Chapter 11 Bankruptcy Filing (Subsequent Event)

Bankruptcy Petitions

On April 1, 2019 (the “Petition Date”), the Company, Hexion Holdings LLC, Hexion LLC and certain of the Company’s subsidiaries (collectively, the “Debtors”), filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under Chapter 11 (“Chapter 11”) of the U.S. Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware, (the "Bankruptcy Court"). The Chapter 11 proceedings are being jointly administered under the caption In re Hexion Holdings LLC, No. 19-10684 (the “Chapter 11 Cases”). The Debtors will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

Operation and Implications of the Bankruptcy Filing

The filing of the Bankruptcy Petitions constitutes an event of default that accelerated the Company’s obligations under the following debt instruments (the “Debt Instruments”):


•	Amended and Restated Asset-Based Revolving Credit Agreement, dated as of December 21, 2016, by and among Hexion LLC, the Company, certain subsidiaries of the Company, the lenders party thereto and the other parties thereto with respect to approximately $296 of borrowings outstanding as of March 31, 2019, plus accrued and unpaid interest thereon;


•	Indenture, dated as of December 15, 1987, by and between the Company and The Bank of New York, as trustee, with respect to an aggregate principal amount of approximately $74 of 9.20% Debentures due 2021 and approximately $189 of 7.875% Debentures due 2023, in each case, plus accrued and unpaid interest thereon;

•

Indenture, dated as of November 5, 2010, by and among the Company, as successor issuer, Hexion Nova Scotia Finance, ULC, a Nova Scotia unlimited liability company, as the Nova Scotia issuer, certain subsidiaries of the Company and Wilmington Trust Company, as trustee, with respect to an aggregate principal amount of approximately $574 of 9.00% Second-Priority Senior Secured Notes due 2020 plus accrued and unpaid interest thereon;


•	Indenture, dated as of March 14, 2012, by and among the Company, as successor issuer, certain subsidiaries of the Company and Wilmington Trust, National Association, as trustee, with respect to an aggregate principal amount of approximately $1,550 of 6.625% First-Priority Senior Secured Notes due 2020 plus accrued and unpaid interest thereon;


•	Indenture, dated as of April 15, 2015, by and among the Company, certain subsidiaries of the Company and Wilmington Trust, National Association, as trustee, with respect to an aggregate principal amount of approximately $315 of 10.00% First-Priority Senior Secured Notes due 2020 plus accrued and unpaid interest thereon;


•	Indenture, dated as of February 8, 2017, by and among the Company, as successor issuer, certain subsidiaries of the Company and Wilmington Trust, National Association, as trustee, with respect to an aggregate principal amount of approximately $560 of 10.375% First-Priority Senior Secured Notes due 2022 plus accrued and unpaid interest thereon; and


•	The 1.5 Lien Indenture, with respect to an aggregate principal amount of approximately $225 of 13.75% Senior Secured Notes due 2022 plus accrued and unpaid interest thereon.

The Debt Instruments provide that as a result of the Bankruptcy Petitions the principal and interest due thereunder shall be immediately due and payable. Any efforts to enforce such payment obligations under the Debt Instruments are automatically stayed as a result of the Bankruptcy Petitions and the creditors’ rights of enforcement in respect of the Debt Instruments are subject to the applicable provisions of the Bankruptcy Code.

The accompanying Condensed Consolidated Financial Statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is contingent upon the Debtors ability to comply with the financial and other covenants contained in the DIP ABL Facility described below, the development of, and the Bankruptcy Court’s approval of, a Chapter 11 plan and the Debtors ability to successfully implement a restructuring plan and obtain new financing, among other factors. Such conditions raise substantial doubt as to the Company’s ability to continue as a going concern.

Subsequent to the Petition Date, the Company received approval from the Bankruptcy Court to pay or otherwise honor certain pre-petition obligations generally designed to stabilize the Company’s operations, such as certain employee wages, salaries and benefits, certain taxes and fees, customer obligations, obligations to logistics providers and pre-petition amounts owed to certain critical vendors. The Company also expects to honor payments to vendors and other providers in the ordinary course of business for goods and services received after the Petition Date. The Company has received Bankruptcy Court approval to retain legal and financial professionals to advise the Company in connection with the Chapter 11 Cases and certain other professionals to provide services and advice in the ordinary course of business. From time to time, the Company may seek Court approval to retain additional professionals as deemed necessary.

