Owens-Illinois sells Venezuela arbitration award rights, will use proceeds for revolver paydown

By Paul Deckelman

New York, Aug. 1 – Owens-Illinois, Inc. said Tuesday that it had sold its interest in an arbitration award against Venezuela for $115 million in cash and plans to use the anticipated after-tax proceeds from that transaction to pay down debt.

The award stems from the 2010 expropriation of the property of the giant Perrysburg, Ohio-based glass container company’s Venezuelan subsidiary, Owens-Illinois Venezuela C.A., by that country’s government as part of then-President Hugo Chavez’s “Bolivarian Revolution,” which included the nationalization of many foreign-owned industrial assets.

Owens-Illinois challenged the seizure of its operations via an international arbitration process – and won.

Its senior vice president and chief financial officer, Jan Bertsch, told analysts on a conference call following Owens-Illinois’ release of its results for the 2017 second quarter ended June 30 that “while the award, including accrued interest, exceeds $500 million, collection from Venezuela in the current climate has never been clear.”

She said that on Monday the subsidiary sold to an unidentified third party its right, title and interest in the amounts due under the arbitration award against Venezuela, in return for a cash payment of $115 million. Bertsch said that Owens-Illinois “also retained a modest upside potential, depending upon the ultimate recovery of the award.”

She raised the possibility that “in the unlikely event that the award is partially or completely annulled, the subsidiary may be required to repay up to the entire amount of the cash payment.”

During the question-and-answer portion of the conference call that followed her own presentation and that of company chief executive officer Andres Lopez, Bertsch said that the hearing on Venezuela’s motion to annul the award is scheduled for late September.

“I think it’s impossible for us to really acknowledge how long we think that may take to get through the results of that hearing,” she said – but she added “we honestly believe that it’s unlikely that [the award] will be annulled. And so we feel confident that $115 million will stay with the company.”

Bertsch told an analyst who asked about it that the $115 million is a pre-tax figure, “and we’ll be determining what the tax impact of that is as the year progresses. That tax bill will not be due in 2017. So it’ll become a 2018 event.”

She said that the after-tax proceeds from the sale of the arbitration award rights “will accelerate the company's efforts to deleverage,” although she did not offer much in the way of specifics, only saying that Owens-Illinois “will have more to say about our go-forward capital allocation plans as we finalize our strategic planning process in the fourth quarter.”

Company eyes revolver paydown

The company announcement Tuesday of the second-quarter results said that those after-tax proceeds would be used to reduce outstanding borrowings under its revolving line of credit.

As of the end of the second quarter, Owens-Illinois had total debt on its balance sheet of $5.74 billion – up sequentially from $5.63 billion at the end of the first quarter on March 31 and from $5.33 billion at the end of fiscal 2016 on Dec. 31, although the debt figure was down from $5.85 billion at the end of the 2016 second quarter.

Debt in the latest quarter included $5.74 billion of long-term debt and $271 million classified as either short-term debt or the current portion of the long-term debt.

The company’s most recent 10-Q filing with the Securities and Exchange Commission, covering the first quarter, showed that as of March 31, the company had $285 million of outstanding borrowings under its $300 million revolver.

Its amended senior secured credit facility agreement included that revolver, a $600 million multicurrency revolving credit facility, a $1.58 million term loan A facility and a €279 million term loan A facility, each of which has a final maturity date of April 22, 2020. As of March 31, the company had unused credit of $599 million available under that amended agreement, with a weighted average interest rate on the outstanding borrowings of 2.46%.

It also had a number of outstanding dollar- or euro-denominated bonds in its capital structure, the largest being €725 million of 3 1/8% senior notes due 2024, including a €225 million add-on to the original bonds which priced at par to yield 3 1/8% in a quick-to-market transaction on March 20.

Its closest maturity is the $22 million of outstanding 7.80% senior debentures due 2018 which remained after the company had eliminated the other $227.66 million of that original $250 million issue via a tender offer that wrapped up on March 14.

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