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Chemtura: Formula for Success

The end of 2008 marked the beginning of a perfect storm for the chemical industry, as the financial crisis exacerbated the woes of businesses already facing soaring costs, plummeting prices, declining consumer spending and overcapacity. Unable to access cash to survive amid tight credit markets, many were forced to close plants, cut production and eliminate jobs.

Chemtura Corporation, a Middlebury, Connecticut-based producer of specialty and polymer chemicals (as well as the leading U.S. supplier of pool and spa chemicals), might as well have been in the eye of the storm. The company saw a nearly 40 percent decline in demand for its products. It simultaneously experienced a reduction in overall available liquidity at a time when it would typically purchase raw materials to build inventory for its seasonal crop and pool and spa businesses. To complicate matters, Chemtura faced a looming debt maturity of $370 million in the second quarter of 2009.

By early 2009, the company had less than $10 million of available cash and no additional access to its revolving credit facilities. Besides being unable to build inventory to support the seasonal need for its crop and pool and spa businesses, Chemtura was experiencing recalls of materials by vendors. Its ability to produce products was further hampered by the absence of cash or borrowing capacity. The convergence of these events became evident in the price of the company's bonds, which sunk to approximately $.20 on the dollar.

With its financial and operational conditions deteriorating rapidly, and its ability to stay afloat in question, Chemtura and its lenders looked to Alvarez & Marsal (A&M) for assistance. When the company filed for Chapter 11 soon after, Ray Dombrowski, a Managing Director at A&M, assumed the role of Chief Restructuring Officer (CRO).

Developing a Plan

In the midst of the global liquidity crisis, A&M worked with Chemtura to obtain substantial liquidity through a debtor-in-possession (DIP) financing facility, which was later refinanced on more favorable terms with substantial savings. In addition, A&M stabilized the business, with an immediate focus on improving supply chain operations.

A&M then turned its attention to two main priorities that would serve as the cornerstone of the company's restructuring: developing a long-range business plan (LRBP) and reducing various legacy environmental, litigation and retiree liabilities.

Due to the complexity of Chemtura's operations, $2.5 billion in revenue generated from eight global business units with sales in more than 100 countries, A&M needed to take a bottom-up approach to creating a business plan. By consolidating each of the eight business units' long-range business plans into an overall plan along with strategies for the company's shared service and corporate functions, A&M was able to create a combined solution with three common themes: provide ecologically friendlier products and enhance supply to emerging "clean" industries; improve service to customers and become a preferred provider; and provide global reach.

The End Result

After 19 months, Chemtura emerged from Chapter 11 under a reorganization plan approved by the U.S. Bankruptcy Court that provided creditors with 100 percent recovery, plus post-petition interest. Chemtura was also able to offer a recovery to common equity holders. The backbone of the company's successful emergence was the five-year business plan and the reduction of the company's legacy liabilities.

Ultimately, Chemtura satisfied creditors' claims in cash and / or common stock through $750 million in exit financing and a debt to equity conversion. The plan also provided value to equity holders, significantly reduced debt, improved cost structure, and resolved a considerable amount of environmental and other liabilities for the company.

Today, Chemtura is back on track to become a leading producer of specialty chemicals.