Element Solutions Inc Completes Syndication of $1.15 Billion Term Loans and Reduces Debt Balance

Rhea-AI Summary

Element Solutions Inc (NYSE:ESI) successfully completed a syndication of a $1.15 billion seven-year secured term loan credit facility under its credit agreement. The company used the proceeds to prepay existing tranches and entered into new interest rate and cross-currency swap agreements, effectively reducing gross debt by over $100 million and extending secured debt maturities to 2030. Chief Financial Officer Carey Dorman highlighted the company's progress in improving its balance sheet and mitigating interest rate risk.

Financial Analyst

Element Solutions Inc's recent financial maneuvering, involving the syndication of a $1.15 billion term loan and strategic interest rate and cross-currency swap agreements, signals a proactive approach to debt management and interest rate risk mitigation. The CFO's statement underscores the intent to strengthen the company's balance sheet by reducing gross debt and extending debt maturities without increasing the cost of borrowing, which could be seen as a positive move for shareholder value and creditworthiness.

The decision to convert a portion of the debt to a fixed-rate euro-denominated obligation at a fixed all-in rate of 4.31% suggests a calculated strategy to lock in borrowing costs and hedge against potential fluctuations in both interest rates and currency values. This could be particularly advantageous given the current climate of rising interest rates globally. The impact on the company's financial flexibility and potential earnings stability may be significant, potentially attracting risk-averse investors and improving the company's standing in the eyes of credit rating agencies.

Risk Management Consultant

The recent actions taken by Element Solutions Inc reflect a sophisticated understanding of risk management principles. By extending the maturity of its secured debt and fixing the majority of its capital structure, ESI is effectively insulating itself from short-term market volatilities. This strategic move is indicative of a long-term financial planning mindset that prioritizes stability over opportunistic gains from potentially lower but variable short-term rates.

Furthermore, the monetization and restructuring of existing swaps, followed by the establishment of new swap agreements, demonstrate a nuanced approach to hedging strategies. This could serve as a case study on how companies can leverage financial instruments to manage their exposure to market risks. The balance of $390 million remaining under existing swaps also suggests a layered risk management approach, providing a staggered maturity profile that can help manage liquidity risks over time.

Debt Strategy Advisor

Element Solutions Inc's recent refinancing and hedging activities indicate a strategic approach to capital structure optimization. By prepaying existing term loans and reducing gross debt, ESI is not only improving its debt profile but also potentially enhancing its negotiating position for future financing needs. The company's ability to secure a sizable term loan without an increase in margin suggests a strong credit profile and market confidence in its financial health.

The move to fix 80% of the capital structure until 2028 is a significant step towards predictability in financial obligations, which is crucial for long-term planning and investment. The fixed EUR rate also indicates a strategic currency diversification, which may protect the company against dollar volatility and strengthen its position in the European market. This kind of strategic financial planning is essential for companies looking to expand internationally while maintaining a robust balance sheet.

MIAMI--(BUSINESS WIRE)-- Element Solutions Inc (NYSE:ESI) ("ESI"), a global and diversified specialty chemicals company, announced that it successfully completed the syndication of a seven-year secured term loan credit facility totaling $1.15 billion under its credit agreement.

ESI used the proceeds of the new $1,150 million term loan B-2 facility, together with cash on hand, to prepay its existing $1,105 million term loan B-1 tranche and $150 million term loan A.

Except for its maturity date, the new term loan B-2 tranche has substantially the same terms as the former term loan B-1 tranche, including its applicable interest rate of SOFR plus a spread of 2.00% per annum.

In connection with the funding of the new term loan B-2 tranche, ESI monetized existing interest rate and cross-currency swap agreements initially scheduled to mature in 2024 and 2026. ESI subsequently entered into new interest rate and cross-currency swap agreements, which effectively converted $760 million of the term loan B-2 tranche, a U.S. dollar denominated debt obligation, into fixed-rate euro-denominated debt at a fixed EUR all-in rate of 4.31%. These new swaps are set to mature in 2028. The balance of $390 million remains subject to existing swaps scheduled to mature in 2025.

Chief Financial Officer Carey Dorman said, “Through this transaction, we are reducing gross debt by over $100 million and extending the majority of our secured debt maturities to 2030 without increasing their margin. With our new swaps in place, we now have approximately 80% of our capital structure fixed until 2028, effectively mitigating interest rate risk from the ongoing higher rate environment. We have been working over the past year to further improve our already healthy balance sheet and believe we have made substantial progress.”

About Element Solutions Inc

Element Solutions Inc is a leading specialty chemicals company whose businesses supply a broad range of solutions that enhance the performance of products people use every day. Developed in multi-step technological processes, these innovative solutions enable customers' manufacturing processes in several key industries, including consumer electronics, power electronics, semiconductor fabrication, communication and data storage infrastructure, automotive systems, industrial surface finishing, consumer packaging and offshore energy. More information about the company is available at www.elementsolutionsinc.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20231215217083/en/

Investor Relations Contact:

Varun Gokarn

Senior Director, Strategy and Finance

Element Solutions Inc

1-203-952-0369

IR@elementsolutionsinc.com

Media Contact:

Scott Bisang / Ed Hammond / Tali Epstein

Collected Strategies

1-212-379-2072

esi@collectedstrategies.com

Source: Element Solutions Inc

FAQ

What is the latest announcement from Element Solutions Inc (NYSE:ESI)?

Element Solutions Inc (NYSE:ESI) successfully completed a syndication of a $1.15 billion seven-year secured term loan credit facility under its credit agreement.

How did Element Solutions Inc (NYSE:ESI) use the proceeds from the new term loan facility?

The company used the proceeds to prepay its existing $1,105 million term loan B-1 tranche and $150 million term loan A.

What are the terms of the new term loan B-2 tranche?

The new term loan B-2 tranche has substantially the same terms as the former term loan B-1 tranche, including its applicable interest rate of SOFR plus a spread of 2.00% per annum.

What did Element Solutions Inc (NYSE:ESI) do in connection with the funding of the new term loan B-2 tranche?

ESI monetized existing interest rate and cross-currency swap agreements initially scheduled to mature in 2024 and 2026, and entered into new interest rate and cross-currency swap agreements.

What is the impact of the new swaps on Element Solutions Inc's capital structure?

The new swaps effectively converted $760 million of the term loan B-2 tranche into fixed-rate euro-denominated debt at a fixed EUR all-in rate of 4.31%, mitigating interest rate risk from the ongoing higher rate environment.

What did the Chief Financial Officer of Element Solutions Inc (NYSE:ESI) say about the transaction?

Chief Financial Officer Carey Dorman highlighted the company's progress in improving its balance sheet and mitigating interest rate risk, stating that they have made substantial progress in reducing gross debt and extending secured debt maturities without increasing their margin.