Hexion projects liquidity adequate; could breach covenant if downturn continues

By Jennifer Lanning Drey

Portland, Ore., March 12 - Hexion Specialty Chemicals, Inc. expects to have adequate liquidity to fund ongoing operations for the foreseeable future from cash flows from operations, borrowings under its credit facility and amounts from its parent, the company reported in conjunction with its fourth-quarter earnings Thursday.

The company ended 2008 with $3.86 billion of debt and was in compliance with all of its debt covenants at Dec. 31, Craig Morrison, chief executive officer of Hexion, said during a conference call held to discuss fourth-quarter results.

However, Hexion's earnings release noted that if the downturn in the economy continues at current levels, the company could fail to comply with the senior secured bank leverage ratio covenant in its senior secured credit facility.

The company had year-end liquidity of $418 million, which included $121 million of cash and cash equivalents, $7 million of short-term investments, $42 million of borrowings available under its senior secured revolving credit facilities and $48 million of borrowings available under additional credit facilities.

In addition, the amount included a $200 million commitment from affiliates of its owners Apollo Management, granted under the Hexion merger settlement agreement with Huntsman. Under the agreement, Apollo has committed to purchase $200 million of preferred units and warrants of Hexion LLC by Dec. 31, 2011.

Hexion has already received $100 million in cash with the funding of an unsecured loan as a component of the $200 million commitment, William Carter, chief financial officer of Hexion, said during the call.

"In addition to our normal cash management actions, we are highly focused on leveraging Apollo's $200 million equity commitment. This incremental investment will be extremely beneficial during this downturn," Morrison said during the call.

Revenues drop as demand wanes

Hexion posted fourth-quarter sales of $1.18 billion, down from $1.48 billion in the prior-year quarter as lower volumes more than offset increased pricing.

In light of the economic environment, Hexion is taking steps to improve cash flow in 2009 including reducing discretionary spending, decreasing capital expenditures and making plans to further reduce working capital.

The company expects the recessionary trends of the fourth quarter to continue into the first quarter and the overall economic environment to remain challenging throughout the year, Morrison said.

"Our focus during this turbulent time period is clear, with a strong emphasis on cost reduction and cash conservation to fit the current economic conditions," he said.

Hexion posted a fourth-quarter net loss of $921 million compared with a net loss of $63 million in the fourth quarter of 2007.

"It was a challenging quarter by many measures and while we were disappointed with the financial results, we are proactively addressing the issues to ensure that we manage our way through the recessionary period and are well-positioned to succeed once the economic environment improves," Morrison said.

Based in Columbus, Ohio, Hexion makes thermoset resins. Huntsman is a Salt Lake City manufacturer of differentiated chemicals and pigments.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.