Debtor-in-Possession Financing

DIP Term Loan Facility

In connection with the filing of the Bankruptcy Petitions, on April 3, 2019, the Company entered into a New York law-governed senior secured term loan agreement (the “DIP Term Loan Facility”), among Hexion LLC (“Holdings”), the Company, Hexion International Holdings B.V. (the “Dutch Borrower”), which was amended on April 17, 2019, the lenders party thereto and JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent and collateral agent (the “Term Loan Agent”). The proceeds of the DIP Term Loan Facility were loaned by the Dutch Borrower to the Company pursuant to an intercompany loan agreement (the “Intercompany Loan Agreement”) and were used in part to repay in full the outstanding obligations under the Company’s existing asset-based revolving credit agreement ABL Facility (“ABL Facility”).

The DIP Term Loan Facility has an 18-month term unless, prior to the end of such 18 month period, a plan of reorganization filed in the Chapter 11 Cases is confirmed pursuant to an order entered by the Bankruptcy Court, in which case, the DIP Term Loan Facility will terminate on the effective date of such plan. The amount committed and made available under the DIP Term Loan Facility is $350. The DIP Term Loan Facility bears interest based on, at the Company’s option, an adjusted LIBOR plus 2.75%.

The DIP Term Loan Facility has a minimum liquidity covenant of $35 tested at the close of each business day. Liquidity is defined as global unrestricted cash plus DIP ABL Facility excess availability.

The security arrangements for the DIP Term Loan Facility include a Dutch-law governed pledge over the equity of the Dutch Borrower’s direct subsidiary Hexion Holding B.V., a Dutch-law governed pledge over the Dutch Borrower’s rights and interest under the Intercompany Loan Agreement and first-priority liens on the unencumbered equity interests directly owned by, and all other unencumbered tangible and intangible property that is neither Notes Priority Collateral nor ABL Priority Collateral (as such terms are defined in the Company’s existing ABL Intercreditor Agreement, dated as of March 28, 2013, by and among JPMorgan, as the ABL facility collateral agent, Wilmington Trust, National Association, as applicable first-lien agent and first-lien collateral agent, the Company and its subsidiaries party thereto) of, the Debtors, in each case subject to certain exceptions and permitted liens.

DIP ABL Facility

In connection with the filing of the Bankruptcy Petitions, on April 3, 2019, Holdings, the Company and certain of its subsidiaries (collectively, the “Borrowers”), the lenders party thereto, JPMorgan, as administrative agent, and JPMorgan, as collateral agent (the “DIP ABL Collateral Agent” and together with the DIP Term Loan Facility, the “Credit Facilities”), entered into an amended and restated senior secured debtor-in-possession asset-based revolving credit agreement , which was further amended on May 10, 2019 (the “DIP ABL Facility”), which amended and restated the Company’s ABL Facility among Holdings, the Company, the Borrowers, the lenders party thereto, JPMorgan, as administrative agent, and JPMorgan, as collateral agent.

The DIP ABL Facility has an 18-month term unless, prior to the end of such 18 month period, a plan of reorganization filed in the Chapter 11 Cases is confirmed pursuant to an order entered by the Bankruptcy Court, in which case, the DIP ABL Facility will terminate on the effective date of such plan. Availability under the ABL Facility is $350. The DIP ABL Facility is also subject to a borrowing base that is based on a specified percentage of eligible accounts receivable and inventory and, in certain foreign jurisdictions, machinery and equipment.

The DIP ABL Facility bears interest based on, at the Company’s option, an adjusted LIBOR rate plus an applicable margin of 2.00% to 2.50% based on excess availability or an alternate base rate plus an applicable margin of 1.00% to 1.50% based on excess availability. In addition to paying interest on outstanding principal under the DIP ABL Facility, the Company will be required to pay a commitment fee to the lenders in respect of the unutilized commitments at an initial rate equal to 0.50% per annum, subject to adjustment depending on the usage.

The DIP ABL Facility also has a minimum liquidity covenant of $35 tested at the close of each business day.

The DIP ABL Facility is secured by, among other things, first-priority liens on most of the inventory and accounts receivable and related assets of the Company, its domestic subsidiaries and certain of its foreign subsidiaries, and, in the case of certain foreign subsidiaries, machinery and equipment (the “DIP ABL Priority Collateral”), and second-priority liens on certain collateral that generally includes most of the Company’s, its domestic subsidiaries’ and certain of its foreign subsidiaries’ assets other than DIP ABL Priority Collateral (the “DIP Term Loan Priority Collateral”), in each case subject to certain exceptions and permitted liens.

