Vertellus Specialties existing term loan lenders have agreed to purchase substantially all of the company’s U.S. and international assets for a credit bid of $453.8 million, the company announced this morning.
To implement the transaction, which will take place under Section 363 of the Bankruptcy Code, the company filed for Chapter 11 in bankruptcy court in Wilmington, Del.
The term lenders are Black Diamond Capital Management, Blackrock, BlueBay Asset Management, Brightwood Capital Advisors, and TPG Special Situations Partners, court filings show.
The company said the proposed sale would be subject to higher offers, with the deal with term lenders serving as a stalking-horse bid. The agreement carries a 3% break-up fee, plus expense reimbursements, as stalking-horse protections.
The company said in a letter to employees that it expects the sale process would take 3–4 months. In its motion for approval of bidding procedures, the company asked the bankruptcy court to schedule a bid deadline of Aug. 15, an auction date of Aug. 18, and a sale hearing for Aug. 23.
The Chapter 11 filings do not include the company’s international entities in Belgium, the U.K., India and China, although those entities are included in the sale process, the company said.
The Chapter 11 case also does not include Elma, Wash.–based Vertellus Performance Chemicals, the legal entity containing the company’s sodium borohydride business, which has separate financing agreements in place. Furthermore, Vertellus Performance Chemicals is also not included in the agreement with lenders and will remain under the ownership of Wind Point Partners.
In connection with the Chapter 11 filing, the existing lenders have also committed to provide $110 million in DIP financing “to ensure continuity through the sale process.” Interest under the facility is at L+900, with a 1% LIBOR floor.
The DIP milestone deadlines require the sale to be completed within 100 days of interim approval of the DIP. Assuming that occurs tomorrow, the deadline would be Sept. 9.
In court filings, the company explained that it had “fallen victim to certain macroeconomic forces recently afflicting the chemical manufacturing industry. Specifically, the debtors’ VAN business division [Vertellus Agriculture and Nutrition Specialties unit] operates in a highly competitive industry, and has faced a slowing of growth rates for its pyridine and picoline products, coupled with significant increases in global capacity and production, primarily from Chinese manufacturers of VAN’s primary products.”
According to a declaration filed in the case by Philip Gillespie, the company’s CFO, the company has “begun significant realignment in the supply chain and rationalization of overall business cost structure in order to mitigate these effects. These long-term efforts are expected to assist with decreased overhead, manufacturing and supply chain costs, greater margin protection and potential new revenue streams over a period of years, all of which are intended to reduce the debtors’ exposure to sustained price volatility.”
However, the company said, beyond the competitive environment it also faced liquidity constraints due to “the burden of legacy environmental and pension liabilities” and the company’s “capital structure and debt load.”
The capital structure includes a first-lien term loan, which is not included in the S&P/LSTA Leveraged Loan Index, with roughly $471 million outstanding, and a first-lien revolver with about $82 million outstanding, including $19 million with respect to certain undrawn letters of credit, court filings show. Annual principal and interest payments under the facility were $52 million.
As reported, the company skipped an interest payment in April, prompting S&P Global Ratings to downgrade the company’s corporate credit and issue level to D, from CCC
The company also said it has about $25 million in trade claims outstanding, including about $10 million that may be entitled to administrative expense priority. — Alan Zimmerman
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