US nuclear fuel supplier files for Chapter 11 bankruptcy

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American Centrifuge Process Building

The United States Enrichment Corporation (USEC), the executive agent in the Megatons to Megawatts program – the highly enriched uranium purchase agreement between the United States and Russia, filed for bankruptcy, as its shares plummeted by another 46% in premarket trading on Wednesday.  The company, based in Bethesda, Maryland, has 505 employees, but will be unable to repay debts due by October, 2014.

Since the March 2011 nuclear disaster at Fukushima Daiichi, uranium prices have fallen more than 30 percent, and with the closure of over 50 reactors in Japan and Germany – combined with the shutdown of multiple facilities in the United States, demand for nuclear fuel is low causing fuel prices to dramatically drop in price.

One of USEC’s largest customers before 2011 was Tokyo Electric, the operator of the crippled Fukushima Daiichi nuclear facility.  The company also provides services for Exelon and Entergy.

After halting enrichment operations at the Paducah Gaseous Diffusion Plant leased by the Department of Energy, the company planned to make up the lost profits from production at the planned American Centrifuge Project in Piketon, Ohio, but USEC had problems securing funding for the project.

According to the USEC bankruptcy filing, over $2.5 billion has been spent developing the American Centrifuge Project so far, but more than $4 billion is still required to complete it.

USEC had sought a $2 billion loan guarantee from the Department of Energy, but the DOE said that the proposed plant was not ready for commercial production, prohibiting it from becoming eligible for loan guarantees.  Instead the government counter-offered a cost-sharing program until the capability of the technology was adequately demonstrated.

USEC was created by the Energy Policy Act of 1992, which privatized uranium enrichment for civilian use, but in more recent years has been hailed as one of the greatest failures of privatization in world history.

Babcock & Wilcox is a strategic partner of USEC, holding a large share of preferred stock, and could potentially benefit by taking over USEC’s operations if the company goes under.

Since 2007, USEC stock has lost 99% of its value.

As of December 31st, USEC listed $70 million in assets and $1.07 billion of liabilities.  USEC plans to emerge from bankruptcy protection in 90 to 120 days, but the proposed reorganization plan still requires court approval.

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