Penn Specialty Chemicals, Inc. – Lyondell

Client Profile
Penn Specialty Chemicals, Inc. (“Penn” or the “Company”)Debtor-In-Possession, is among the top three global producers and marketers of: (i) polytetramethylene ether glycol (PTMEG); (ii) tetrahydrofuran (THF), and (iii) furfural and furan based fine chemicals and solvents. These value-added, high-growth specialty chemical products serve a broad range of industry end uses, satisfying stringent product requirements for high-growth segments, such as spandex, thermoplastic polyurethanes (“TPUs”), pharmaceutical intermediates, PVC pipe cement, and precision magnetic tapes.
Situation
In FY2000 and FY2001 Penn Specialty Chemical’s profits suffered from a highly competitive pricing environment, driven principally by a European competitor seeking market share. Additionally, macroeconomic factors posed further challenges to the Company’s financial performance. Fluctuations in the Euro-Dollar exchange rate created unmanaged International exposure due to the Company’s substantial (25%) reliance on product shipped to and from Europe. Natural gas costs increased three fold during first quarter 2001 from the historical level directly affecting bottom line performance in the first quarter. As a result, on July 9, 2001, the Company filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.
Solution
SSG was retained by Penn Specialty Chemicals to explore strategic alternatives including a sale of assets under Section 363 of the Bankruptcy Code, or a Reorganization. Ultimately, SSG determined that the highest and best value to the estate could be achieved by entering into a Toll Processing Arrangement (“TPA”) with the Company’s largest supplier and unsecured creditor, Lyondell Chemical Company, for production of THF and PTMEG. SSG helped to negotiate and structure a TPA agreement that brought adequate liquidity into the estate to effectuate a Plan of Reorganization, allowing Penn Specialty Chemicals emerge from Bankruptcy and continue operations.