💥New Chapter 11 Bankruptcy Filing - Ascend Performance Materials Holdings Inc.💥
Nylon manufacturer files BK to deleverage its balance sheet.
On April 21, 2025, Houston-based Ascend Performance Materials Holdings Inc. (“Ascend”) and 10 affiliates (collectively, with Ascend, the “debtors” and together with their non-debtor affiliates, the “company”) filed chapter 11 bankruptcy cases in the Southern District of Texas (Judge Lopez). The company makes nylon, a specific type of it actually – nylon 6,6 or “PA66” and “chemical intermediates and downstreams thereof.”* PA66 is used in applications that require impact-, heat-, abrasion-, and chemical-resistance, and you can find the company’s products in dang near everything on the market, from heating and cooling systems, automotives, air bags, electronics, and batteries to industrial cleaners, carpet, toothbrushes, and even athletic apparel. Specifically, this type of stuff:
In fact, they have quite a hold on that market, with PA66 being used in ~50% of Lululemon Athletica Inc.’s ($LULU) “Nulu” yoga pants and sports bras. Here’s a breakdown of the company’s revenue from its various nylon precursors and products.**
Since ‘20, those products have contributed to average annual revenues of $2.7b, and the company cooks up its synthetics at 11 manufacturing facilities spread across North America, Europe, and Asia.
Honestly, for nerds, including certain folks at PETITION, this is a pretty cool and interesting company. It’s not that often you find a debtor making chemicals and compounds used in so many, diverse industries …
… so you might be wondering what went wrong.
Starting in mid-’22, the company started facing headwinds from the standard stuff: “global economic malaise, reduced demand, and increased competition out of China.” Per the debtors, the manufacturing industry, in particular, has been slow to recover to pre-pandemic levels of production, which, in turn, has reduced demand for the company’s products and caused the price of PA66 to drop about 45% from its COVID-peak. On top of that, China has been cranking its output to 11 over the past 6 years, growing its intermediates production capacity 93% and its downstream production capacity 64%, and “[s]everal of these new Chinese entrants have also adopted aggressive pricing strategies to gain market share, including selling chemical intermediates and downstream products at a cash loss (or pursuant to subsidies from the Chinese government),”*** which forced the company to choose between cutting its own prices or losing customers. Altogether and combined with its own long-term “take or pay” supply contracts, the company experienced liquidity strains and eroded margins and had to sell its own products at a loss. The effects have been devastating: since ‘22, gross profits have compressed nearly 4% and EBITDA plummeted ~56%.****
To combat its circumstances, the company began proactively implementing “cost rationalization measures” toward the end of ‘22, including reducing headcount by 25%, shrinking its footprint, executing $250mm of sale-leasebacks, and factoring foreign A/R. Notwithstanding those efforts though, cash collections kept falling. By Q424, “the Company’s liquidity crisis became increasingly severe,” so it took the next logical step and started deferring vendor payments, which peaked at $110mm in late February ‘25. And vendors, naturally, were pissed and responded by imposing tighter payment terms (including cash in advance) or “deferring” the supply of goods and services altogether.
Against that backdrop and with debt maturities approaching in ‘26 (discussed 👇), the company hired Kirkland & Ellis LLP (“K&E”) (Chris Marcus, Derek Hunter, Orla O’Callaghan, Nikki Gavey, Oliver Pare, Megan Feeney) and PJT Partners, Inc. ($PJT) (Matthew O’Connell) in late January 2025 to explore refinancing and restructuring options. Concurrently, the company brought on Todd Arden and Charles Piper to serve as independent directors on Ascend’s board. A week after that, on February 7, 2025, FTI Consulting, Inc. ($FCN) (“FTI”) (Robert Del Genio) rounded out the restructuring-firm-trio to assist in work streams, provide a CRO, and manage liquidity (and, obvi, prep for bankruptcy).
Around the same time, the company and its advisors also opened up a dialogue with an ad hoc group of term loan lenders (the “ad hoc group”),***** represented by perennial-fave Gibson, Dunn & Crutcher LLP (Scott Greenberg, Jason Goldstein, AnnElyse Scarlett Gains, Tommy Scheffer) and Evercore, Inc. (Sagar Vaidya, Kevin Miri, Itai Almogy), “regarding a potential bridge financing facility and a value-maximizing path forward” and to avoid a plant shutdown. Those convos continued for a month or so until March 7, 2025, when the company and the ad hoc group agreed on a $40mm super-senior term loan facility, which could be later upsized by another $60mm. On the same day, the company appointed Michael Wartell to Ascend’s board and created a special committee composed of him, Mr. Arden, and Mr. Piper (collectively, the “disinterested directors”).
