General Chemical Industrial Products tapped Harbert Distressed Investment Master Fund to provide a new revolver and term loan in conjunction with its Chapter 11 reorganization after the investor came in with an alternative to the plan the company had with its banks. A $17.5 million revolver and $45 million term loan from Harbert and $12.5 million from the purchase of the company's preferred shares have paid in full pre-petition lenders with $57.5 million in claims and lenders to the company's $17.5 million debtor-in-possession facility. J.P. Morgan together with Bank of Nova Scotia, Bank One and Deutsche Bank led the pre-petition and DIP facilities.
The distressed fund, part of Harbert Management, purchased 94% of General Chemical's preferred stock, representing approximately 63.6% of the aggregate outstanding common shares assuming full conversion of the preferred shares. Philip Falcone, senior portfolio manager for Harbert, could not be reached by press time and a company spokesperson did not return calls.
The Harbert plan was chosen in lieu of an alternative plan that was originally set out under the company's pre-arranged restructuring, explained David Graziosi, cfo of General Chemical. Under the initial plan, the bank group had agreed to roll the DIP facility into an exit facility of the same amount. Pre-petition lenders were slated to receive a new $45 million term loan and a portion of convertible preferred stock in the amount of 68% of the company's total equity. The company's senior subordinated bondholders, which had $100 million plus accrued interest in outstanding claims, were slated for about 32% of the total equity in the reorganized company.
But Harbert, which owned one-third of the company's $100 million of senior subordinated bonds, offered the alternative plan and replaced the bank group. It was not an instantaneous decision as General Chemical was moving forward with the existing plan when Harbert came with the new strategy that was more favorable to the bondholders, said Graziosi. By paying the banks in full rather than allow them to take an impairment of $13 million under the original plan, the company was able to give the bond holders more equity. Under the Harbert plan, bondholder's distributions were increased to 35.9% and shareholders were given 1/2% of the total equity. "Nobody can argue against a plan that gives you a better payout," said Graziosi.
Since the bankruptcy petition, General Chemical reduced its aggregate debt by $106 million to $52 million. The new revolver is priced at the base rate plus 21/2-33/4%. The term loan is priced at base rate plus 41/2%. General Chemical filed for bankruptcy last December and three months later the soda ash and calcium chloride producer announced its reorganization under Chapter 11. "We tried to get out of bankruptcy as soon as we could," said Graziosi. "We got into court with a pre-arranged deal with the parties affected. It was a consensual agreement that allowed us to get quickly out of bankruptcy."