Strategic Materials makes pre-packaged Chapter 11 bankruptcy filing

By Sarah Lizee

Olympia, Wash., Dec. 5 – Strategic Materials Inc. and some of its U.S. domestic subsidiaries filed Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas on Tuesday to implement a pre-packaged plan of reorganization, according to a press release.

The plan is centered on a debt-for-equity transaction, but the company can also toggle to a sale of all of its assets or equity to a third-party purchaser.

Strategic Materials said the plan has the support of holders of about 90% of the total principal amount of first-lien credit facility claims, holders of 100% of the total principal amount of 1.5-lien credit facility claims and about 68% of the total principal amount of second-lien credit facility claims.

Following solicitation, the plan was accepted by 100% in both number and dollar amount of the creditors holding class 3 first-lien credit facility claims, class 4 1.5-lien credit facility claims and class 5 second-lien credit facility claims who voted on the plan, and by 100% in number of the interests in class 10 that voted on the plan.

All other priority claimholders, other secured claimholders and unsecured creditors are expected to be unimpaired by the plan.

Holders of first-lien claims will receive, if the equitization occurs, a pro rata share of second-out exit term loans and 96.5% of the reorganized company interests, subject to dilution. If a sale occurs, holders will receive a pro rata share of a waterfall recovery.

Holders of 1.5-lien claims will receive, if the equitization occurs, a pro rata share of 2.5% of reorganized company interests, subject to dilution. If a sale occurs, holders will receive their pro rata share of a waterfall recovery.

Holders of second-lien claims will receive, if the equitization occurs, a pro rata share of 1% of the reorganized company interests, subject to dilution. If a sale occurs, holders will receive their pro rata share of the waterfall recovery.

DIP financing

Strategic Materials has secured new money commitments of $23 million for a single-draw term loan debtor-in-possession facility from existing first-lien lenders to support its business operations.

Following final approval, the DIP financing will include $27.5 million of rolled up loans.

Acquiom Agency Services LLC and Seaport Loan Products LLC are the co-administrative agents on the DIP financing.

Interest on the DIP facility is SOFR plus 1,000 basis points per annum.

The facility has a 40-day maturity.

The company is also seeking approval to access the cash collateral of its prepetition secured lenders.

The company said the facility will allow the company to continue meeting its obligations across the entire enterprise, including to customers, suppliers, and employees, while financially restructuring and reorganizing the business, including deleveraging the balance sheet by over $300 million.

Other details

Strategic Materials has filed certain customary first-day motions with the court to ensure operations continue without interruption. All employees will continue to receive pay and benefits, and suppliers of goods and services will be paid in the ordinary course.

In its petition, the company listed $100 million to $500 million in assets and $500 million to $1 billion in liabilities.

Its largest unsecured creditor is BNSF Railway Co., based in Fort Worth, with a $1.1 million trade payable claim.

The company is being advised by Moelis & Co., LLC as investment banker, Alvarez & Marsal, as restructuring adviser, and Vinson & Elkins LLP and Wachtell, Lipton, Rosen & Katz as legal counsel.

The company’s Canadian and Mexican based operating affiliates are not part of the Chapter 11 bankruptcy process.

Strategic Materials is a Houston-based comprehensive glass recycler. The Chapter 11 case number is 23-90907.

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