Recall that $60mm upsizing potential? A couple weeks later, it turned out – whoops! – that wasn’t enough. Instead, the ad hoc group ended up kicking in an additional $80mm between March 25 and April 1, 2025 to float the company to a filing, which resulted in this prepetition capital structure:
In any event, here we are in chapter 11, and the company has “the support of its key stakeholders to implement a value-maximizing restructuring transaction which will deleverage the Company’s balance sheet and enable Ascend to emerge from chapter 11 stronger than ever, with a leaner balance sheet and more competitive business.” What’s that “value-maximizing restructuring transaction” going to look like? Good question because there ain’t a restructuring support agreement providing a specific form (or at least one hasn’t been mentioned). But there is a DIP. Two actually.
The first is a $500mm DIP revolver, composed of all commitments under the prepetition ABL facility and features an interim creeping roll-up of the prepetition ABL and a final roll-up of all remaining amounts. It permits borrowings in multiple currencies, but for USD SOFR loans, interest is at Term SOFR, plus a “credit support adjustment” of 0.1%,****** plus 3.5%, payable in cash, and the facility carries a 0.25% unused line fee.
The second is a headline $400mm fully-backstopped DIP term loan facility, composed of $250mm in new money loans ($150mm interim) and an interim roll-up of the bridge facility in full (which no one batted an eye at during the first-day hearing). For SOFR loans, its interest rate is Term SOFR, plus a credit support adjustment of 0.11448%,******* plus 10% (8.5% PIK, the rest cash). There is a backstop fee of 10% and a closing fee of 0.75%, each PIK on the new money piece and due and payable on entry of the interim order. And while that may look like a lot of funding, the debtors are going to need it because they have about $206.9mm ($125.1mm interim) in prepetition vendor claims they need (or maybe want) to pay during the bankruptcy.
To ensure the cases stay on track to an exit – whatever it ends up being – the DIPs have the following case milestones:
The court held a first-day hearing on April 22, 2025, during which MasTec Power Corporation ($MTZ) (“MasTec”) got up to talk about some now-stayed litigation with the debtors relating to a construction agreement, without objecting to a single thing. Long-story short, MasTec and the debtors have some beef relating to a letter of credit the debtors drew in the week leading up to the filing, which MasTech thinks wasn’t proper, and while that’s being sorted, the Southern District of Texas’s district court is going to hold onto the cash for them (which is about $13.3mm). The court also scheduled a second-day hearing for May 21, 2025, where we’ll hopefully get a little more insight into the exit.
The debtors are represented by K&E and Bracewell LLP (Jason Cohen, Jonathan Lozano) as US legal counsel, Morgan, Lewis & Bockius UK LLP as UK legal counsel, Loyens & Loeff N.V. as Dutch legal counsel, FTI as financial advisor and CRO, PJT as investment banker, and Deloitte LLP as tax advisor. The disinterested directors are represented by Katten Muchin Rosenman LLP as legal counsel. The ad hoc group is represented by Gibson, Dunn & Crutcher LLP and Howley Law PLLC (Tom Howley, Eric Terry) as legal counsel and Evercore, Inc. as financial advisor. Wilmington Savings Fund Society, FSB ($WSFS), as DIP and prepetition term loan agent, is represented by ArentFox Schiff LLP (Jeffrey Gleit, Brett Goodman, Matthew Bentley). Wells Fargo Capital Finance, LLC ($WFC), as DIP and prepetition ABL agent, is represented by Greenberg Traurig, LLP (Julia Frost-Davies, Leo Muchnik, T. Charlie Liu, Shari Heyen, David Eastlake) as US legal counsel, Mayer Brown International as UK legal counsel, and Carl Marks Advisory Group LLC as financial advisor. SK Titan Holdings LLC, the company’s sponsor, is represented by Latham & Watkins LLP (David Hammerman, Jonathan Gordon) as legal counsel. MasTec is represented by Quinn Emanuel Urquhart & Sullivan, LLP (Patricia Tomasco, Victor Noskov, Bennett Murphy, Elinor Sutton) as legal counsel.
*For some reason, the debtors really want you to know that nylon was the first synthetic fiber, invented by E.I. du Pont de Nemours & Company (aka DuPont) way back in 1938. They also want you to know that rayon had been invented before that, but it was only a semisynthetic because it derives from cellulose (wood pulp for the unscienced). Synthetic fibers come from “simpler compounds like oil and coal,” which was probably preferred in ‘38 but is obviously a less green process. But don’t worry, the company also has sustainable products and, per K&E’s Chris Marcus, has “reduced their own emissions by 75% since 2018” – no doubt with the help of reduced demand.
