CASE PROFILE: Mossi & Ghisolfi’s US units aim for sale process as construction delays lead to Chapter 11

The US affiliates of Italian chemical giant Mossi & Ghisolfi filed for Chapter 11 in Delaware yesterday with a USD 100m debtor-in-possession financing facility to fund a sale process.

 

The 13 US debtors report about USD 1.7bn in prepetition debt and blame a lack of liquidity on delays associated with the construction of a Corpus Christi, Texas polyethylene terephthalate (PET) and purified terephthalic acid (PTA) plant. The DIP is provided by Control Empresarial de Capitales SA de CV, an affiliate of prepetition lender Banco Inbursa SA.

 

A first-day hearing is scheduled for 1 November before Judge Brendan Shannon of the US Bankruptcy Court for the District of Delaware.

 

CLICK HERE to view all M&G USA Corporation Chapter 11 filings in Debtwire Dockets.

 

 

The company

 

The M&G group, controlled by M&G Finanziaria SpA, is the largest privately-owned chemical company in Italy and one of the largest producers of PET resin for packaging in the world, according to a declaration from CRO Dennis Stogsdill, a managing director at Alvarez & Marsal (A&M). PET is typically used in the manufacturing of plastic bottles.

 

The M&G group was established in 1953 and, as of the petition date, employed more than 950 people in 14 locations across six countries. The company’s headquarters are in Luxembourg, with manufacturing facilities in Brazil, Mexico and the US.

 

 

The M&G chemical group reported revenues of USD 1.6bn in 2016, according to Stogsdill. Its customers include Amcor LimitedCoca-Cola Cross Enterprise Procurement GroupGraham Packaging Company and the Pepsi-Cola Company.

 

M&G also runs an engineering, procurement and construction business through Wilmington, North Carolina-based debtor Chemtex International and certain non-debtor subsidiaries. Chemtex operates in the US, China and India.

 

The debtors own a PET manufacturing plant in Apple Grove, West Virginia and maintain offices in Houston, Texas and Sharon Center, Ohio. Debtor M&G Resins USA LLC is the owner of the Corpus Christi plant and M&G International focuses on PTA buying and trading on behalf of its subsidiaries.

 

The debt

 

 

The debtors’ prepetition obligations stem from 11 financing arrangements, including USD 436m owed on a Banco Inbursa SA loan facility and USD 120m owed on another Inbursa loan agreement. The debtors also owe USD 435m on a DAK Americas credit agreement, which is secured by liens that are subordinate to Inbursa’s liens on the Corpus Christi plant, and USD 55.5m on a secured credit facility from Macquarie Investments US.

 

Another USD 82.4m is owed on a Delta Lloyd credit facility and USD 10m on a Banca Monte dei Paschi di Siena SpA unsecured revolver. The debtors also owe USD 50m on a revolving credit facility from Comerica Bank as well as USD 72.5m on floating rate bonds due 2019 and 37.5m on floating rate bonds due 2023 issued to Och-Ziff Capital Management affiliate Sculptor Investments IV Sarl.

 

Finally, the company owes USD 35m on a senior secured term loan from Banco do Brasil SA and USD 350m on an unsecured credit facility with Industrial and Commercial Bank of China.

 

The debtors have also guaranteed significant debt of non-debtor affiliates and owe another USD 250m to raw materials suppliers. They also owe USD 1.27bn in intercompany payables and hold USD 556m in intercompany receivables.

 

 

 

The descent

 

The debtors began construction on the Corpus Christi plant in April 2013, with plans to complete the facility – intended to be the largest vertically integrated single line PTA/PET plant in the world – by December 2015. But construction costs ballooned, disputes with an engineering firm escalated and Hurricane Harvey hit, all of which caused substantial delays to the process. The facility is less than 85% complete at this time, according to Stogsdill.

 

Additionally, the delay meant the debtors were not collecting revenues they had been anticipating from the plant’s operations. The entire project was originally estimated to cost USD 1.1bn, but the company has spent USD 1.86bn to date, with another USD 505m required to complete the facility, Stogsdill said. The M&G group blames the delays on design and technical changes, the weather, subcontractors, engineering audits and delayed equipment deliveries.

 

The debtors’ liquidity was also strained by higher raw material costs stemming from supply shortages, increased competition and discounts they were forced to offer some customers in response to the higher competition, according to Stogsdill.

 

The M&G group brought in Rothschild as investment banker in July in the hope of nailing down a new source of capital to address its liquidity position. But no such financing came through and the company found itself postponing payments to raw materials suppliers.

 

The debtors hired A&M between December 2016 through to February 2017 to conduct a financial analysis of M&G Chemicals, including cashflow forecasts. In August A&M provided the debtors with Stogsdill as CRO, while the debtors also hired Jones Day as restructuring counsel. On 5 September, the company shuttered operations at its PET manufacturing facility in Altamira, Mexico due to a lack of necessary raw materials and on 22 October halted production at the Apple Grove plant. Meanwhile, lender Och-Ziff retained Linklaters and Alix Partners.

 

On 20 October, Comerica sued the debtors in Michigan federal court seeking the appointment of a receiver to take control of the collateral securing the bank’s loan. The parties attempted to resolve their following the lawsuit but were unsuccessful, prompting the immediate filing of the M&G Polymers petition on 24 October to preserve the debtors’ assets.

 

The DIP

 

 

The debtors have secured a USD 100m DIP facility from an Inbursa affiliate that will fund the Chapter 11 cases and a sale process for certain US assets. The DIP agreement includes several milestones, including the delivery of a business plan, including a cost-to-complete assessment for the Corpus Christi plant within 60 days of the petition date.

 

 

The advisors

 

 

CLICK HERE to view the petition.
CLICK HERE to view Stogsdill’s first-day declaration.
CLICK HERE to view the DIP motion.

 

by Maria Chutchian and Joshua Friedman