W.R. Grace seeks court OK to replace DIP loan with new agreements

By Caroline Salls

Pittsburgh, Jan. 19 - W.R. Grace & Co. requested court approval to enter into letter-of-credit and hedging agreements that will allow it to terminate its existing debtor-in-possession facility, which matures on April 1, according to a Tuesday filing with the U.S. Bankruptcy Court for the District of Delaware.

The company said the letter-of-credit and hedging transactions will allow it to replace the current DIP loan with a more cost-effective form of financing that takes advantage of its substantial cash reserves.

Grace said the new financing would provide a bridge to its expected exit from Chapter 11 bankruptcy.

Specifically, the company is looking to enter into a $100 million one-year cash collateralized letter-of-credit agreement with Bank of America, NA, as well as a new ISDA master agreement with Bank of America.

According to the motion, the ISDA agreement will govern Grace's current and future hedging arrangements in the ordinary course of its risk management activities, which will be secured through the letter-of-credit agreement by two dedicated cash collateral accounts.

The new ISDA master agreement will replace an existing agreement, under which credit support arrangements are provided by the DIP facility.

In connection with the letter-of-credit facility, Grace is also looking to enter into cash collateral control agreements with Bank of America, which will provide for the handling and disposition of funds in the three separate cash collateral accounts.

The company said the current DIP facility, which provides an up to $165 million financing commitment, had no outstanding draws or other loans as of Dec. 31. The company has $71 million in existing letters-of-credit under the DIP facility.

Grace said closing arguments for its plan of reorganization are expected to conclude on Jan. 25, but the company does not expect to be able to emerge from bankruptcy before the April 1 expiration of the DIP loan.

The new letter-of-credit facility will expire one year from the plan effective date, and interest will accrue at the Base rate plus 250 basis points.

A hearing is scheduled for Feb. 16.

W.R. Grace, a Columbia, Md.-based specialty chemicals company, filed for bankruptcy on April 2, 2001. Its Chapter 11 case number is 01-01139.

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