Tuesday, March 10, 2009

Another DIP Roll-Up, This Time Milacron

The latest bankruptcy comes from Milacron, a supplier of plastics-processing technologies and industrial fluids. Preventing the company's immediate liquidation is an $80 million DIP ($40 million in new money) obtained from Avenue Capital and DDJ which together held 78% of the Company's $225 million 11.25% now defaulted notes. Additionally, GE would provide Milacron with a $55 million DIP revolver. The hedge funds are hoping to purchase the company's assets in a bankruptcy sale process:
Avenue Capital and DDJ, together with eligible Noteholders who accept an invitation to participate in the transaction, would purchase substantially all of the company’s assets. In return for these assets, the agreement contemplates that, among other things, the participating Noteholders will repay the full debtor-in-possession facilities, including a new revolver, assume certain of the company’s ordinary course liabilities and provide additional consideration to Noteholders who do not participate in the acquisition. The acquisition is intended to permit Milacron to continue as a going concern with substantially less debt.
The theme of existing creditors being unwilling to be crammed down by new secured money continues. New DIP providers will have an uphill battle to climb when convincing pre-petition lenders who are significantly underwater on existing investments (i.e. DDJ and Avenue's bond holdings) and are the de facto equity owners, to bear the risk of reduced recoveries when the cost of throwing some more extra money at the company (thereby buying the time needed for at least an orderly asset sale) is negligible. But we still keep our eyes open for that one elusive case when a DIP comes not from a pre-petition lender but from an external party... Still to come (we revise the assumption that Magna Entertainment's DIP was new money, as the lender was obviously very entrenched in the company's balance sheet). Sphere: Related Content
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