The Notes offered hereby will be issued under an indenture to be dated as of May 18, 2011 (the ‘‘Indenture’’), among Styrolution Group GmbH, as issuer (the ‘‘Issuer’’), Citibank, N.A. as trustee (the ‘‘Trustee’’) and Citicorp Trustee Company Limited, as Security Agent (the ‘‘Security Agent’’).
The proceeds of the offering of the Notes sold on the Issue Date will be used by the Issuer, together with funds drawn under the Styrolution Securitization Programs, to fund the Contribution Payment for the Joint Venture Transaction and to pay costs and expenses incurred in connection with the Transactions as set forth in this Offering Memorandum under the caption ‘‘Use of Proceeds.’’
Pending consummation of the Joint Venture Transaction and the satisfaction of certain other conditions as described below, the Initial Purchasers will, concurrently with the closing of the offering of the Notes on the Issue Date, deposit certain proceeds of this offering of the Notes into an escrow account (the
‘‘Escrow Account’’) pursuant to the terms of an escrow agreement (the ‘‘Escrow Agreement’’) dated as of the Issue Date among, inter alia, the Issuer, the Trustee and Citibank, N.A. as Escrow Agent (the
‘‘Escrow Agent’’). If the Joint Venture Transaction is not consummated on or prior to May 18, 2012 (the ‘‘Longstop Date’’), the Notes will be redeemed at a price equal to 101% of the aggregate issue price of the Notes plus accrued and unpaid interest and Additional Amounts, if any, from the Issue Date to the Special Mandatory Redemption Date (as defined below). Please see ‘‘—Escrow of Proceeds;
Special Mandatory Redemption’’.
Upon the initial issuance of the Notes, the Notes will be obligations solely of the Issuer and will not be obligations of any Guarantor. Assuming the Escrow Release Date (as defined below) occurs on or prior to the Longstop Date and the funds are released from the Escrow Account, the Initial Guarantors will become parties to the Indenture and will guarantee the Notes on a senior secured basis on the Escrow Release Date. Prior to the Escrow Release Date, the Issuer will not control the BASF Styrenics Business, the INEOS Styrenics Business or the INEOS ABS Business, and none of the BASF Styrenics Business, the INEOS Styrenics Business or the INEOS ABS Business will be subject to the covenants described in this Description of Notes. As such, we cannot assure you that prior to the Escrow Release Date that such businesses will not engage in activities that would otherwise have been prohibited by the Indenture had those covenants been applicable to such entities after the Issue Date and prior to the Escrow Release Date.
The following summary of the Indenture does not purport to be complete. Where reference is made to particular provisions of the Indenture, such provisions, including the definitions of certain terms, are qualified in their entirety by reference to all of the provisions of the Notes and the Indenture. The terms of the Notes include those set forth in the Indenture governing the Notes and those made part of the Indenture by reference to the Trust Indenture Act. The Indenture is not, however, required to be nor will it be qualified under the Trust Indenture Act and will not incorporate by reference all of the provisions of the Trust Indenture Act.
The Indenture, the Notes and the Guarantees will be subject to the terms of the Intercreditor Agreement and any Additional Intercreditor Agreements entered into in the future. The terms of the Intercreditor Agreement are important to understanding the terms and ranking of the Notes and the Guarantees. Please see the section entitled ‘‘Description of Other Indebtedness—Intercreditor Agreement’’
for a summary of the material terms of the Intercreditor Agreement.
The registered holder of a Note will be treated as its owner for all purposes. Only registered holders will have rights under the Indenture, including, without limitation, with respect to enforcement and the pursuit of other remedies. The Notes have not been registered under the Securities Act and are subject to certain transfer restrictions.
For definitions of certain capitalized terms used in the following summary, please see
‘‘—Certain Definitions’’.
Brief Description of the Notes, the Guarantees and the Security The Notes
The Notes will:
• be secured senior obligations of the Issuer;
• rank equally in right of payment with all existing and future Indebtedness of the Issuer that is not subordinated to the Notes;
• be guaranteed on a senior secured basis by the Guarantors;
• rank effectively senior to all existing and future Indebtedness of the Issuer that is unsecured or secured by Liens junior to the Liens securing the Notes to the extent of the value of the Collateral (as defined below under ‘‘—Security’’); and
• be senior in right of payment to all existing and future obligations of the Issuer expressly subordinated in right of payment to the Notes.
At the Issue Date, on an as adjusted basis after giving effect to the Transactions, on a consolidated basis the Issuer and its subsidiaries have no liabilities in respect of Priority Hedging Liabilities.
The Notes will be effectively subordinated to any existing and future secured Indebtedness of the Issuer to the extent of the value of the assets securing such Indebtedness (unless such assets also secure the Notes on an equal and ratable or senior basis). In addition, the Notes will be effectively subordinated to all existing and future indebtedness and other liabilities of the Issuer’s subsidiaries that do not guarantee the Notes.
As of or for the year ended December 31, 2010, the subsidiaries of the BASF Styrenics
Business, the INEOS Styrenics Business and the INEOS ABS Business that will guarantee the Notes on the Escrow Release Date amounted to A268.6 million of EBITDA before exceptionals (which amount is equal to 66.0% of Styrolution’s pro forma EBITDA before exceptionals) and amounted to
A1,496.6 million of total assets (which amount is equal to 76.1% of Styrolution’s pro forma total assets).
