Illustrative AMC Entertainment Waterfall Model Available on Octus; AlixPartners’ McCauley on Challenges Facing Chemicals Sector; Certain Peraton, Multi-Color Corp., Genworth Financial and CSC ServiceWorks Creditors Bring on Advisors

Introducing the Special Sits and Distressed Weekly. The Special Sits and Distressed Weekly dives into recent trends in the world of chapter 11 and prebankruptcy and highlights the most topical work from Octus’ editorial teams on stressed and distressed topics.

By Dia Gill

The chemical sector is in the midst of one of its toughest stretches in recent memory as the market remains weakened by challenged demand and tariff uncertainties.

“It’s actually a tale of two regions with the U.S. and Europe, but overall this is one of the most challenging periods for the chemical industry,” Matt McCauley, global co-leader of energy & process industries at AlixPartners, said.

According to McCauley, the sector has been “demand challenged” since mid-2022 when destocking began, but that, at least in the United States, next year might see the beginning of recovery.

McCauley noted that during this period, the United States is more favorably positioned than Europe, anticipating that the U.S. market will start to see “green shoots” in 2027, while European companies might persist in downturn until 2030.

“If you’re a U.S. chemical executive, you’re effectively looking to weather the storm for the next three to four quarters and prepare yourself for growth,” he explained. “In the European chemical industry, it’s a different environment. It’s actually looking at your footprint, looking at your product lines and understanding where their long term potential lies in that product line.”

The post-“Liberation Day” tariff environment has provoked downturn and uncertainty in a number of sectors, and while chemicals has seen the ripples in its end markets, McCauley believes the sector was well-positioned to handle the sudden onslaught of changes.

“In many chemical companies, you’re actually doing synthesis in one or two locations globally, and then distributing to regions for local formulation,” he said. “And so chemical companies are actually quite mature at managing duties, tariffs, restrictions, registrations across countries.”

Still, weakness persists and continues to keep advisors such as McCauley busy. Among the most affected end markets for chemicals are construction and automotive, both of which have seen limited demand growth and tailwinds as a result of tariffs.

“Our distressed list for chemicals has never been larger,” McCauley said.

How is McCauley advising inbounds from the chemicals sector? First is cash conservation. Second is sustainably reducing the cost structure. And, finally, he is emphasizing the importance of the investor story.

“Many chemical companies serve multiple end markets, and investors struggle to really understand, ‘What is this company? What does it produce? How do I compare it to other companies?’ Because most chemical companies are not really pure play facing one market. And so what you have seen over the past year is chemical companies really try to drive clarity to investors in terms of the products they produce and the end markets they support.”

One way companies have driven this clarity has been separating parts of their businesses. Corteva announced on Oct. 1 that it planned to separate the company into two independent, publicly traded companies. DuPont has planned a separation of its Electronics business targeted for this November. Honeywell last week announced that its board had approved its planned spinoff of Solstice Advanced Materials.

Notable names in the sector include Tronox, Kronos, Trinseo, Chemours and Consolidated Energy.

Read Octus’ U.S. Chemicals Sector Quarterly HERE. Read Octus’ recent analysis of second-quarter earnings for leading titanium dioxide producers Tronox and Chemours HERE.

EchoStar

As EchoStar moves to complete its transformational spectrum sales to AT&T and SpaceX, Octus analyzed the company’s pro forma leverage profile. Reflecting Octus’ base case for estimated tax payments, network wind-down costs and other related adjustments, the company’s $22.4 billion consolidated net debt as of June 30 falls to approximately $321 million on a pro forma basis, including roughly $13.2 billion of pro forma consolidated cash and marketable securities. Octus’ EchoStar coverage is HERE.

