcast, we will welcome our listeners to submit their questions to our management team via the online webcast portal.
Following the conclusion of the presentation, the management team and I will address as many questions as time allows. Beginning on slide three, we have outlined today's agenda for this conference call. We'll start out with a brief history of our company, followed by an in-depth discussion of our Chapter 11 filing that occurred this morning and the prospective corporate structure for the company. John will provide additional details on our target capitalization, liquidity, our financial projections, and the implied company valuation. Jen will discuss the current market conditions for our products and services, and I will cover all our going-forward initiatives to improve how we operate and raise our level of performance versus what has previously been delivered. From there, we'll open the discussion for Q&A. Turning to slide five, Capstone was founded in 1988.
The company has a long history of developing and improving its microturbine technology, and as can be seen on slide five, numerous microturbine developments have occurred over that time. In more recent years, the business model has evolved with a focus and emphasis on the superior green attributes of our microturbine technology and developing the Energy as a Service business model, or EaaS, which has dramatically grown since its introduction in 2020. Jen will cover much more about our products and services in the various markets during her discussion later in this presentation. Slide six provides additional detail on the various attributes of our microturbines that provide value to our customers, while slide seven highlights our channel to market for the various geographic markets in which we participate. Again, Jen will be touching on these topics.
I'll switch now to the restructuring discussion beginning on slide nine. This morning, we filed at the United States Bankruptcy Court for the District of Delaware, a joint prepackaged Chapter 11 plan of reorganization of Capstone Green Energy Corporation and its debtor affiliates. Under the construct of this plan, only our senior secured noteholder, Goldman Sachs, will be impaired as a result of this filing. No other creditor is to be impacted. In fact, the financing we will receive while in restructuring will enable us to accelerate payments of outstanding trade payable balances. John will cover the terms and the conditions of both the debtor-in-possession financing, the planned exit financing, and the resulting future capital structure of the company.
Our shareholders, unlike most traditional Chapter 11 filings, will hold 100% of the common stock of the Reorganized Public Company, which translates to a 62.5% ownership level on a fully diluted, fully diluted basis. I will provide more information on that in a moment. I'd like to reinforce the key takeaway point of this slide. The operations of Capstone will continue uninterrupted, and the new financings provide much-needed liquidity to address overdue balances with our vendors. To best understand how the restructuring will work, slide 10 illustrates the current or pre-petition corporate structure. The current public company is identified as the box at the top of the chart, and its wholly owned subsidiaries are shown below. The boxes outlined in green are the entities in Chapter 11. Slide 11 sets forth the steps to reorganize the corporate structure.
Although I will cover the points on this slide when we get to slide 12, it will hopefully be less confusing. The second bullet on the slide states that a New Subsidiary will be formed and become the new operating company post-emergence. The third bullet highlights the Capstone Turbine International, previously a wholly-owned subsidiary of the legacy public operating company on slide nine, will now become the new public company, Reorganized Public Co, for which our current shareholders will be exchanged into and own 100% of the common shares of the newly formed public company. Reorganized Public Co in turn, will own 100% of the common units of the New Subsidiary identified above in the second bullet.
On a fully diluted basis, this equates to a 62.5% ownership interest, as the last bullet on this page describes how the legacy public company, Capstone Green Energy Corporation, will become a subsidiary of the lenders referred to as Reorganized Private Co, and will be the holder of the non-dilutable preferred shares issued by New Subsidiary. That equates to a 37.5% interest in New Subsidiary. Slide 12 puts slide 11 into a picture of the transition from the pre-petition corporate structure to the corporate structure at emergence from Chapter 11. If you focus on the legend on the bottom left of this slide, it's very helpful in following the movements of the corporate entities that were described on slide 11. The first bullet on slide 13 refers to the legacy secured debt, which is the only impaired class in the bankruptcy filing.
The second, third, and fourth bullets provide the financing being provided while in bankruptcy, which is the debtor-in-possession or DIP financing, and the exit financing at emergence. The impaired legacy financing, the DIP financing, and the exit financing are all provided in their entirety by our existing senior secured noteholder, Goldman Sachs. On September 22, 2023, our senior secured lender advanced $3 million under the existing amended and restated note, while details of the restructuring were being finalized. John will provide more details on both the pro forma cap structure and the terms of each of the upcoming financings. Before I hand this over to John, I will address our delayed 10-K and 10-Q filings on slide 14. As reported in our 8-K last week, we recently became aware of apparent errors primarily related to revenue recognition associated with bill-and-hold transactions.
The investigation of these transactions by our board, the audit committee, and independent outside resources, has now been completed, and we have concluded a restatement of previously filed annual and internal financial statements will be required for the first three quarters of fiscal year end at March 31, 2023, and the comparable periods for 2022, and for the fiscal years ended March 31, 2022 and 2021. We expect the restatements to be completed within the next 60 days, at which time all required filings will be brought current. Please refer to our 8-K that was filed with the SEC on September 22, 2023 for additional information.
I'll now ask John to cover the financial changes that occur in our capital structure, the financial projections included in the Chapter 11 filing, and discuss the indicative valuation giving effect to the various changes that occur from the restructuring.
Thank you, Bob. As Bob has mentioned, this is an exciting day for Capstone as the company transitions into a new phase. We have worked tirelessly with our advisors, lawyers, creditor, Goldman Sachs, to develop a plan of restructuring that is beneficial for all stakeholders, creditors, shareholders, vendors, customers, and employees. Under the plan, no unsecured creditor or our vendors will be impaired or suffer a financial loss. Our senior creditor, Goldman Sachs, will continue to support Capstone, providing additional liquidity and taking an equity interest in the operating company. The leadership team, along with Capstone's dedicated employees, are poised to continue delivering superior customer service and high-quality products with improved profitability. I would like to turn your attention to slide 16, which illustrates the transition of the secured debt through the bankruptcy process.
On the petition date today, the amount of secured outstanding debt and accrued interest and fees totaled $56.8 million. After filing the bankruptcy petition, the company moves into the debtor-in-possession period. To allow the company to operate during this period, a short-term credit facility, debtor-in-possession facility, or DIP facility, has been pre-arranged and is presented to the court for approval. Once approved by the court, Goldman Sachs and the company will enter into a $30 million DIP loan facility consisting of $80 million of rollover debt and $12 million of new money. The new funds will be used to pay ongoing business expenses and vendor past due balances while the company proceeds through the bankruptcy process. The DIP facility is a short-term facility bearing interest at SOFR plus 8.75%, the same rate as the existing credit facility.
Interest for the DIP facility will be accrued and will be incorporated into the exit financing. At emergence, the DIP facility will terminate and the exit facility will be put in place with Goldman Sachs. As is shown on the chart, a portion of the DIP facility, $10 million, will be relieved and additional liquidity will be made available through a revolving credit facility. The exit facility will consist of $20 million of term debt and $5 million of a revolving credit facility, which will total $25 million of debt placed on the New Subsidiary. The $20 million term loan will have a three-year maturity, and the $5 million revolver facility will mature in two years. The interest rate for the term and revolver facilities will be SOFR plus 7%.
Interest on the full value of the excess of the exit facility will be deferred as PIK for one year and payable at maturity. In year two, cash interest of SOFR plus 1% will be paid and the remaining interest of 6% will be, will be deferred as PIK. Additionally, Goldman Sachs is providing a $10 million uncommitted incremental facility to be mutually agreed upon at a later date. Under the terms of the exit facility, the post-emergence company will have lower debt service requirements, enable more of the cash flow that the business generates to be used for investment back into the business. Next, please turn to slide 17. Now let me walk you through the changes to the capitalization. The process commenced on the petition date, and as of yesterday afternoon as of today, the company officially filed for Chapter 11 bankruptcy restructuring.
