May 14, 2023 – Venator Materials PLC and 23 affiliated debtors (NYSE: VNTR; together, “Venator” or the “Debtors”) filed for Chapter 11 protection (on a "prepackaged*" basis) with the U.S. Bankruptcy Court in the Southern District of Texas, lead case No. 23-10520 (Judge David R Jones). The Debtors, "a global manufacturer and marketer of [paint-related] chemical products," are represented by Matthew D. Cavenaugh of Jackson Walker LLP. Further Board authorized appointments include: (i) Kirkland & Ellis LLP as general bankruptcy counsel, (ii) Moelis & Company as financial advisors, (iii) Alvarez & Marsal as investment bankers and (iv) Epiq Corporate Restructuring LLP as claims agent. As is customary with prepackaged Plans, the Debtors have filed a motion seeking a hearing at which they will ask for both approval of the Disclosure Statement and confirmation of the Plan (requested date is June 26th) and also looking to waive requirements that they file SOFAs/Schedules A&B; and hold a meeting of unsecured creditors [Docket No. 27].
*Solicitation began on May 14th.
The Debtors’ lead petition notes between 5,000 and 10,000 creditors; estimated assets of $1.42bn; and estimated liabilities of $1.53bn. The Debtors ave yet to file a list of top unsecured creditors and cite phishing scams (and their intent to file redacted creditor/shareholder lists) as the reason for the delayed filing.
In a press release announcing the filing (useful 6-K here), the Debtors note that they had: "reached an agreement with the overwhelming majority of its lenders and noteholders on the terms of a comprehensive recapitalization plan. The agreement will equitize nearly all of the Company's funded debt, strengthen its balance sheet and facilitate an infusion of new capital, which will position the Company for future growth and success.
The recapitalization will be implemented through a prepackaged Chapter 11 process in the United States and will be financed by a debtor-in-possession ('DIP') financing facility, which includes a commitment for $275 million in new-money financing from the Company's supporting creditors. Following approval by the Court, the DIP financing, together with cash on hand and cash generated from ongoing operations, is expected to provide substantial liquidity to support Venator throughout the recapitalization process and beyond.
Venator's businesses are expected to continue to operate as normal for the duration of the process, and Venator expects to continue to pay wages and benefits to its global workforce, and to pay all trade partners in the ordinary course. Throughout the court-supervised Chapter 11 process, Venator will remain in possession and control of its assets, retain its existing management team and board of directors, and gain access to the array of tools available under Chapter 11 to position the company for long-term sustainable growth.
Venator commenced solicitation for votes on its prepackaged Chapter 11 plan, and expects to complete its Chapter 11 process within approximately two months.
Venator expects to be delisted by the New York Stock Exchange in accordance with its rules. Venator common shares will, however, continue to trade in the over-the-counter marketplace throughout the duration of the Chapter 11 process. The shares are proposed to be cancelled as part of Venator's restructuring."
Simon Turner, President and Chief Executive Officer of Venator, added: "We have faced unprecedented economic headwinds, including significantly lower product demand and higher raw material and energy costs in the second half of 2022…"
Venator commenced solicitation for votes on its prepackaged Chapter 11 plan, and expects to complete its Chapter 11 process within approximately two months.
Venator expects to be delisted by the New York Stock Exchange in accordance with its rules. Venator common shares will, however, continue to trade in the over-the-counter marketplace throughout the duration of the Chapter 11 process. The shares are proposed to be cancelled as part of Venator's restructuring."
Petition Date Highlghts
- Global Chemical Manufacturer Files for Prepackaged Chapter 11 with $1.42bn of Debt
- RSA Enjoys 90+% Support Amongst Key Stakeholder Groups Who Are Set to Provide $275.0m of New Money DIP Financing
- Debt in Respect of Term Loan Facility, Senior Secured Notes, and Senior Unsecured Notes Set to be Equitized
- Debtors Cite as Macroeconomic Trends (Cost of Energy/Transport/Raw Materials and Stockpiling by Customers), War in Ukraine and Unsustainable Debt Levels as Precipitating Need to Seek Bankruptcy Shelter
- Investment Banker Moelis Sets Plan Equity Value (or Total Enterprise Value) at $600.0mn
- General Unsecureds Expected to Receive Full Recoveries and Equity to be Extinguished
- Debtors Expect to be Delisted by NYSE and to Emerge (Privately Held) within Two Months
Overview of RSA and Plan
The Ogden Declaration (defined below) provides: "Under the Restructuring Support Agreement, the Consenting Creditors** and the Debtors agreed, subject to the terms and conditions thereof, to support a recapitalization transaction to significantly restructure the Debtors’ balance sheet.