Restructuring Support Agreement

On April 1, 2019, the Debtors entered into a Restructuring Support Agreement (the “Support Agreement”) with equityholders that beneficially own more than a majority of the Company’s outstanding equity (the “Consenting Sponsors”) and creditors holding more than a majority of the aggregate outstanding principal amount of each of the Company’s 6.625% Notes and 10.00% Notes, (the “1L Notes”), 13.750% 1.5 lien notes due 2022 issued by Hexion Inc. (the “1.5L Notes”), 9.00% second lien notes due 2020 issued by Hexion Inc. (the “2L Notes”), 9.20% Debentures due 2021 and/or 7.875% Debentures due 2023 issued by Borden, Inc. (the “Unsecured Notes”) (the “Consenting Creditors” and, together with the Consenting Sponsors, the “Consenting Parties”). The Support Agreement incorporates the economic terms regarding a restructuring of the Debtors agreed to by the parties reflected in a term sheet attached as Exhibit A to the Support Agreement. The restructuring transactions will be effectuated through a plan of reorganization (the “Plan”) to be proposed by the Debtors.

Pursuant to the Support Agreement, each of the Debtors and the Consenting Parties has made certain customary commitments to each other. The Debtors have agreed to, among other things, use commercially reasonable efforts to make all requisite filings with the Bankruptcy Court and continue to involve and update the Consenting Creditors’ representatives in the bankruptcy process; respond to diligence requests from certain of the Consenting Creditors’ representatives; and satisfy certain other covenants set forth in the Support Agreement. The Consenting Parties have committed to support and vote for the Plan and have agreed to use commercially reasonable efforts to take, or refrain from taking, certain actions in furtherance of such support.

The Support Agreement contains milestones for the progress of the Chapter 11 Cases (the “Milestones”), which include the dates by which the Debtors are required to, among other things, obtain certain orders of the Bankruptcy Court and consummate the Debtors’ emergence from bankruptcy. Among other dates set forth in the Support Agreement, the agreement contemplates that the Bankruptcy Court shall have entered the Disclosure Statement Order (as defined therein) no later than 90 days after April 1, 2019 and that the Company shall have emerged from bankruptcy no later than 150 days after April 1, 2019, both of which are subject to an extension of up to the number of days (not to exceed 35 days) by which the Company’s deadline to file its schedules of assets and liabilities and statements of financial affairs is extended beyond 45 days, in the event the Company receives such an extension from the Bankruptcy Court.

Each of the parties to the Support Agreement may terminate the agreement (and thereby their support for the Plan) under certain limited circumstances. Any Debtor may terminate the Support Agreement upon, among other circumstances:


•	Its board of directors, after consultation with legal counsel, determining in good faith that performance under the Support Agreement would be inconsistent with its fiduciary duties;


•	The failure of Consenting Creditors to hold, in the aggregate, at least 66 2/3% of the aggregate principal amount outstanding of each of the (a) 1L Notes, (b) 1.5L Notes, and (c) 2L Notes and the Unsecured Notes, in each case, at any time after April 5, 2019; and


•	Certain actions by the Bankruptcy Court, including dismissing the Chapter 11 Cases or converting the Chapter 11 Cases into cases under chapter 7 of the Bankruptcy Code.

The Consenting Parties also have specified termination rights, including certain termination rights similar to the Debtors. The Consenting Creditors’ termination rights may be exercised by the Required Consenting First Lien Noteholders, the Required Consenting 1.5L Noteholders or the Required Consenting Crossholder Noteholders (each as defined in the Support Agreement). Additionally, such parties may terminate the Support Agreement upon any acceleration or termination of the Credit Facilities or if any of the Milestones have not been achieved, extended, or waived within three business days after such Milestone.

The Support Agreement is subject to approval by the Bankruptcy Court, among other conditions. Accordingly, no assurance can be given that the transactions described therein will be consummated.

Significant Bankruptcy Court Actions

Following the Commencement Date, the Bankruptcy Court entered certain interim and final orders facilitating the Debtors’ operational transition into Chapter 11. These orders authorized the Debtors to, among other things, pay certain pre-petition employee expenses and benefits, use their existing cash management system, maintain and administer customer programs, pay certain critical and foreign vendors, honor insurance-related obligations, and pay certain pre-petition taxes and related fees on a final basis, and approved the Credit Facilities on an interim basis. The Bankruptcy Court approved the Credit Facilities on a final basis on May 1, 2019.