June 24, 2019 – The Court hearing the Hexion Holdings cases has confirmed the Debtors Second Amended Chapter 11 Plan (a confirmation order has not yet been filed; a draft order and a post-hearing amended version of that draft are at Docket Nos. 820 and 914, respectively). In a rather bare bones press release, the Debtors announced that they expect to emerge from Chapter 11 in early July. That may have something to do with the fact that the Debtors (and their communications teams) still remain for a few more weeks under the control of Apollo Global Management, LLC; whose 15 year relationship as the Debtors' sponsor is about to come to an inglorious end.
On April 1, 2019, Hexion Holdings LLC and 17 affiliated Debtors (f/k/a Momentive Specialty Chemicals and Borden Chemicals; and now together “Hexion” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 19-10684. The Company, a global leader in thermoset resins, is represented by Michael J. Merchant of Richards, Layton & Finger. Further board-authorized engagements include (i) Latham & Watkins as counsel, (ii) Moelis & Company LLC as financial advisor, (iii) AlixPartners, LLP, as restructuring advisor and (iv) Omni Management Group as claims agent. Hexion has been (since a series of 2004/2005 corporate transactions) controlled by investment funds managed by affiliates of Apollo Management Holdings, L.P. (together with Apollo Global Management, LLC and its subsidiaries, “Apollo”).
At the time of filing, the Company’s petition noted between 1,000 and 5,000 creditors; estimated assets between $1bn and $10bn; and estimated liabilities between $1bn and $10bn.
Plan Summary
The memorandum in support of confirmation provides the following Plan overview:
“The Plan, which delevers the Debtors’ balance sheet by over $2 billion, embodies a consensual resolution of a panoply of litigable issues that could have sidetracked these cases, driving up their expense by multiples and damaging the Debtors’ business. The product of a restructuring support agreement to which over 90% of Debtors’ noteholders are party, the Plan maximizes creditor recoveries, including by providing for unimpairment of the Debtors’ trade and other unsecured creditors, and meets all confirmation requirements. It is, then, unsurprising—but validating—that the Plan enjoys overwhelming support from the Debtors’ noteholders, the voting creditors here. More than 1,000 creditors holding nearly $3.0 billion in claims across the Debtors’ capital structure cast votes on the Plan, and the results speak for themselves: 98% of those voting, holding more than 99% in amount of claims voted, chose to accept the Plan. With these votes in hand, the Debtors seek confirmation of the Plan. And with confirmation obtained, the Debtors intend to consummate the Plan and emerge from chapter 11 swiftly, so that they can continue their focus on being a worldwide market leader in the broad array of adhesive resins and related products they manufacture, but with a leaner, more sustainable capital structure… By developing and agreeing to the global compromise and settlement set forth in the Plan, including the treatment of noteholders and unimpairment of general unsecured creditors set forth therein, the Consenting Noteholders spared the estates from this value depletion. And the nearly unanimous support the Plan enjoys among the Debtors’ creditors evidences the reasonableness of that global compromise and settlement.
The Consenting Noteholders also made valuable financial contributions to these cases, backstopping almost $2 billion of new capital for the Debtors, including a $300 million equity rights offering and more than $1.6 billion of debt financing. As of this filing, the rights offering has been significantly oversubscribed and the Debtors are nearing completion of their new credit facilities and unsecured notes. Thus, the collective goal of the Debtors, Noteholders and key constituents has come together as envisioned when the Plan was filed on April 1, 2019.”
Summary of classes, claims, voting rights and projected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):
- Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $4.0mn and the estimated recovery is 100%.
- Class 2 (“First Lien Notes Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $2.425bn (including interest) and the estimated recovery is 84.6% – 89.3%. Each Holder of an Allowed First Lien Notes Claim shall receive its Pro Rata Share of the 6.625% First Lien Notes Ration, the 10.000% First Lien Notes Ration or the 10.375% First Lien Notes Ration, as applicable, of the First Lien Notes Recovery (the latter being Cash in the amount of $1.45bn, less the aggregate amount of Adequate Protection Payments made to the Holders of First Lien Notes Claims during the Chapter 11 Cases, (ii) 72.5% of New Common Equity (subject to the Agreed Dilution), and (iii) 72.5% of the Rights). Range represents recoveries in the absence of Rights Offering participation (84.6%) through full Rights Offering Participation (89.3%).
- Class 3 (“Junior Notes Claims’) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $1.061bn and the estimated recovery is 23.1% – 27.1%. Each Holder of an Allowed Junior Notes Claim shall receive its Pro Rata Share of (i) 27.5% of New Common Equity, subject to the Agreed Dilution, and (ii) 27.5% of the Rights. Range represents recoveries in the absence of Rights Offering participation (23.1%) through full Rights Offering Participation (27.1%).
- Class 4 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $228.0mn and the estimated recovery is 100%.
- Class 5 (“Subordinated Securities Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is $0 and the estimated recovery is 0%.
- Class 6 (“Intercompany Claims”) is impaired or unimpaired, deemed to accept or reject, and not entitled to vote on the Plan in either instance. The estimated aggregate amount of claims is N/A and the estimated recovery is N/A.
- Class 7 (“Intercompany Interests”) is impaired or unimpaired, deemed to accept or reject, and not entitled to vote on the Plan in either instance. The estimated aggregate amount of claims is N/A and the estimated recovery is N/A.
- Class 8 (“Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is $0 and the estimated recovery is 0%.
Plan Voting
On June 20, 2019, the Debtors' claims agent notified the Court of the results of Plan voting [Docket No. 848]. There were two classes that were entitled to vote on the Plan and each voted overwhelmingly to accept.
The voting results were as follows:
- Class 2 (“First Lien Notes Claims”): 587 claims holders, representing $2,089,481,540.00 (or 99.99%) in amount and 98.82% in number, accepted the Plan. 7 claims holders, representing $159,000.00 (or 0.01%) in amount and 1.18% in number, rejected the Plan.
- Class 3 (“Junior Notes Claims”): 507 claims holders, representing $915,757,000.00 (or 99.90%) in amount and 96.39% in number, accepted the Plan. 19 claims holders, representing $943,000.00 (or 0.10%) in amount and 3.61% in number, rejected the Plan.
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