Gibson Dunn Bondholder Group Considers Providing New Money to Ailing Kem One; Contemplates Potential Uptiering Transaction for Its Existing 2028 Holdings

Relevant Items:
Forward Model – Q2’25 (Excel Download)
Sustainability-Linked 2028 SSNs – Prelim OM
Covenant Analysis
Historical Financials on Fundamentals by Octus

A group of Kem One’s bondholders led by investment funds Arini and BlackRock and advised by Gibson Dunn is considering providing new super senior money to the French chemicals producer and potentially uptiering its 2028 senior secured bond holdings into new 1.5 lien notes, sources told Octus.

The ad hoc Gibson Dunn group consists of around two-thirds of the company’s €450 million 2028 senior secured notes, which are quoted at 28-mid, the sources said.

According to sources, the potential deal, which is one among many options considered, would see the Gibson Dunn group raise new debt under the remainder of the 2028 SSN’s super senior debt basket – €47.5 million of super senior debt capacity available above the existing €200 million super senior facilities, as calculated by Octus covenant analysts. The Gibson Dunn group may also raise extra money to potentially repay part or the whole super senior facility provided by Monarch (mostly) and Arini, and uptier its existing SSN holdings into new 1.5 notes ranking above the remaining 2028 notes, but below the super senior financing, the sources said.

The intercreditor agreement, which sets out the ranking of Kem One’s debt in terms of right of payment, lien priority and right to receive proceeds from the enforcement of collateral, requires each class of creditors to approve any amendments to the agreement that relate to ranking, priority and application of proceeds, among other things. Accordingly, the Gibson Dunn group will need to represent a sufficient majority of the 2028 SSNs to approve the uptiering on behalf of all 2028 noteholders and it will need to get a sufficient majority of the super senior lenders on board as well.

Under the 2028 SSNs, an amendment to “expressly subordinate the notes or any Guarantee” to any other debt of the issuer or a guarantor requires the consent of holders of at least 90% of the outstanding SSNs. That would rule out a non-pro-rata uptiering in terms of right of payment. However, it is less likely that it would also cover a change to the application of proceeds from collateral enforcement, provided the payment ranking remains unchanged, in which case such an amendment could be made with the consent of a simple majority (50.01%) of noteholders.

On that basis, the Gibson Dunn group (assuming it constitutes a majority of the SSNs) could amend the intercreditor agreement to split the enforcement proceeds waterfall currently occupied by the SSNs in two, with proceeds going first to the uptiered SSNs of the Gibson Dunn group and second to the non-participating noteholders.

Also, while the terms of the SSNs would appear to permit an uptiering on the basis described above, that interpretation could well be challenged by the non-participating noteholders and the ad hoc group may need to factor in any potential litigation that may ensue.

Any amendment to payment or enforcement proceeds priority in the intercreditor agreement would also require the consent of the super senior lenders, although it isn’t clear what the requisite consent threshold is, whether it is a simple majority, a super majority or each lender. However, the need to bring the super senior lenders on board could well explain why the Gibson Dunn group might want to refinance part or all of the existing super senior debt as part of the overall transaction.

Sources indicated that the uptiering/new-money deal being potentially considered might not be offered pro rata to all Kem One’s senior secured noteholders, but only to those who are part of the Gibson Dunn group. However, other sources said that a pro rata deal is being considered too, and no decision has been made yet. The ad hoc group’s deliberation may not result in a transaction, the sources cautioned.

As reported, in March investment funds Arini and Monarch provided a €200 million five-year financing to the French chemicals group to fund its long-term business plan and to repay €100 million of existing revolving debt and related revolving commitments.

Irrespective of a new capital injection, the company also needs a rightsized capital structure.
With €136.7 million in liquidity, negative €12 million of EBITDA for the twelve months to June 2025 and net debt of €583 million, Octus estimated that the company has until the second quarter of 2026 before liquidity runs out. However, one source said the company’s runway could end even sooner.

Octus expects that Kem One stakeholders will need to start some form of voluntary proceedings soon. Note that the company needs to be solvent to enter a mandat ad hoc or conciliation process (in the case of the latter any suspension of payments must be for less than 45 days).

In a recent restructuring options analysis, Octus calculated that, in a base-case scenario, Kem One’s value would break within the senior secured tranche with a 35% recovery, pointing to significant impairments in the SSNs. The projection also pointed out that sponsor Apollo was at risk of losing control unless it brought sufficient capital to support the business.

PJT and Weil Gotshal & Manges have been working with Apollo since January to help the company raise liquidity aimed at completing its investment cycle, which amounted to around €450 million of capex over the last three years, as reported.

Apollo’s U.S. team acquired Kem One in 2021 from De Krassny GmbH, but the sponsor’s European team has been managing it since January 2024, Octus previously reported.

Formerly part of French specialty materials manufacturer Arkema’s vinyl products division, Kem One was sold to Klesch Group in 2012. After underinvestment and strategic issues, it entered into receivership in 2013. In late 2013, Kem One was acquired by Alain de Krassny and OpenGate Capital. The French government supported the company’s restructuring with a €125 million bailout package. By 2018, Kem One had exited receivership, six years early, fully repaying debts and government loans ahead of schedule. This was facilitated by a favorable economic climate and operational improvements.

The total consideration for Apollo’s acquisition at that time is estimated to have been about €704 million, based on a total enterprise value of €600 million and a net cash position and other adjustment items of €104 million. Apollo injected around €245 million of cash to pre-fund part of Kem One’s capex, particularly the bipolar membrane project in its Fos-sur-Mer site. With pro forma cycle average normalized EBITDA of €149.6 million, the valuation implies an EV multiple of 4x; however, that is a depressed multiple because of the significant capex requirement at the time.

Arini and Apollo declined to comment, while BlackRock, Gibson Dunn and Kem One did not respond to Octus’ request for comment.

Kem One’s capital structure as of June 30, 2025, is below: