Aerial view of AppHarvest's 60-acre high-tech indoor tomato farm in Richmond, Ky.
High-tech indoor vertical-farming company AppHarvest Inc. has revealed that it’s pursuing a financial and operational transition to enable the company to reduce its outstanding liabilities. To pursue its transition, Morehead, Ky.-based AppHarvest filed voluntary petitions for protection under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas.
As reported by Bloomberg, the initial pitch for vertical farming had all of the promise of a modern venture capital dream: a new way to grow crops that would use robots and artificial intelligence to conserve water, combat food insecurity and save the environment. But after firms poured billions of dollars into these startups, pushing valuations into the stratosphere, the industry is now facing a harsh new reality: funding is drying up, profits remain elusive, and creditors are circling.
AppHarvest is working to restructure its operations in an effort to maximize the value creditors can expect to achieve and to preserve jobs.
The company obtained a commitment from Equilibrium, AppHarvest’s largest-secured creditor, to provide approximately $30 million of debtor-in-possession (DIP) financing to provide the necessary liquidity to support operations at its Kentucky farms in Morehead, Richmond and Somerset during the Chapter 11 process. The DIP financing is subject to approval of the court.
AppHarvest is pursuing a transition of its Berea, Ky., farm operations to distribution partner Mastronardi Produce, or one of its affiliates, in exchange for approximately $3.75 million, additional incremental funding and support for the company’s restructuring plan. This transition is also subject to approval of the court.
“The AppHarvest board of directors and executive leadership evaluated several strategic alternatives to maximize value for all stakeholders prior to the Chapter 11 filing,” said AppHarvest CEO Tony Martin. “The Chapter 11 filing provides protection while we work to transition operation of our strategic plan, Project New Leaf, which has shown strong progress toward operational efficiencies resulting in higher sales, cost savings and product quality.”
Business operations will continue at AppHarvest farms, including shipping product to grocery store chains, restaurants and foodservice outlets, during the Chapter 11 process.
Meanwhile, Aerofarms wants to conduct an auction to sell its assets under Section 363 of the Bankruptcy Code while it continues operations of the business.AeroFarms signed an asset purchase agreement with AF NewCo Inc., allowing AF NewCo to act as stalking- horse bidder to acquire company assets. AF NewCo also provided a DIP loan of $10 million.
Industry experts cited by Bloomberg said that indoor farming remains a crucial piece of agriculture’s future, especially as climate change spurs more destructive wildfires and floods. Nonetheless, the ability of vertical farms to carve out meaningful market share on a national scale could be years away, they noted.