23 June 2009 23:37 [Source: ICIS news]
By Joseph Chang
NEW YORK (ICIS news)--Huntsman will consider using its settlement with lenders to pay down debt in addition to the announced payoff of $295m (€212m) in senior secured notes due 2010, chief financial officer Kimo Esplin said on Tuesday.
Earlier on Tuesday, Huntsman announced a $1.73bn cash and financing settlement with Credit Suisse and Deutsche Bank stemming from its failed $10.6bn attempted merger with Hexion Specialty Chemicals.
“We have this cash, and we also have $200m in 11.5% debt coming due 2012. So this is something we’d consider paying down,” said Esplin in an interview with ICIS.
“We’ll also significantly reduce or eliminate our undrawn $650m revolver [revolving credit facility]. When you have $1.7bn in cash, there’s not a lot of need for an unused credit facility,” he added.
Fees are typically paid for a revolving credit facility, even if it is unused.
With the elimination of the revolving credit facility, Huntsman would be free of meeting any maintenance financial covenants, explained Esplin.
“Credit ratings agencies have been concerned about near-term debt maturities, liquidity and covenants,” he added. “We’ve addressed the first two, and if we eliminate the revolver, there are no maintenance covenants left anywhere in the capital structure.”
The company earlier announced it expected to use some of the settlement proceeds to pay down $295m in 11.625% senior secured notes due 2010.
In the settlement, Huntsman gets $632m in cash, plus $1.1bn in loans from the banks.
The financing portion of the settlement consists of $500m in senior secured 7-year term loans with an interest rate of LIBOR (?xml:namespace>
Huntsman initially sought more than $4bn in damages against the lenders in a trial that began last week in a
Huntsman will save considerable interest expense with the new loans on attractive terms, said Esplin.
For example, the annual interest it pays on $295m of its 11.625% debt due 2010 and $200m of its 11.5% due 2012 amounts to about $57m, noted Esplin.
In comparison, the annual interest on its new $500m term loan at around 3% (3-month LIBOR plus 2.25%) is about $15m, he pointed out.
In comparison with the low rates on the new debt, yields on Huntsman’s unsecured notes are at around 13.5%, and subordinated debt around 17%, he added.
Esplin downplayed the reaction from some on Wall Street who were disappointed with the settlement.
“I’ve spoken with about 20 of our top shareholders and they’re all thrilled with the settlement. There may have been some short-term hedge fund players that were in the stock - not for the fundamentals but for [an expected] pop in the settlement,” said Esplin.
“They’re naïve to think that you’re going to come out of
($1 = €0.72)
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