Braskem SA

Octus estimates that Brazilian petrochemical producer Braskem burned an implied $341 million during the third quarter on the basis of the reported $2.3 billion total liquidity figure pro forma for its recent $1 billion RCF draw. We expect third-quarter cash burn on a recurring EBITDA less cash interest, taxes and capital expenditure basis of $255 million, under our base case scenario, but note that this is before distributions related to the Alagoas geological event and any working capital swings. Octus’ Braskem coverage is HERE.

AMC Entertainment

Octus has prepared an illustrative waterfall model after the completion of AMC Entertainment’s refinancing transaction in July, which resolved the litigation related to last year’s liability management exercise. In our base case valuation scenario, Muvico 1.5 lien noteholders, which are those creditors that pursued litigation, have positioned themselves to have better recoveries than the remaining AMC 7.5% first lien noteholders, owing to uptiering their claim as part of the LME litigation settlement and refinancing. However, at lower valuations, the AMC 7.5% first lien noteholders may actually recover more than the Muvico 1.5 lien noteholders as those lenders are subject to turnover provisions for the benefit of holders of Muvico first lien term loans. Octus’ AMC Entertainment coverage is HERE.

FXI Holdings

Privately held FXI Holdings disclosed the terms of its anticipated out-of-court transaction to address roughly $1.2 billion of bond borrowings due November 2026, with the company receiving some new money, pushing out maturities and increasing its debt balance, according to sources. The proposed deal by the One Rock Capital Partners-backed manufacturer of polyurethane foam and polymer products has received the support of holders of 81% of the bonds, the sources said. Octus’ coverage of FXI Holdings is HERE.

RealTruck

RealTruck sought to reassure lenders last week that it does not participate in factoring, reverse factoring or supply-chain financing, nor does it have off-balance-sheet financing, according to sources. The note from the company comes in the wake of the collapse of First Brands Group, which has prompted scrutiny for a number of automobile credits. Octus’ RealTruck coverage is HERE.

Peraton

An ad hoc group of first lien-only term lenders to Peraton has organized with a legal and financial advisor, according to sources. The ad hoc group, which comprises a majority of the first lien loans, has signed a cooperation agreement, sources said. Read Octus’ Peraton coverage HERE.

Luminar

Luminar Technologies has begun working with a financial advisor and legal advisor to explore options for its balance sheet, according to sources. The developer and supplier of light detection and ranging sensors for autonomous driving cars skipped a coupon payment on Oct. 15 on its second lien notes due 2030, indicating a likely liquidity shortfall and a potential restructuring ahead, as reported. Octus’ Luminar coverage is HERE.

Multi-Color Corp.

An ad hoc group of creditors of Multi-Color, which is weighted toward unsecured notes, is working with an investment banker, according to sources. The group is the second group of lenders to Multi-Color to organize with advisors and has also retained a legal advisor. Octus’ coverage of Multi-Color is HERE.

Genworth Financial Inc.

An ad hoc group of holders of Genworth Financial Notes has organized with a legal advisor to explore a consensual transaction with the financial services company to cut debt in connection with an expected $750 million recovery from a favorable U.K. court judgement, according to sources. Octus’ Genworth Financial coverage is HERE.

CSC Serviceworks

An ad hoc group of CSC Serviceworks lenders is working with an investment banker, according to sources. The group has also retained a legal advisor. The company is facing a near-term revolver maturity and persistent cash burn. Octus’ CSC Serviceworks’ coverage is HERE.
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First Brands Group LLC

Troubled auto parts supplier First Brands announced that its final DIP financing hearing was adjourned to Nov. 6 at 10 a.m. ET from Oct. 29. The recently appointed official committee of unsecured creditors, the SPV lenders and the ABL lenders now have until Oct. 30 to object. Additionally, the ABL lenders agreed to allow the debtors to continue using their cash collateral, and the SPV lenders agreed to extend the use of their respective collateral through Nov. 7. Octus also reported this week that the UCC tapped Ducera Partners to serve as its investment banker. Octus’ First Brands Group coverage is HERE.