As previously explained, the restructuring process was pre-negotiated with Goldman Sachs and no unsecured creditor will be impaired. On the date of the petition filing today, Capstone owed $53 million of notes payable to Goldman Sachs, plus $3.8 million of accrued interest and fees. On the date of filing, the secured debt is to be impaired. Goldman Sachs will be the only creditor impaired. As Bob shared, when we emerge from Chapter 11 bankruptcy, the operating company will have a better balance sheet and less debt, and the change in the capital.. capital structure is expected to be accretive to the equity.
As illustrated on slide 17, prior to filing the petition and based on the market capitalization using a 15-day volume weighted average share price as of September 15, 2023, the total capitalization value was approximately $68.5 million, with an equity component of approximately $11.7 million, based on a volume weighted average share price for the common equity of $0.63. Following the exit from the bankruptcy process and with the reduction in debt as illustrated in the chart, the implied equity value using the same total capitalization value will increase to $40.5 million and an indicative share price of $1.47 per share outstanding after dilution for the preferred units. The equity value can also be assessed using valuation techniques.
Among the income approach method, which employs a discounted cash flow calculation to projected earnings, the implied equity value is $32.8 million, with an indicative share price of $1.11 per share after dilution for the preferred units. The discounted cash flow calculation used a 14.5% cost of capital for the discount rates. When the company emerges from the restructuring process, the capitalization of the operating company will be improved compared to the current capitalization. The pro forma capitalization charts presented here illustrate the projected accretion of the equity value from the restructuring. Using the September 15, 2023, VWAP share price, the common equity represents 17.1% of the capital structure prior to the restructuring.
Following the restructuring, the common equity is projected to represent 35.5%-39.7% of the capital structure, as the senior secured debt is reduced from $53 million to $25 million, thus reducing the leverage on the company's balance sheet. Next, on slide 18, the key terms of the preferred equity that is being retained by Goldman Sachs and the New Subsidiary are outlined. Under the terms, Goldman, through the Reorganized Private Co, as described by Bob earlier, will hold 37.5% of the equity and New Subsidiary through preferred units. The preferred units are non-dilutive, rank superior to the common units, and will have voting rights. The preferred units will be assigned an initial purchase price value, which is estimated to be $12.3 million based on the income valuation method.
The preferred units can be redeemed at Goldman's option in six years during a six-month window for the greater of the purchase price plus unpaid dividends or the then fair market value. Other entitlements include dividends as if declared on the common units, preemptive rights subject to customary exceptions, and liquidation preference, with liquidation value being the greater of the purchase price value plus unpaid dividends or the then liquidation value. Next, I will review the financial projections that you can find on slide 19. As the projections incorporate elements of the restructuring Bob has mentioned, first, I want to point out that the period presented ending March 2024 represents the stub period for the time the company exits the Chapter 11 restructuring through the year end, March 31, 2024.
Looking to the future, over the next three years, we are projecting revenue growth driven by improving global economic conditions, improving demand, and improving margins. Margins for the systems and parts sales are projected to increase to cover the inflationary pressures in the supply chain for parts and components. The rental fleet operation will be optimized, and the FPP service agreements will continue to be a focus. Over the forecast period, the compounded annual growth rate of revenue is projected to be 15%. Lastly, projected operating efficiency coming from continued process improvement will lower the cost relative to revenue and support bottom line improvement. If we hit our numbers, the net debt of the company declines significantly, leading to a much improved and stronger balance sheet. Jen will now share with you Capstone's market outlook. Jen?
Thanks, John. Turning to slide 21, our target projects continue to be stationary distributed power generation and distribution network applications. These include energy efficient cogeneration or combined heat and power, CHP, and combined cooling heat and power, CCHP, as well as renewable energy, natural resources, microgrids, critical power supply, and EV charging applications. Many of the market shifts we are seeing today serve to highlight our advantages. Take the shift to net zero. This is driving more intermittent renewables into utility generation resources, displacing baseload power generation resources, and leading to network operator concerns about grid reliability, shortages, and emergency requests from utilities to customers to lower demand. This is also resulting in policies that push building and vehicle electrification at rates that outpace utility capacity additions, so customers face a long wait for grid power or opt for on-site power solutions.
It also is leading customers to look for distributed energy efficient and renewable fueled solutions, both of which our microturbines can provide. Our distributed CHP solutions can still offer emission savings over business as usual approaches, helping to meet customer clean energy targets. On the policy and regulatory side, the Inflation Reduction Act provided the greatest incentives yet for investment in clean energy and energy efficient technology. Tax credits of up to 50% are available for CHP and biogas field projects, and several states and utilities have additional incentives for these projects that can be combined with the ITC. Biogas and energy efficiency grants and incentives are also available in Europe. Meanwhile, the push to green in the oil field through flare gas valorization initiatives continues, and there is a strong push to develop and utilize biogas resources in places like China, India, and Southeast Asia.
For customers unwilling to make a capital expense outlay to purchase a solution or in need of a six-month or more prime power temporary solution, our Energy-as-a-Service fleet offers an operating expense funding option for meeting these goals. On slide 22, the headwinds we face include volatile natural gas prices. While some markets are seeing record lows like Mexico, others, like Europe, are still shaky, with customers unwilling to make long-term commitments to gas contracts unless they have a thermal load that is difficult to electrify. We also continue to face price competition from engines chasing distributed generation opportunities. We win when customers prefer lower maintenance, cleaner operation, need faster delivery, or have fuels more suited to microturbines. All distributed natural gas power generation faces anti-natural gas sentiment in certain markets.
Though we are seeing a swing of the pendulum back to more practical approaches that recognize natural gas remains a critical part of a reliable power system while providing carbon savings. In the biogas market, on-site biogas to power projects compete with biogas cleanup and pipeline injection, although a higher share of renewable gas in the pipeline also drives customer carbon savings. Many of the advantages of our product are attractive across these different market verticals. In general, our microturbines allow customers to produce power on-site in parallel with the local grid or standalone when no local utility grid is available. Our inverter-based power electronics, one moving part, and modular build allow simple interconnection with other distributed energy resources, flexible operation, and reliable low emissions power with fewer scheduled maintenance intervals and greater fuel flexibility than competing technologies.
Diving into our main market verticals and where the most significant opportunities lie, the oil and gas market is a global growth market for our products for both onshore and offshore applications, as well as midstream solutions for transportation and storage, gathering, metering and regulation, processing, and cathodic protection. There are many processes in this industry where fuel byproducts are traditionally flared or vented. As more countries and companies sign on to initiatives like the World Bank's Global Gas Flaring Reduction Partnership, we continue to see interest in waste gas valorization through power generation. Our low maintenance, low emission, scalable solution available for rental is an attractive solution around the world in this industry. We also have experience in the coal bed methane segment, with more than 200 systems deployed in Australia. Energy efficiency also continues to see strength in many markets.
I spoke about some incentives available to customers in the U.S. with the ITC and state and utility incentives. Outside the U.S., Mexico's industrial sector has seen 20 straight months of growth and is another hot market for our CHP solutions. With low natural gas prices and a favorable exchange rate, U.S. companies in industries like autos, textiles, and medical devices are nearshoring manufacturing to Mexico. And with hot weather and rising use of air conditioning this summer, Mexico's grid operator, like many U.S. grid operators, approached overload, leading customers to seek on-site power solutions for greater reliability. Moving to the renewable fuel market, biogas and other renewable fuels are growing in popularity with the push for decarbonization. Our main opportunities in this segment are in industries with organic waste, like food processing and beverages, wastewater treatment plants, landfills, livestock farms, and other agricultural green waste operations.
We've seen interest in new fuels like dimethyl ether and renewable LPG from animal fats or cooking oil. Biogas applications can be power only or involve thermal requirements like heating or steam. Our microturbines' broader fuel spec allows customers flexibility to operate despite seasonal changing biogas quality. For EV charging, again, going back to the market shift, much of our EV charging application demand is coming from customers that purchased EV fleets and now are unable to get grid power on their substation to charge this new fleet. So they are opting for on-site distributed power, often through EaaS, to put these fleets to work. Lastly, our microgrid customers like our inverter-based power electronics, which make it easier to integrate our microturbines with other common, renewable, inverter-based technologies like solar PV and battery energy storage.
