Hexion Holdings – Seeks $700mn in DIP Financing, $600mn on Interim Basis

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April 1, 2019 – The Debtors requested Court authority to access debtor-in-possession (“DIP”) financing totalling $700.0mn ($600.0mn on interim basis) to be comprised of (i) a $350.0mn DIP ABL facility (the “DIP ABL Facility”), and (ii) a $350.0mn DIP term loan facility (the “DIP Term Loan Facility”) [Docket No. 62]. The $600.0mn of interim financing would be comprised of $250.0mn from the DIP ABL Facility and $350.0mn from DIP Term Loan Facility, the latter to be used to repay outstandings under a prepetition ABL facility.

The DIP motion states, “The Debtors require immediate access to DIP Financing and the authority to use cash collateral to ensure that they have sufficient liquidity to operate their business and administer these chapter 11 cases in the ordinary course. While the Debtors typically maintain liquidity in excess of $50 million in the U.S., they are now operating with a cash balance of approximately $14 million as of the Petition Date. 

The DIP Financing has multiple components: 

  • The first is the DIP ABL Facility, under which the Debtors will have access to revolving, asset-based loans up to a maximum principal amount of $350 million (of which the Debtors are seeking authority to borrow up to $250 million on an interim basis), on substantially the same terms as the Debtors’ Prepetition ABL Facility. Like the Prepetition ABL Facility, the borrowers under this facility are Hexion Inc. and certain of its foreign non-Debtor affiliates, and the obligations of the borrowers are guaranteed by certain of Debtors (including Hexion Inc. as guarantor of the obligations of the non-Debtor borrowers). The DIP ABL Credit Agreement amends and restates the Prepetition Credit Agreement and the guarantors under the Prepetition ABL Facility are reaffirming the liens they pledged under the Prepetition Credit Agreement and related security documents as securing their obligations under the DIP ABL Facility. The collateral for the DIP ABL Facility is therefore substantially identical to the collateral for the Prepetition ABL Facility, including foreign collateral, and excludes the ‘Principal Properties’ discussed below. 
  • The second is the DIP Term Loan Facility, under which non-Debtor affiliate Hexion International Holdings B.V. (‘Hexion DutchCo’) will borrow, and certain of the Debtors will guarantee, $350 million in principal amount of term loans. The collateral for these term loans has two primary components: (a) certain of the Debtors’ plants referred to (and defined as) the 'Principal Properties' in the Debtors’ prepetition debt documents, (b) the equity interests held by Hexion DutchCo in its direct subsidiary, which is effectively a lien on the equity value in the Debtors’ foreign subsidiaries that are direct or indirect subsidiaries and (c) any other unencumbered assets of the Debtors (if any) that are not of the type pledged to the Prepetition Credit Agreement and the First Lien Notes, including 35% of the equity interests in the first-tier foreign subsidiaries of the Debtors. The proceeds of the DIP Term Loan Facility will be used to repay the outstanding loans under the Prepetition ABL Facility (with the letters of credit outstanding thereunder to be deemed issued under the DIP ABL Facility). 
  • The third component is a DIP Intercompany Loan to be entered into by Hexion DutchCo, as lender, and Hexion Inc. as borrower, pursuant to which Hexion DutchCo will loan the proceeds of the DIP Term Loan Facility to Hexion Inc. on an unsecured, superpriority (but junior to the superpriority claims in respect of the DIP Obligations) basis. 

Although complicated, by adopting it, the Debtors are able to take advantage of substantial pockets of unencumbered value to secure the financing they needed on what is effectively a non-priming basis, and featuring competitive pricing and other terms.”

Key Terms of the DIP ABL Facility

  • Borrower(s): Hexion Inc., Hexion Canada Inc., Hexion B.V., Hexion UK Limited, Borden Chemical U.K. Limited, and Hexion GmbH
  • Guarantors: Hexion LLC (“Holdings”) and each domestic and foreign subsidiary of Holdings that is party thereto, including the Debtors party thereto. The Debtors that are guarantors of the DIP ABL Facility are: Hexion Holdings LLC, Hexion LLC, Hexion Inc., Lawter International Inc., Hexion CI Holding Company (China) LLC, Hexion Deer Park LLC, Hexion Investments Inc., Hexion International Inc. and NL Coop Holdings LLC.
  • Lenders: The financial institutions party thereto from time to time
  • DIP Agent: JPMorgan Chase Bank, N.A.
  • Facility: A senior secured asset-based revolving credit facility in an aggregate principal amount of $350.0mn
  • Borrowing Limits/Availability: Maximum availability of $350.0mn ($250.0mn on an interim basis)
  • Interest Rates: 
    • ABR Loans: ABR + 1.00-1.50%
    • U.S. Base Rate Loans: U.S. Base Rate + 1.00- 1.50%                                 
    • Canadian Base Rate Loans: Canadian Base Rate + 1.00-1.50%
    • Other Base Rate Loans: applicable Base Rate + 1.00-1.50%                                  
    • Eurocurrency Revolving Loans: Adjusted Eurocurrency Rate + 2.00-2.50%
  • Maturity: The earlier of (i) the date that is 18 months following the Petition Date and (ii) the effective date of a plan of reorganization filed in the Chapter 11 Case that is confirmed pursuant to an order entered by the Bankruptcy Court.

Key Terms of the DIP Term Loan Facility

  • Guarantors: Hexion LLC (“Holdings”), Hexion Inc. and each domestic subsidiary of Holdings that is party thereto, including the Debtors party thereto. The Debtors that are guarantors of the DIP Term Loan Facility are: Hexion Holdings LLC, Hexion LLC, Hexion Inc., Lawter International Inc., Hexion CI Holding Company (China) LLC, Hexion Deer Park LLC, Hexion Investments Inc., Hexion International Inc. and NL Coop Holdings LLC.  
  • Lenders: The financial institutions party thereto from time to time
  • DIP Agent: JPMorgan Chase Bank, N.A.
  • Facility: A senior secured term loan credit facility in an aggregate principal amount of $350.0mn
  • Borrowing Limits/Availability: The aggregate amount of the Initial Term Loan Commitments on the DIP Closing Date is $350.0mn (“Initial Term Loan Commitment”)
  • Interest Rates:  
    • ABR Loans: ABR + 2%
    • Eurocurrency Loans: Adjusted LIBOR + 3%
  • Maturity: The earlier of (i) the date that is 18 months following the Petition Date and (ii) the effective date of a plan of reorganization filed in the Chapter 11 Case that is confirmed pursuant to an order entered by the Bankruptcy Court.

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