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Venator Materials PLC – Interim Order Unlocks $100mn of New Money DIP Financing (Interest and Fees Topping 25%) from Prepetition Lenders Set to be Equitized and Roll-Ups $190mn of Prepetition ABL Debt

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May 16, 2023 – The Court hearing the Venator Materials cases issued an order authorizing the Debtors to: (i) access up to $100.0mn in new money, debtor-in-possession (“DIP”) financing being provided by participating prepetition lenders (the “DIP Lenders*” owed approximately $954.0mn in respect of a prepetition debt, effectively everyone holding funded debt excluding the prepetition ABL debt that is being rolled up, see "Indebtedness" table below), (ii) roll-up $190.mn of prepetition ABL debt (this to be refinanced at emergence) and (iii) use cash collateral [Docket No. 98 with the DIP Credit Agreement attached at Exhibit A of the order]. 

* Following entry of the Interim Order and upon entry of the Final Order, participation in the DIP New Money Facility shall be offered ratably to all Term Loan Lenders, Secured Noteholders, and Senior Unsecured Noteholders (in each case in its capacity under the DIP New Money Facility, including its registered assigns, the “DIP Lender,” and together, the “DIP Lenders”) with 90.0% of the DIP New Money Commitments offered to Term Loan Lenders and Secured Noteholders on a pro rata basis and 10.0% of the DIP New Money Commitments offered to the Senior Unsecured Noteholders on a pro rata basis. The DIP Lenders and Backstop Parties, as applicable, shall be entitled to designate participation in the DIP New Money Commitments to one or more affiliates or funds or accounts managed, advised, or sub-advised by such DIP Lenders or Backstop Parties, as applicable.

The $175.0mn balance, of what is in total $275.0mn of new money DIP Financing on offer from the DIP Lenders is to be made available upon issuance of a final DIP order, with consideration of that order now scheduled for June 12, 2023.

Summing up, the right to participate in the new money DIP financing is being offered to everyone holding prepetition funded debt except those holding positions in the Debtors' $190.0mn Prepetition ABL Facility, with these lenders having their debt rolled up (now) with this interim order and then refinanced at emergence. 

Holders of the $954.0mn worth of debt issued under the Debtors' Term Loan Facility, Senior Secured Notes, and Senior Unsecured Notes…are all set to be equitized at emergence, but are entitled to a pro rata cut (see above as to the 90/10 split amongst lender groups, with holders of $375.0mn of unsecured notes clearly travelling second class**) of the $275.0mn new DIP and its considerable interest and fees (Interest SOFR +10% and fees including 10% backstop, 2% commitment, 2.5% exit (bumped to 5% if PIK) and a 1.25% extension fee (again double if PIK). See further below.

** In addition to the predictably disparate treatment as to new money DIP participation rights, the Debtors have secured creditors with an expected recovery of 42.7% and unsecured noteholders with just 7.3%.

Case Status

On 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) noting estimated assets of $1.42bn; and estimated liabilities of $1.53bn. At filing, the Debtors “a global manufacturer and marketer of [paint-related] chemical products,” cited macroeconomic trends (cost of energy/transport/raw materials and stockpiling by customers), the war in Ukraine and unsustainable debt vevels as precipitating the need to seek bankruptcy shelter (see "Events…" below).

            *Solicitation began on May 14th.

The DIP Motion

The motion [Docket No. 63] states, “To facilitate the Debtors’ implementation of the Restructuring Transactions embodied in the Restructuring Support Agreement, the Debtors secured commitments from two ad hoc groups of holders of Term Loan Claims, Senior Secured Notes Claims, and Senior Unsecured Notes Claims—one represented by White & Case LLP and Houlihan Lokey Capital, Inc. (such group, the ‘Term Lender Group’) and the other represented by Gibson Dunn & Crutcher LLP and Lazard Frères & Co. LLC (the ‘Cross-Holder Group’)—to provide the proposed debtor-in-possession financing facility, consisting of (i) a $275 million senior secured term loan facility (the ‘DIP New Money Facility’), and (ii) a ‘roll up’ of the $190 million of all ABL Obligations (as defined in the ABL Credit Agreement) (such facility, the ‘DIP Roll-Up Facility’). The DIP New Money Facility is being provided on a priming basis with respect to Term Loan Priority Collateral (to which the Term Lender Group and the Cross-Holder Group have consented) and junior basis with respect to the ABL Priority Collateral. Further, the DIP Lenders have agreed that the proposed DIP New Money Facility has the option to be equitized pursuant to the Plan, unless the Debtors elect to satisfy the proceeds in Cash in an amount equal to the DIP New Money Claims.

