Hexion Holdings – Court Approves Restructuring Support Agreement Which Will Delever Debtors by $2.0bn, See New Hexion Equity Issued to Noteholders

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May 15, 2019 – The Court hearing the Hexion Holdings cases issued an order [Docket No. 366] authorizing the Debtors to assume the April 1, 2019 Restructuring Support Agreement (the “RSA”) amongst the Debtors and certain consenting creditors and equity sponsors [Docket No.198].

In a press release announcing the Debtors Chapter 11 filing, Hexion advised that it had entered “entered into a Restructuring Support Agreement (‘RSA’) with the vast majority of holders of each of the Company’s notes issuances, representing consensus across its capital structure, on the terms of a consensual financial de-leveraging plan (the “Plan”) that will strengthen the Company’s financial position and accelerate future growth.”

The press release continued, “Under the RSA, creditors representing all tranches of the Company’s notes have agreed to support, and the Company has agreed to pursue, confirmation of the Plan. The RSA contemplates that the Plan will provide for, among other things: (1) significant de-leveraging of the Company’s capital structure by over $2.0 billion, (2) an infusion of $300 million in equity capital through a fully-backstopped rights offering, (3) a committed exit facility of over $1.6 billion, and (4) payment in full of the Company’s trade creditors, employees, and other general unsecured creditors.”

Overview of the Restructuring

A term sheet attached to the RSA provides the following overview: "Hexion Inc. and certain of its affiliates (collectively, the 'Debtors') will restructure their funded debt obligations with the proceeds of a new, $1.641 billion Exit Facility and a $300 million common equity Rights Offering available to holders of Notes Claims, in each case backstopped by certain holders of Notes Claims that have executed the Restructuring Support Agreement, as well as with a new Exit ABL Facility and through the issuance of new common equity in exchange for all outstanding Notes Claims, in each case as set forth in this Term Sheet, the Restructuring Support Agreement and the exhibits and schedules annexed thereto. The Debtors’ creditors and equityholders will receive the following treatment:

  • holders of the Debtors’ 1L Notes will receive $1.45 billion in cash (less adequate protection payments reflecting interest on the 1L Notes paid during the Chapter 11 Cases), 72.5% of the New Hexion Common Shares (subject to dilution for the Rights Offering Shares, the equity issued pursuant to the MIP and any equity issued pursuant to the Equity Backstop Premium and the Debt Backstop Premium (collectively, the 'Agreed Dilution')), and 72.5% of the Rights in the Rights Offering;
  • holders of the Debtors’ 1.5L Notes, 2L Notes, and Unsecured Notes will receive 27.5% of the New Hexion Common Shares (subject to the Agreed Dilution) and 27.5% of the Rights in the Rights Offering;
  • general unsecured creditors will be paid in full; and
  • holders of the Debtors’ outstanding common equity will receive no recovery on account of such common equity interests.

The Restructuring will be supported through the Debtors’ borrowing under a new, $350 million DIP term facility and a $350 million DIP ABL facility."

Restructuring Support Agreement 

In his declaration in support of the Chapter 11 filing (the “Knight Declaration” which attached an executed copy of the RSA), George F. Knight, the Executive Vice President and Chief Financial Officer of Hexion Inc., stated, the “RSA enjoys support at every level of the Debtors’ prepetition capital structure, and, as of the Petition Date, includes holders of approximately 70% of the debt to be restructured, including 62% of the First Lien Notes, 98% of 1.5 Lien Notes, 84% of the Second Lien Notes, and 76% the Borden Debentures. The RSA contemplates a financial restructuring that substantially reduces the Debtors’ leverage and treats all creditors fairly in accordance with their claims. In accordance with the RSA, the Debtors agree to propose a Plan predicated upon a total enterprise value of $3.1 billion, including an exit facility of approximately $1.6 billion and a stipulated post-new money equity value of approximately $1.4 billion. The new money in question results from a backstopped rights offering of New Hexion Common Shares offered at a 35% discount to the stipulated equity value and sized to yield $300 million in cash proceeds. The resulting total leverage at emergence is anticipated to be less than half of the Debtors’ prepetition leverage, based on 2019 EBITDA estimates.

The Debtors agree to propose a Plan that will distribute (a) to the 1L Notes Claims, $1.45 billion in cash (less the sum of adequate protection payments reflecting interest on the 1L Notes) and 72.5% of (X) the New Hexion Common Shares and (Y) the Rights in the Rights Offering, and (b) to the 1.5L Notes Claims, the 2L Notes Claims, and the Unsecured Notes Claims their pro rata share of 27.5% of (X) the New Hexion Common Shares and (Y) the Rights in the Rights Offering. General Unsecured Creditors will be paid in full."

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