**The HCN in the chart is hydrogen cyanide, which smells like almonds but, unlike almonds, will poison the sh*t out of and kill you. Because it’s so toxic and not easily transportable either, the company would typically dispose of it on site, presumably by mixing it with other, neutralizing reagents. But the debtors even found a way to turn a lethal toxin into a non-murder-based business, creating a “guest program” with 9 strategic partners to utilize their facilities and specifically the HCN. In ‘24, the program generated ~$85mm in revenue and ~$167mm in cost recovery for the company.
***Take the debtors’ China rhetoric with a grain of salt because the US plastics industry also receives substantial government subsidies.
****The company also experienced one-time setbacks in the form of (i) a fire at its Pensacola facility, (ii) freezing January ‘25 temperatures in Texas, which necessitated the temporary shutdown of a facility due to an inability to process toxic chemicals at those temps, and (iii) the closure of the Wilson Lock in September ‘24 due to the discovery of cracking in the lock’s gates. To date, the lock is still closed, which has been a logistical nightmare for the company because it’s the only waterway to and from its Decatur, AL facility. What used to be a 2-week barge trip is now a 30-day trucking excursion, at an increased cost of $4mm through the first two quarters of the company’s FY25.
*****Per docket 61 and based on their bridge loan holdings, the ad hoc group initially consisted of (i) Apex Credit Partners, (ii) ArrowMark Partners, (iii) Bank of America N.A., (iv) Blue Owl, (v) Elmwood Asset Management, (vi) Invesco, (vii) MJX Asset Management, (viii) Nuveen Asset Management, (ix) Signal Peak Capital Management, (x) Silver Point Capital, (xi) Sound Point Capital Management, (xii) Sycamore Tree Capital Partners, (xiii) UBS Asset Management, (xiv) Voya Investment Management, (xv) Western Alliance Bank. At some point, Saranac (which owns no bridge loans) likely joined the group, followed by, per docket 69, Strategic Value Partners (same).
******Kudos to K&E for not hiding the ball on that adjustment in the DIP motion.
*******Nevermind, give us our kudos back.
Company Professionals:
Legal: Kirkland & Ellis LLP (Chris Marcus, Derek Hunter, Orla O’Callaghan, Nikki Gavey, Oliver Pare, Megan Feeney) and Bracewell LLP (Jason Cohen, Jonathan Lozano)
Disinterested Directors: Michael Wartell, Todd Arden
Legal: Katten Muchin Rosenman LLP
Financial Advisor/CRO: FTI Consulting Inc. (Robert Del Genio)
Investment Banker: PJT Partners LP (Matthew O’Connell)
Claims Agent: Epiq (Click here for free docket access)
Other Parties in Interest:
Ad Hoc Group: (i) Apex Credit Partners, (ii) ArrowMark Partners, (iii) Bank of America N.A., (iv) Blue Owl, (v) Elmwood Asset Management, (vi) Invesco, (vii) MJX Asset Management, (viii) Nuveen Asset Management, (ix) Signal Peak Capital Management, (x) Silver Point Capital, (xi) Sound Point Capital Management, (xii) Sycamore Tree Capital Partners, (xiii) UBS Asset Management, (xiv) Voya Investment Management, (xv) Western Alliance Bank, (xvi) Saranac, (xvii) Strategic Value Partners
Legal: Gibson, Dunn & Crutcher LLP (Scott Greenberg, Jason Goldstein, AnnElyse Scarlett Gains, Tommy Scheffer) and Howley Law PLLC (Tom Howley, Eric Terry)
Financial Advisor: Evercore, Inc. (Sagar Vaidya, Kevin Miri, Itai Almogy)
DIP and Prepetition Term Loan Agent: Wilmington Savings Fund Society, FSB
Legal: ArentFox Schiff LLP (Jeffrey Gleit, Brett Goodman, Matthew Bentley)
DIP and Prepetition ABL Agent: Fargo Capital Finance, LLC
Legal: Greenberg Traurig, LLP (Julia Frost-Davies, Leo Muchnik, T. Charlie Liu, Shari Heyen, David Eastlake) and Mayer Brown International (UK counsel)
Financial Advisor: Carl Marks Advisory Group LLC
Sponsor: SK Titan Holdings LLC
Legal: Latham & Watkins LLP (David Hammerman, Jonathan Gordon)
Litigation Counterparty: MasTec Power Corporation
Legal: Quinn Emanuel Urquhart & Sullivan, LLP (Patricia Tomasco, Victor Noskov, Bennett Murphy, Elinor Sutton)