The DIP New Money Facility contemplates funding in two draws: first, in the amount of $100 million upon entry of the Interim Order and second, in the remaining amount of $175 million within one (1) business day upon entry of the Final Order. The DIP Roll-Up Facility serves to provide significant protection for the Prepetition ABL Facility during the pendency of these chapter 11 cases until it can be repaid in full in cash at emergence. The DIP New Money Facility and the DIP Roll-Up Facility are central pillars of the proposed restructuring transaction and are integral to the Debtors’ ability to commence these chapter 11 cases in a coordinated fashion. With the support of nearly all of the Debtors’ funded debt creditors, the Debtors hope to achieve the swift and consensual prepackaged restructuring contemplated by the Restructuring Support Agreement and the Plan.”

Marketing Efforts

In a Declaration in support of DIP financing [Docket No. 56], the Debtors' investment banker Moelis provides, “Beginning in February 2023, the Debtors, with the assistance of Moelis, launched a marketing process seeking new money investors in the Debtors’ business. During this marketing process, the Debtors and Moelis solicited indications of interest from nineteen potential debt investors. These efforts were conducted in parallel with the Debtors’ efforts, with the assistance of Moelis, to develop a recapitalization proposal that would significantly enhance the Debtors’ liquidity and restructure the Company’s balance sheet.

The third-party financial institutions involved in the marketing process included well-known commercial banks and specialty institutions that routinely provide asset-based and cash flow-based financing….Following this outreach, the nineteen potential debt investors that were contacted requested and executed non-disclosure agreements and eighteen were granted access to due diligence, including information with respect to the Debtors’ business and financial condition, including the Debtors’ financial projections and liquidity forecasts as well as related security agreements and loan documents. Pursuant to this process, the Debtors received five indicative term sheets for new money financing proposals. Each party who provided an indicative term sheet was advanced to the next round of the process and second phase diligence materials. None of the parties that executed confidentiality agreements ultimately submitted binding financing proposals due to a number of factors, including the Debtors’ financial position, the difficulty in structuring a new financing within the Debtors’ prepetition capital structure, and their unwillingness to fund into a non-consensual priming financing process….

Ultimately, no actionable financing proposals materialized from the prepetition marketing process.”

