Rexene Corp. strode into Chapter 11 yesterday armed with an agreement from noteholders to restructure $403 million of debt and the promise of $30 million in new financing from an unidentified institution.
Entering bankruptcy proceedings with a pre-negotiated agreement will likely shorten to six months the usual year to two-year process, said Neil J. Devroy, a company spokesman.
The agreement, which ended several months of negotiations between the company and noteholders, was reached in principle, the company said in a press release.
Both Mr. Devroy and Susan Seiter, a financial relations consultant hired by Rexene, declined to name the institution pledging to provide the $30 million in debtor-in-possession financing.
"It is a major player in DIP financing, one that you would know," she said.
The name will become public next week when the Delaware bankruptcy court, where Rexene filed yesterday, rules on the DIP financing agreement, Ms. Seiter said.
Rexene announced yesterday that it had reached unanimous agreement with the noteholders' committee to restructure $403 million of unsecured senior and senior subordinated increasing rate notes due July 15, 1992.
Not able to obtain financing through the high-yield market, Rexene in June filed a plan with the Securities and Exchange Commission to extend some maturities and retire some of its debt in a consensual exchange offer to noteholders.
The current plan is based on the one filed in June, but with substantial differences, Mr. Devroy said.
The decision to go the Chapter 11 route puts to rest some concerns of noteholders and the company, particularly over noteholders' refusal to exchange.
The bankruptcy proceeding "forces all the noteholders to accept the will of the majority," Ms. Seiter said.
A consensual plan done through Chapter 11 requires that two-thirds in dollar amount and a majority of the noteholders in each class agree on the plan. Once the court agrees on the reorganization plan, it is binding on all noteholders, Ms. Seiter said.
A plan done outside Chapter 11, like one Rexenne unveiled last May, requires 90% approval, and the company must pay out to dissenting noteholders -- an expense the company wants to avoid, she said.
Even if 90% of the noteholders agreed, paying the dissenting 10% would cost the company more than $40 million on top of its reorganization plan, Mr. Devroy said.
In a company release, Rexene Chairman William J. Gilliam said, "We are confident that Rexene's histroically solid operating earnings and strong cash flow, combined with an experienced management team and sound business plan, are the right ingredients for a successful debt reorganization."
Michael J. Grad, managing director of Wertheim Schroder & Co., the noteholders' committee's financial adviser, said, "I think it's a good, fair consensual agreement that eliminates the risks inherent in a free-fall bankruptcy."
If completed, the re-organization plan would replace the company's $403 million of debt due next July with a new long-term capital structure.
Initially, it would reduce Rexene's outstanding debt to between $325 million and $355 million. It will also reduce cash-interest requirements from about $70 million to about $24 million annually.
Under the restructuring plan, $253 million of old senior notes will be exchanged for the same amount of new senior notes due 1999.
Those notes will yield 9% interest until 1995, increasing to 14% in steps thereafter. Holders of the new senior notes will also receive 15% of the company's common stock.
Those holding the $150 million of old senior subordinated notes can tender all or a portion into a Dutch auction, in which the company will use $15 million of its cash to purchase notes between $200 and $350 per $1,000 note.
If not enough bondholders decide to tender into the Dutch auction to use all of the $15 million, Rexene will use the leftover cash to retire untendered notes on a pro rata basis at $400 cash per $1,000 note.
Old senior subordinated notes not purchased for cash will be exchanged for new senior subordinates notes with a face value equal to $750 per $1,000 note.
The new senior subordinated notes will mature in 2002 with a 50% sinking fund payment in 2001.
The notes yield 10% until 1996, increasing to 14% in stages thereafter. Under certain circumstances through 1994, Rexene may pay 1% interest in cash and the remainder of its interest requirements in new senior subordinated notes.
Depending on the Dutch auction's results, the new senior subordinated noteholders will receive between 40% and 50% of the company's common stock.
The new senior and senior subordinated notes will be secured by liens on the company's assets.
Under the agreement, the noteholders will also have the one-time right to appoint half of the board of directors members when the Chapter 11 case ends.
The noteholders' committee represents approximately 76% in face amount and 48% in number of senior note holders. The committee also includes the participation of approximately 39% in face amount and 24% in number of the senior subordinated noteholders.
The investment-grade debt market rebounded slightly yesterday, while the high-yield market was unchanged.