Our microturbines can be sold in a dual mode configuration, which allows them to operate either with a grid or standalone. Two examples are an affordable housing development in St. Thomas, providing hurricane-resilient power to its residents. A microgrid in St. Croix. Excuse me.
So I want to fill in for Jen. She's been fighting laryngitis, as you can tell. So I'll just pick it up where many of these are in the oil and gas space without a utility grid and relying on rented microturbines as their prime source of power, or healthcare facilities and Red Cross shelters that must stay powered through extended outages. For these customers, the alternative is typically a diesel backup generator, which requires much more maintenance and the ability to get diesel fuel delivered during an emergency, and operations are typically limited to a few times a year due to emissions permitting. The microturbine is back up with a payback where customers can use the power throughout the year, easily meet emissions permitting, and also rely on the system to stay powered if their grid power goes out.
As shown on slide 23, we also continue to see high levels of demand for our Energy-as-a-Service offering. New or renewed contracts have been signed for more than 15 MW this year. These are primarily oil and gas and EV charging projects in the U.S. Our total fleet under contract today is over 54 MW. We own more than half the assets in the fleet, with the remainder made up of leased units with our option to buy. Our utilization remains quite high, especially as we have slowed down the addition of assets to our fleet. Taking a deeper dive into the Section 48 energy tax credit on slide 24, the U.S. remains our largest market. Before the Inflation Reduction Act, the ITC for microturbines and CHP maxed out at 10%. Now, our customers have the chance to qualify for up to 50% tax credit.
We're on par with renewables, batteries, and fuel cells. The tax credit is structured with a base amount, bonuses for domestic content and location in an energy community, and then what I call the labor multiplier for meeting prevailing wage and apprenticeship requirements. All energy technology projects must meet the prevailing wage and apprenticeship requirements to max out their tax credit. This approach is driven by the current administration's placing a priority on domestic clean energy manufacturing and developing a clean energy workforce, in addition to encouraging businesses to implement clean energy solutions. In our assessment, Capstone provides eligibility for the domestic content bonus for our product at delivery. The customer's location and project execution determines whether they obtain the energy community bonus and labor multiplier. There is a map from the Department of Energy showing energy community areas in the appendix.
Many U.S. distributors' territory includes eligible areas. The other game changer here is the ability of tax-exempt entities, like state and city governments and nonprofits, to receive the tax credit as a direct payment, opening this incentive up to a broader range of customers. As illustrated on Slide 25, Capstone is seeing a range of positive indicators across multiple markets. Since the start of this fiscal year, we've seen sales orders for more than 10 MW in sales across 19 markets. Projects including oil and gas in Alaska, Bolivia, Chile, Malaysia, and the Marcellus, CHP projects in Australia, sorry, Austria, Germany, Mexico, and Romania, and biogas projects in Norway, Spain, and Switzerland, to name a few. We have a strong pipeline of projects to close and to deliver.
So if I can ask you to please turn to Slide 26, a lot of things are going our way, and the restructuring supports our growth across industries, the health of our sales pipeline, continued demand for EaaS offering, and our relationships with customers, distributors, and vendors. We're optimistic about what's next for Capstone. So moving to Slide 28, for Capstone to be successful in the future and capitalize on the opportunities that Jen highlighted, we recognize we can't continue with past business and operating practices. We need to develop a more sustainable and effective business model using the appropriate underlying business processes that will drive a much higher level of efficiencies. Slide 28 sets forth three paths of our restructuring, of our restructuring plan.
First is the financial restructuring, rightsizing our balance sheet, and providing the necessary liquidity for the company to survive and meet its ongoing obligations in a timely and consistent way, and that has been well covered today. The remaining two elements of a restructuring plan, which we're in the beginning stages of initiating, are the operational restructuring to improve how our business model needs to work, and an organizational restructuring to ensure our internal business processes and employee resources are optimized, driving efficiency and delivering the projections that John covered a moment ago. At this point, Holly, I'd like to open the discussion for Q&A, and first, we'll take calls over the phone with our analysts, and then we'll go to the online questions. So Holly, are there questions in the queue?
Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Your first question from the phone line is coming from Rob Brown at Lake Street Capital Markets.
Hi, Rob.
Hi, John. My first question's on the sort of the restructuring. I think you talked about some retained assets that are sort of split out from the ongoing business. I just wanted to clarify what those were and how much sort of revenue and EBITDA that those contributed to the prior business.
So I'm going to turn it to Jen, in terms of what the assets are, but on the EBITDA, it's basically kind of a break-even type of situation because these are costs that the, our distributor services agreement provide the funding for our marketing, efforts. But I'll let Jen cover a little bit of what's included in that.
Sure. The distributor support services are generally some marketing and other distributor support activities, like our document library and our training platform, that supports distributors, and that we must make an investment in, at the, you know, at the beginning of the year, every year.
So Rob, in terms of what EBITDA is outside of the box, it's basically negligible because it's not deemed to be a profit center. It's meant to be to support our marketing efforts.
Got it. And that will be held by the lender going forward, though?
Correct.
Okay. Got it. And will the distributor support payments that you previously collected, will those also go out with that business, or will those stay with the new business and then-
That will be in the Reorganized Public Co box with the marketing activities.
Got it. Got it. But the rental, just to be clear, the rental business will stay with the New Subsidiary.
Correct. Rental business is in the New Subsidiary, which is the new operating company.
Got it. Okay. Good. And then on the preferred, the new preferred structure, is there... Wasn't clear from the write-up. Is there a dividend on that preferred, or is it no dividend, and is there any conversion rights to common?
There's no required dividend on the preferred. If dividends are declared for the common, then they will participate.
Okay. Got it. Got it. And then a little bit on the financial projections. You know, I think they're sort of consistent or a little bit better than sort of prior discussions. But, on the revenue mix, I guess, how do you see that as a sort of a rental versus a product business? I guess, as a percent of revenue, in those projections, what's sort of the mix of rental versus a product?
Yeah, it is. So, you know, as we've communicated, we've gotten the rental business now up to the 53-54 MW of contracted revenue. That-
... you know, what we've seen from the rental business is pretty substantial growth. We see that occurring through the remainder of 2024, and then fairly stabilize, well, stabilizing to a certain degree as we have all the invested capital and use of assets in play. So it, you know, it is going to be an increasing percentage through 2024 and then remains a consistent percentage out into the future.
Okay. Okay, good. Thank you. I'll turn it over.
Thank you.
Your next question for today is coming from Sameer Joshi at H.C. Wainwright.
Yeah, good morning. Good afternoon. Thanks for taking my questions. Just a couple of clarifications. Has the DIP facility come into force this morning, or are there any additional steps to be taken before this comes, the money are disbursed?
So where we stand as of this morning is, the court has received all the filings and petitions, and the financing will not be approved to the hearing, which is scheduled for tomorrow.
Okay. And then once, and if it is approved, the exit facility will be after a 45-day period, roughly. Is that correct?
I'm sorry, I didn't understand the question.
Say again.
There is a DIP facility of $25 million. That one will be at emergence, right? Quote, unquote, "Emergence.
So the DIP, the DIP facility, is $12 million of new cash, and then rollover of $18 million, for a total of $30 million . That's what's in the DIP facility itself. And that will become available with court approval, which we anticipate happening tomorrow. At exit, there will be an additional $5 million of revolver, but there is a reduction in the DIP of $10 million . So when we exit, we will only have a $20 million term loan and a five million revolver facility in place, for a total of $25 million .
Understood. Got it. And then just in terms of the six-year period for redemption, is there a provision for extension beyond that, and is there a provision to redeem before the six-year period?