Key Terms of DIP Facility

  • Borrowers: 
    1. Venator Finance S.à r.l., a private limited liability company (société à responsabilité limitée) organized under the laws of Luxembourg
    2. Venator Materials PLC, a public limited company incorporated in England and Wales.
  • DIP Lenders: Following entry of the Interim Order and upon entry of the Final Order, participation in the DIP New Money Facility shall be offered ratably to all Term Loan Lenders, Secured Noteholders, and Senior Unsecured Noteholders (in each case in its capacity under the DIP New Money Facility, including its registered assigns, the “DIP Lender,” and together, the “DIP Lenders”) with 90.0% of the DIP New Money Commitments offered to Term Loan Lenders and Secured Noteholders on a pro rata basis and 10.0% of the DIP New Money Commitments offered to the Senior Unsecured Noteholders on a pro rata basis. The DIP Lenders and Backstop Parties, as applicable, shall be entitled to designate participation in the DIP New Money Commitments to one or more affiliates or funds or accounts managed, advised, or sub-advised by such DIP Lenders or Backstop Parties, as applicable.
  • DIP Agent: Wilmington Savings Fund Society, FSB
  • DIP Guarantors: The obligations of the Borrowers shall be guaranteed, on a joint and several basis, by each Debtor.
  • DIP New Money Commitments: The DIP New Money Facility commitments total $275 million (the loans under the DIP New Money Facility, the “DIP New Money Loans,” and the commitments thereunder, the “DIP New Money Commitments”) as follows: (a) $100 million upon entry of the Interim Order by the Court approving the DIP New Money Facility; and (b) $175 million within one (1) business day upon entry of the Final Order by the Court approving the DIP New Money Facility.
  • New Money: $275.0mn ($100.0mn on an interim basis)
  • Roll-Up: $190.0mn of all ABL Obligations
  • Interest Rates: Subject to the Cash/PIK Election, the DIP New Money Loans will bear interest at a rate equal to SOFR plus 10.00% per annum; provided, that in the event the Required Lenders elect to receive an interest payment in kind pursuant to the Cash/PIK Election, the Debtors shall pay in cash SOFR plus 1.50% per annum plus additional interest shall accrue in kind at a rate equal to 8.50% per annum.
  • Fees: 
    • Backstop Fee: The Borrowers shall pay to the DIP Agent, for the ratable account of each Backstop Party, a fee in an amount equal to 10.00% of the DIP New Money Commitments, which fee shall be payable in kind.
    • Commitment Fee: The Borrowers shall pay to the DIP Agent, for the ratable account of each DIP Lender, a fee, payable in DIP New Money Loans, in an amount equal to 2.00% of the DIP New Money Commitments.
    • Exit Fee: 
      • If the DIP Obligations are satisfied in full in cash, a fee of 2.50% of the aggregate principal amount of the DIP New Money Loans (including any amounts paid in kind) and remaining outstanding DIP New Money Commitments shall be fully earned on the Closing Date and shall be payable in cash to the DIP Lenders on a pro rata basis on the earlier of (i) the Maturity Date and (ii) the date on which the DIP Obligations are paid in full in cash.
      • If the DIP Obligations are satisfied other than in full in cash, a fee of 5.00% of the aggregate principal amount of the DIP New Money Loans (including any amounts paid in kind) and remaining outstanding DIP New Money Commitments shall be fully earned on the Closing Date and shall be payable in cash to the DIP Lenders on a pro rata basis as a condition to the Plan Effective Date.
    • Extension Fee: Subject to the Cash/PIK Election, as a condition precedent to any Extension, the Borrowers shall pay to the DIP Agent for the benefit of the DIP Lenders an extension fee of 1.25% in cash or 2.50% in kind on the then aggregate outstanding principal amount of the DIP New Money Loans (including any amounts paid in kind) and remaining outstanding DIP New Money Commitments, payable to each DIP Lender based on each DIP Lender’s proportion of its share of the then aggregate outstanding principal amount of such DIP New Money Loans and remaining outstanding DIP New Money Commitments.
  • Use of Proceeds: In accordance with the DIP Budget (subject to Permitted Deviations and which shall not operate as a cap in respect of professional fees), the proceeds of the DIP New Money Facility and/or Cash Collateral shall be available, subject to and upon entry of the Interim Order and Final Order, as applicable, (i) for the Debtors’ working capital needs, including to fund the costs of the administration of the chapter 11 cases and to pay adequate protection payments as authorized by the Court in the Interim Order and the Final Order, in each case in a manner consistent with the DIP Budget (subject to Permitted Deviations), (ii) to pay professional fees and expenses, and (iii) to fund the Carve Out.
  • Milestones: 
    1. The Petition Date shall have occurred, no later than May 14, 2023.
    2. The Court shall have entered the Interim Order and the interim Cash Collateral Order, no later than three (3) days after the Petition Date.
    3. The Court shall have entered the Final Order and the final Cash Collateral Order, no later than thirty-five (35) days after the Petition Date.
    4. The Court shall have entered the Confirmation Order, no later than sixty (60) days after the Petition Date.
    5. The Plan Effective Date shall have occurred, no later than sixty-five (65) days after the Petition Date

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.

Interim DIP Budget (see Docket No. 63.1)

General Background

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."

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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The post Venator Materials PLC – Interim Order Unlocks $100mn of New Money DIP Financing (Interest and Fees Topping 25%) from Prepetition Lenders Set to be Equitized and Roll-Ups $190mn of Prepetition ABL Debt appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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