Hilex Poly makes pre-packaged Chapter 11 bankruptcy filing

By Caroline Salls

Pittsburgh, May 6 - Hilex Poly Co., LLC filed Chapter 11 bankruptcy Tuesday in the U.S. Bankruptcy Court for the District of Delaware in connection with an agreement with its lenders to restructure its senior secured debt, according to a company news release.

In addition to a substantial reduction in outstanding debt, Hilex said the plan will reduce annual interest expense and significantly improve cash flow.

"Hilex undertook a comprehensive strategic review to evaluate all options for restructuring our balance sheet and, after careful consideration, determined that a pre-packaged filing was in the best interest of all our stakeholders," president and chief executive officer David Pastrich said in the release.

"We believe the restructuring will enable us to invest more capital in the business and position Hilex as a more attractive long-term partner for our customers and vendors."

The company said the filing will not impact day-to-day operations for employees, customers, suppliers and general business operations.

Under the pre-packaged plan of reorganization:

• All existing equity interests in Hilex will be canceled and 100% of the new membership interests will be issued to a newly formed holding company to be named HLX PLY Investors Corp.;

• 85% of the new common stock of the reorganized company will be distributed to the holders of second-lien claims in exchange for the cancellation of their pre-bankruptcy debt;

• 15% of the new common stock will be distributed to holders of first-lien term loan B claims in exchange for the cancellation of their term loans. The holders of the first-lien term B claims will also receive $115.1 million in new notes due 2013, which will accrue cash interest at a rate of 12¾%, or payment-in-kind interest at a rate of 13½%, at the company's option; and

• Holders of first-lien revolving loan claims will receive full payment in cash.

Financing terms

In connection with the bankruptcy filing, Hilex has received a commitment for $140 million in debtor-in-possession financing from GE Capital and Morgan Stanley Senior Funding, Inc.

The DIP facility includes a $90 million revolving facility and a $50 million term loan. The facility includes a $15 million letter-of-credit subfacility.

The DIP commitment will terminate on the earliest of one year from the bankruptcy filing date, in five days from the petition date if an interim order has not been entered, 45 days from the petition date if the final order has not been entered, upon the confirmation of a plan of reorganization acceptable to the lenders and upon the sale of substantially all of the company's assets.

Proceeds will be used to repay pre-bankruptcy debt and related fees and for working capital and general corporate purposes.

Interest on the revolver will be Libor plus 350 basis points, with a 290 bps floor. Interest on the term loan will be Libor plus 800 bps, with a 400 bps Libor floor.

The company said it has also secured a commitment for $125 million in exit financing from GE Capital and Morgan Stanley, expected to include a two-year $75 million revolving credit facility and a two-year $50 million term loan.

Interest on the exit revolver and term loan will be the same as under the DIP facility.

"The ability to come to a consensual debt-for-equity agreement with our lenders demonstrates our lender's belief in Hilex's business model and their long-term faith in the company," Pastrich said in the release.

"We look forward to completing our financial restructuring over the course of the next 45-60 days and emerging as a stronger, more financially sound company, well-positioned for the future."

Debt details

Hilex's bankruptcy petition listed $100 million to $500 million in both assets and debt. According to the DIP facility motion, the company recorded $318.2 million in assets and $329.1 million in debt for fiscal year 2006.

The company's largest unsecured creditors include:

• Sonoco Products Co., Hartsville, S.C., with a $28 million note debt claim;

• Equistar Chemicals, Houston, with a $25 million trade debt claim;

• Formosa Plastics Corp., Livingston, N.J., with an $11.74 million trade debt claim;

• Exxon Mobile Chemical Co., Raleigh, N.C., with a $6.6 million trade debt claim;

• Logistics Management Solutions LLC, St. Louis, with a $2.63 million claim;

• Bunzl Distribution USA Inc., Lithia Springs, Ga., with a $2.18 million trade debt claim; and

• Dow Chemical Co., Wheaton, Ill., with a $1.99 million trade debt claim.

Hilex is a Hartsville, S.C., plastic bag company. Its Chapter 11 case number is 08-10890.

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