So when you're asking about an extension, just to be clear, before I answer. So, one, there's no requirement that Goldman call their note, call their preferred units in six years. It's just they have the option in six years for a six-month window to make that decision. If they do not elect to call, preferred units will continue. So if you're asking about-
Oh.
Will they extend beyond the six years? Yes, they can.
Understood. Thanks for that clarification. And then just a little bit on the structure of the preferred units. Do these have a participating preference, or a nonparticipating preference?
Yeah, I'm not sure I understand that, but they're senior to the common shares that-
Okay.
The Reorganized Public Company has, and they have the same rights as the common units in terms of voting. So they're senior to the common units, and they're non-dilutable.
Yeah.
Everything else, I think, is essentially the same.
Understood. And then the last one, are there additional, or is there additional capital expected, for the EaaS to support the EaaS business? Because that could, you may need additional capital for that, or will this capital be sufficient?
Yeah, I mean, we'll always be looking to see what's the best way to have available resources to expand that business, because the return profile is so strong on that. And there are provisions we've... In the exit financing, where we can put in an asset-based lending resource there, that would be secured, so we should be able to potentially get additional funding that way. But certainly, what we want to make sure that we do throughout this time period, ensure that we're managing our balance sheet and liquidity appropriately, so we don't step backwards into a situation like we found ourselves in. So it's something we want to do, but it's something that we're going to have to step in carefully.
Great. Thanks for taking my questions, and good luck.
Great. Thank you. So at this point, we'll go to some of the questions submitted online. So the first one that I have here reads: So what happens to the existing shareholders who have been with the company for many, many years? Would they get equity in the new company, or would they be left out? I think this is the, the very positive element about this restructuring, is not only liquidity and getting our vendors in a more current situation, but we've actually, I think, done a very good job at protecting existing shareholders as we go forward, because they are going to earn-- they're going to own 100% of the public company that is being formed as we emerge from the restructuring. And on a diluted basis, they'll still own 62.5% of the newly formed public company and the operating subsidiary.
So unlike maybe many traditional bankruptcies, where the shareholders are indeed left out, that is not happening in this situation. So we actually feel that we've balanced the interest of all parties well, in terms of our senior secured lender, in terms of what they get, what our existing shareholders are getting, and our ability to service the outstanding balances, the overdue balances that we owe our vendors. So we're very comfortable, and we view that this was the best option for the company, and I'm thrilled that we're able to retain our existing shareholders.
I've been involved in restructurings in the past where that has not happened at all, and to see our existing shareholders to have a 62.5% interest in a much stronger company with an implied valuation that's greater than what it is today, I think it's a win all around. So very happy to with the outcome. We got another question here that says, "What is meant by non-dilutable?" And that's a very, very good point. So the 37.5% ownership interest by the private co, which is owned by the lenders, will always be 37.5% interest in the operating subsidiary.
So to the extent and what we will do in the future, like all companies do, we will have equity incentive plans, for key employees or for retention and the like, and that would be issued at the Reorganized Public Company. So more shares would be outstanding in our 62.5 ownership, if you will. So that's where the dilution would happen if additional equity is issued. Reorganized Private Co will always own 37.5% of the New Subsidiary. So to the extent any new equity issuance happen, it would be at the Reorganized Public Company where our shareholders are, that would, lower their... You'd have more shares outstanding, so that's where the dilution would occur. And at that, it looks like that's all the questions that we have. So I'd like to thank everyone for support, for dialing in.
I did have one other slide in here. I was at the Franklin Institute in Philly, where they did a tribute to Walt Disney, and as I went through the storyboard, the very last one said, "It seemed to me we have a lot of story yet to tell," and that's a quote by Walt Disney. It kind of resonated with me that I really believe that at Capstone now, we have a lot more story to tell as well. I think the future looks much brighter for us now. This is a very good day for the company. It's a very good day for the shareholders. It's a very good day for our vendors, and we, we are committed to running this company in a way that's more profitable, more conscientious, and delivering on the numbers that we've put forward today.
So again, thanks, everyone, and look forward to talking to you in the future. With that, Holly, we'll terminate the call.
Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.