Ascend Performance Materials Operations LLC

Judge Christopher Lopez approved the Ascend Performance Materials debtors’ disclosure statement at a hearing on Oct. 27, allowing the debtors to begin soliciting votes for their chapter 11 plan of reorganization. The hearing was unopposed after the debtors announced settlements with the official committee of unsecured parties and EPC counterparty MasTec. The court set a confirmation hearing for Nov. 24. Octus’ Ascend coverage is HERE.

LifeScan Global Corp.

On Oct. 28, Judge Alfredo Perez entered an order conditionally confirming the LifeScan debtors’ chapter 11 plan, subject to a hearing on Nov. 5 to consider whether the plan complies with the requirement to pay administrative claims under Bankruptcy Code section 1129(a)(9). LifeScan has been sparring with pharmacy benefit managers, or PBMs, over potential admin claims arising out of the debtors’ rejection of their contracts with the PBMs. Octus’ LifeScan coverage is HERE.

Serta Simmons Bedding

In a reply brief filed Oct. 21, the Serta Simmons uptier participating lenders again urged the U.S. Supreme Court to take their appeal of the U.S. Court of Appeals for the Fifth Circuit’s December 2024 plan indemnification removal ruling. The participating lenders argue that appellate courts cannot “excise a material provision from a confirmed and consummated bankruptcy plan without sending it back for a revote.”

The participating lenders maintain that the Fifth Circuit erred by “blue penciling” unlawful plan provisions requiring the reorganized debtors to indemnify them for any damages awarded to excluded lenders on the latter’s uptier breach of contract claims while leaving the rest of the plan untouched. According to the Supreme Court docket, the justices will consider the case at a conference on Nov. 7. Octus’ Serta Simmons Bedding coverage is HERE.

Embarq Notes Litigation

A New York State appellate court granted Embarq minority debtholders’ request to reargue a decision affirming that Embarq unrestricted subsidiaries’ guarantees of leveraged buyout debt does not violate the indenture. Embarq in 2023 sued the minority holders of unsecured 7.995% notes due 2036, seeking a declaration that the unrestricted subsidiaries’ guarantees of the LBO debt arising from Brightspeed’s 2022 acquisition of Embarq from Lumen Technologies did not violate the indenture. In 2024, the trial court granted summary judgment in favor of Embarq, holding that the unrestricted subsidiaries may incur unlimited debt structurally superior to the 2036 notes without violating the indenture. The Appellate Division affirmed the trial court’s ruling on May 1 but on Oct. 21 issued an opinion clarifying that the LBO debt guarantees issued by Embarq’s unrestricted subsidiaries do not constitute liens. Octus’ coverage of Brightspeed is available HERE.

FDIC Suit Against Former SVB Management to Proceed

U.S. District Judge Noël Wise of the Northern District of California denied the motions to dismiss the Federal Deposit Insurance Corp.’s lawsuit against Silicon Valley Bank’s former officers and directors seeking billions in damages for alleged mismanagement that led to the bank’s 2023 collapse. The judge found that the FDIC, acting as receiver for SVB, sufficiently alleged negligence, gross negligence and breach of fiduciary duty. Octus’ coverage of Silicon Valley Bank is available HERE.

Tariff Supreme Court Case

Businesses and Democratic-led states on Oct. 20 urged the U.S. Supreme Court to affirm lower court rulings invalidating President Donald Trump’s tariffs under the International Emergency Economic Powers Act, or IEEPA. The plaintiffs argue that “reciprocal” tariffs and “fentanyl trafficking” tariffs on China, Canada and Mexico amount to an unlawful “$3 trillion tax increase on Americans over the next decade” and will drive small businesses into bankruptcy. The administration meanwhile warned the Supreme Court of the “country-killing” consequences that revoking the IEEPA tariffs would have on national security and the economy. The court is scheduled to hear oral arguments on Nov. 5. Octus’ coverage of Tariff Policy & Impact is available HERE.