The transactions in the Restructuring Support Agreement included therein allow the Debtors to successfully emerge from chapter 11 with a rightsized balance sheet and poised to capitalize on their operational initiatives. The Restructuring Support Agreement contemplates the following key terms, among others:
- debtor-in-possession financing, with approximately $275 million in new liquidity (the 'DIP New Money Facility'), as well as the opportunity to provide a backstop commitment to fund any additional liquidity needed at emergence (either through a rights offering or an exit term loan facility);
- a roll-up of the Prepetition ABL Facility, which will be refinanced at emergence;
- equitization all of the Company’s other funded debt, including the Term Loan Facility, the Senior Secured Notes, and the Senior Unsecured Notes;
- repayment in full or reinstatement of all general unsecured claims; and
- the cancellation of existing equity interests.
The Restructuring Support Agreement enjoys the support of the holders of 94% in principal of the obligations under the Term Loan Facility, holders of 98% in principal of the obligations under the Senior Secured Notes, and holders of 92% in principal of the obligations under the Senior Unsecured Notes and rolls-up all of the obligations under the ABL Facility."
** Parties to the RSA include a group of lenders under Venator’s Prepetition ABL Facility (the “ABL Group”) and a crossover group of lenders under Venator’s Term Loan Facility and holders of Venator’s secured and unsecured notes (the “Cross-Holder Group”).
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms, not otherwise defined below, are as defined in the Plan and/or Disclosure Statement, see also the Liquidation Analysis below):
- Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“Senior Secured Claims”) is impaired and entitled to vote on the Plan. The estimated amount of claims is $590,805,803 and the estimated recovery is 42.7%. Each holder shall receive such Holder’s Pro Rata share of the Senior Secured Equitization Distribution.
- Class 4 (“Senior Unsecured Notes Claims”) is impaired and entitled to vote on the Plan. The estimated amount of claims is $382,127,604 and the estimated recovery is 7.3%. Each holder shall receive such Holder’s Pro Rata share of the Senior Unsecured Notes Equitization Distribution.
- Class 5 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 6 (“Intercompany Claims”) is impaired/unimpaired, deemed to accept/reject and not entitled to vote on the Plan.
- Class 7 (“Intercompany Interests”) is impaired/unimpaired, deemed to accept/reject and not entitled to vote on the Plan.
- Class 8 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 9 (“Existing Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
Key Definitions:
- “DIP Shares” means the New Ordinary Shares at the Discount Value to be issued to the Holders of DIP Claims, subject to dilution only on account of the MIP Shares.
- “Exit Backstop Commitment Premium” means the backstop commitment fee of 10.0% of the Backstop Exit Term Loan Amount payable to the Backstop Parties, at the election of the Required Consenting Creditors, in either Exit Backstop Shares or Cash.
- “Exit Backstop Shares” means the Exit Backstop Commitment Premium, payable in New Ordinary Shares, if any, issued pursuant to the Exit Term Loan Facility Backstop at the Discount Value, if any.
- “Plan Equity Value” means the equity value as implied by a Plan total enterprise value of $600 million.
- “Senior Secured Equitization Distribution” means (i) 90.0% of the New Ordinary Shares at Plan Equity Value, which shall be subject to dilution on account of (a) the MIP Shares, (b) the DIP Shares, (c) the Rights Offering Shares, and (d) the Exit Backstop Shares, and (ii) the Subscription Rights to purchase up to 90.0% of the Rights Offering Shares.
- “Senior Unsecured Notes Equitization Distribution” means (i) 10.0% of the New Ordinary Shares at Plan Equity Value, which shall be subject to dilution on account of (a) the MIP Shares, (b) the DIP Shares, (c) the Rights Offering Shares, and (d) the Exit Backstop Shares, and (ii) the Subscription Rights to purchase up to 10.0% of the Rights Offering Shares.
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Ogden Declaration), Ogden, the Debtors’ CFO commented: “The Debtors’ main challenges leading to these chapter 11 cases are four-fold.
First, there has been a rapid and dramatic downturn in the titanium dioxide industry due to wider macroeconomic trends and stockpiling of inventory by the Debtors’ customers.
Second, the cost of raw materials and energy in Europe spiked because of the war in Ukraine.
