OQ Chemicals Holding Drei GmbH

APPROVED JUDGMENT

These are applications by a German company, OQ Chemicals Holding Drei GmbH, which I shall call the German borrower, and a Delaware company, OQ Chemicals Corporation which I shall call the US borrower, for orders in each instance to convene a single meeting of each company's Scheme Creditors, to consider and if thought fit, to approve two materially identical and inter-conditional schemes of arrangement, pursuant to part 26 of the Companies Act 2006.

The proposed timetable is that notices and the explanatory statement are intended to be sent out no later than 19 August, that the scheme meetings will be held on 10 September and that the sanction hearing will take place, if the schemes are approved at the scheme meetings, on 2 October 2024.

Each of the scheme companies is a member of the OQ Chemicals group, a global leader in the production and sale of oxo chemicals. Its headquarters are in Germany and it operates six production sites across Germany, the USA, China and the Netherlands. The ultimate shareholder is an Omani entity owned by the Oman Investment Authority.

The principal purpose of each scheme is to enable each company to extend to 31 December 2026 the maturity of two term loans and a revolving loan facility, both of which currently mature on separate dates two days apart, in mid-October 2024.

The term debt and the revolving credit facility are governed by the terms of a credit agreement originally dated 11 October 2017 and originally governed by New York law, with an exclusive jurisdiction clause in favour of the New York courts. I shall revert shortly to an issue which arises on the governing law. The term loans comprise a euro tranche with a principal of approximately 510 million euros outstanding and a US dollars tranche with principal of approximately US$435 million outstanding. A sum of approximately 31 million euros is outstanding under the revolving facility. There are currently 337 term lenders and two revolving facility lenders.

Both the German borrower and the US borrower are co-obligors under the term loans and both of them, together with several other entities, are guarantors of the credit agreement. The US borrower is a co-obligor of the revolving loans, together with other group entities, not including the German borrower. Both the term loans and the revolving loans are secured and benefit from the same security package, which includes security over the shares in certain group entities incorporated in the United States and Germany. The security interests are governed by German law and the law of various US states.

The credit agreement itself is now governed by English law, although the English law and English jurisdiction provisions were only introduced by the contractually required 50 per cent consent threshold on 12 July 2024, for the purpose of facilitating the schemes (when the amendment was approved by c.68.7 per cent by value of lenders under the credit agreement. I understand that, as of 26 July 2024, 91 per cent of lenders by value had signed the relevant amendment.

The scheme companies are unaware of any active opposition to their proposals but a number of the variations in creditors' rights sought to be achieved by sanction of the schemes require 100 per cent lender consent and there are a number of lenders who, for various reasons, are unable to vote in favour of the schemes because, principally certain constitutional, governance or legal restrictions to which they are subject.

The group as a whole is in some financial difficulties caused in part by the pandemic, rising interest rates, higher raw material prices, cost inflation in the procurement market and what has been called an unforeseeable production outage in Oberhausen. It has been unable to obtain further injections of capital from its shareholders which have also withdrawn its liquidity support. On the withdrawal of that support on 30 March 2024, certain of its term lenders agreed to form an ad hoc group to work on a restructuring solution. They were represented at the hearing before the court today by Mr Al-Attar KC.

The ad hoc group is now made up of lenders owed marginally in excess of 75 per cent by value of the aggregated loans which means that its members are in a position to make some but not all of the required amendments to the credit agreement. Among the amendments which they are not in a position to procure are the debt extension maturities which are the principal subject matter of the schemes.

The purpose of the extensions is to give the scheme companies a stable platform from which to pursue an M&A process which they are pursuing in parallel to the schemes. In the absence of the schemes, the German borrower is likely to be forced into a formal insolvency, resulting in a sale of the group's assets. The mechanism by which this is likely to be achieved is considered in a draft report by PwC which shows that, although the businesses themselves would be likely to survive, the recovery for creditors from such an insolvency sale is likely to be worse, as compared to the recovery from the contemplated M&A process without the shadow of a formal insolvency.

On 21 June 2024, the members of the ad hoc group and the scheme companies entered into a restructuring support agreement which I shall call the RSA, setting out the agreed commercial terms of an overarching transaction, part of which involved a proposal for the schemes which are the subject matter of the current application. The other elements of the overarching transaction involved the provision of super priority bridge funding to address the scheme companies' immediate liquidity needs and the execution and consummation of the M&A process to which I have already referred. A timetable for the M&A process has been agreed in principle which will start imminently, with the aim of closing a sale on or before 28 February 2025 at the latest.

The provisions of the RSA and a related shareholder undertaking obliged the scheme companies, the shareholders and the lenders acceding to the RSA to facilitate the schemes and the overarching transaction. As compensation for the time and administrative costs they have spent considering and responding to the RSA, consenting lenders are entitled to an early bird fee of 0.5 per cent if they signed up on or before 12 July and a consent fee of 0.5 per cent, if they become a consenting lender on or before the business day before the scheme meetings.

The ability to accede to the RSA and receive these fees were available to all lenders. As at the date of the application, of this application, 330 of the 337 term lenders with claims approximating to 97 per cent by value of the obligations under the term loans, have acceded to the RSA, as has one of the two revolving lenders holding 66 per cent of the revolving debt. I was informed at the hearing this morning that it is distinctly possible that the remaining revolving lender may in due course accede to the RSA.

On 21 June 2024, some of the ad hoc group lenders entered into a super priority credit agreement in order to provide the group with the super priority bridge funding. Under these arrangements, the participating ad hoc group lenders backstopped and made available a euro and US dollar facility comprising a euro tranche in an aggregate principal amount of 37 million euros and a US dollars tranche of approximately $45 million. A super priority intercreditor agreement was agreed and the super priority indebtedness was secured by additional security provided by the shareholder and some of its subsidiaries, and was drawn down on the day the credit agreement was entered into.

Although initially backstopped by the ad hoc group lenders, on 2 July 2024 the opportunity to participate in the super priority bridge funding was then offered to each of the lenders in an amount proportionate to their pre-existing participation in the loan, on terms (a) that they confirmed their intention to participate no later than 12 July and (b) that they acceded to the RSA.

The original...