Third, the Debtors’ underlying operations have been underperforming due to major losses stemming from a few legacy manufacturing facilities.
Fourth, the Debtors’ current capital structure is unsustainable given the tightening of liquidity and downward cash flow forecasts.
Taken together, these factors have resulted in a significantly diminished operational and financial outlook for the Debtors. Without a comprehensive restructuring of their balance sheet, the Debtors will be unable to continue as a business."
The Disclosure Statement adds: "Starting in 2022, historic and unprecedented events led Venator to experience severe economic headwinds. The downturn in the global economy over the past year-and-a-half resulted in a significantly decreased demand for Venator’s products. This downturn came off the heels of a period of increased demand, where Venator’s customers built up stockpiles to account for market and supply chain issues.
Once these issues subsided, and as increased macroeconomic inflation reduced downstream consumer spending power, the demand for Venator’s products decreased drastically. Additionally, the war in Ukraine caused a drastic increase in Venator’s manufacturing expenses and the cost of acquiring and shipping raw materials. The transportation and processing of the raw materials necessary for the product of the Company’s chemical products is highly energy intensive, and the rapid rise in energy prices, most acutely in Europe, has resulted in major price increases across the Company’s supply chain. At one point, the cost of natural gas and electricity increased more than ten times the pre-war levels. These factors, combined with other operational issues at certain Company sites, have resulted in Venator experiencing decreased profitability and a severely tightened liquidity position….In connection with ongoing liquidity pressures, Venator was facing a pending event of default under its funded debt facilities. Specifically, Venator is required to submit year-end audited financials, which do not contain an explanatory statement regarding Venator’s ability to continue as a going concern. Failure to do so would be an event of default under the Prepetition ABL Credit Agreement and the Term Loan Credit Agreement, which, if left uncured, could result in catastrophic consequences for Venator’s international business, including a full sweep of the available cash in its bank accounts. Considering these developments, Venator determined that a comprehensive financial restructuring was necessary to deleverage and rebalance its obligations under Venator’s funded debt facilities."
DIP Financing
The Debtors have commitments for $275.0mn ($100.0mn interim) of new money debtor-in-possession ("DIP") financing from certain RSA parties agented by Wilmington Savings Fund Society, FSB. Interest is at SOFR plus 10.00% per annum (with lenders have option to switch to PIK ibnterest); and fees include a backstop fee of 10.00%, commitment fee of 2.00%, exit fee of 2.50%, and an extesnsion fee of 1.25% (if in cash or 2.50% if PIK).
Key Documents
The following documents are attached to the Debtors' Disclosure Statement:
- Exhibit A: Plan of Reorganization
- Exhibit B: Restructuring Support Agreement
- Exhibit C: Financial Projections
- Exhibit D: Valuation Analysis
- Exhibit E: Liquidation Analysis
- Exhibit F: Organizational Structure Chart
Key Dates
- Voting Deadline: June 15, 2023.
- Objection Deadline: June 20, 2023.
- Combined Hearing: June 26, 2023.
Prepetition Indebtedness
The Debtors and twenty-four of their direct and indirect subsidiaries are jointly obligated parties on outstanding secured debt consisting of amounts due under the ABL Facility, the Term Loan Facility, the Senior Secured Notes, and the Senior Unsecured Notes. As of the Petition Date, the Debtors have approximately $1.144 billion in aggregate outstanding principal amount of prepetition debt obligations, all of which relate to funded debt.
FN2 Includes revolving loans as well as letters of credit and hedge obligations under the ABL Credit Agreement.
Prepetition Shareholders
The Debtors' lead Petition notes each of SK Praetorian Holdings (39.3%), L.P.; J&T MS 1 SICAV a.s. (14.3%); Huntsman Corporation (9.0%); and Dr. Barry B. Siadat as holding over 5% of the Debtors' equity.
Liquidation and Analysis and Projected Recovery Table (see Exhibit E of the Disclosure Statement for notes)
About the Debtors
According to the Debtors: “Venator is a global manufacturer and marketer of chemical products that comprise a broad range of pigments and additives that bring color and vibrancy to buildings, protect and extend product life, and reduce energy consumption. We market our products globally to a diversified group of industrial customers through two segments: Titanium Dioxide, which consists of our TiO2 business, and Performance Additives, which consists of our functional additives, color pigments and timber treatment businesses. Based in Wynyard, U.K., Venator employs approximately 2,800 associates and sells its products in more than 106 countries. “
Corporate Structure Chart
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