As of December 31, 2010, the subsidiaries of the BASF Styrenics Business, the INEOS
Styrenics Business and the INEOS ABS Business that will not guarantee the Notes had no borrowings, excluding intercompany obligations, which would have ranked structurally senior to the Notes and the Guarantees; however, any of the debt that our non-guarantor subsidiaries incur in the future in accordance with the Indenture will rank structurally senior to the Notes and the Guarantees.
Under the terms of the Intercreditor Agreement, the proceeds of any enforcement of the Collateral will be applied to repayment of the Priority Hedging Liabilities and other priority
indebtedness permitted to be incurred under the Indenture and the Notes (including Additional Notes) and the Intercreditor Agreement prior to being applied to repayment of the Notes. Please see
‘‘Description of Other Indebtedness—Intercreditor Agreement—Application of Proceeds’’.
The Indenture and the Intercreditor Agreement also will permit the Issuer to issue
Indebtedness secured by Liens on the collateral securing the Notes, which Liens may, under certain circumstances, rank ahead of the security interests on the collateral securing the Notes. Please see
‘‘—Certain Covenants—Limitation on Indebtedness’’ and ‘‘—Certain Covenants—Limitation on Liens’’.
The Guarantees
The Notes will be guaranteed by the Guarantors. Each Guarantee will:
• be joint and several and will be the general secured obligation of the applicable Guarantor (where such Guarantor is providing security);
• rank equally in right of payment with all existing and future Indebtedness of the applicable Guarantor that is not subordinated to such Guarantee; and
• rank senior in right of payment to all existing and future Subordinated Indebtedness of the applicable Guarantor.
The Guarantees will be effectively subordinated to any existing and future secured
Indebtedness of the Guarantors (including the Priority Hedging Liabilities) to the extent of the value of the assets securing such Indebtedness (unless such assets also secure the Guarantees on an equal and ratable or senior basis). In the event of a bankruptcy or insolvency, each Guarantor’s secured lenders will have a prior secured claim to any collateral of such Guarantor securing the debt owed to them.
On the Escrow Release Date, and subject to any restrictions or limitations imposed by local law, the following entities will provide Guarantees (it being understood and agreed that a disposition of any such entity made in compliance with the terms of the Indenture as though such restrictions applied to such entity at such time will relieve such entity of the requirement to provide a Guarantee on the Escrow Release Date) (the ‘‘Initial Guarantors’’):
(a) Mexican New Co.;
(b) Styrolution Belgium N.V.;
(c) Styrolution GmbH;
(d) Styrolution South East Asia Pte. Ltd.;
(e) Styrolution USA LLC;
(f) INEOS ABS (Deutschland) GmbH;
(g) INEOS ABS (Jersey) Limited;
(h) INEOS ABS (Thailand) Co., Ltd.;
(i) INEOS Industries US LLC;
(j) INEOS Industries US II LLC;
(k) INEOS Styrenics Europe SA;
(l) INEOS Styrenics LLC; and (m) INEOS Styrenics Ltd.
The obligations of the Guarantors under their Guarantees will be limited as necessary to recognize certain limitations arising under or imposed by local law and defenses generally available to guarantors (including those that relate to fraudulent conveyance or transfer, voidable preference, financial assistance, corporate purpose or benefit, capital maintenance or similar laws, regulations or defenses affecting the rights of creditors generally) or other considerations under applicable law. In particular INEOS ABS (Thailand) Co., Ltd. must obtain a discretionary license from the Ministry of Commerce, pursuant to section 17 and annex 3(21) of the Alien Business Operation Act of 1999, before it can act as a Guarantor, and this may affect the deliverability of this Guarantee. Please see
‘‘Risk Factors—Risks Relating to the Notes and Our Capital Structure—Your rights as a creditor may not be the same under German insolvency laws as under U.S. or other insolvency laws. Corporate benefit, capital maintenance and other limitations on the Guarantees and the security interests may adversely affect the validity and enforceability of the Guarantees of the Notes and the security interests and will limit the amount that can be recovered under the Guarantees and the security interests granted by the Issuer and its subsidiaries’’.
Release of the Guarantees
A Guarantor’s Guarantee will be automatically and unconditionally released:
(a) in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) the Issuer or a Restricted Subsidiary, if the sale or other disposition complies with the requirements of the covenant set forth under the heading ‘‘—Certain Covenants—Limitation on Sale of Assets’’ or is otherwise permitted in accordance with the Indenture;
(b) in connection with any other sale or other disposition of the Capital Stock (or the shares of any holding company of such Guarantor (other than the Issuer or Parent)) of that Guarantor to a Person that is not (either before or after giving effect to such transaction) the Issuer or a Restricted Subsidiary, if the sale or other disposition complies with the requirements of the covenant set forth under the heading ‘‘—Certain Covenants—Limitation on Sale of Assets’’, and after the sale or other disposition such Guarantor is no longer a Restricted Subsidiary;
(c) if the Issuer designates any Restricted Subsidiary that is a Guarantor to be an
Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture;
(d) upon (i) legal defeasance or covenant defeasance or satisfaction and discharge of the Indenture as provided below under the captions ‘‘—Defeasance or Covenant Defeasance of Indenture’’ and ‘‘—Satisfaction and Discharge’’ or (ii) the full and final payment and performance of all obligations of the Issuer and the Guarantors under the Indenture and the Notes;
(e) so long as no Event of Default has occurred and is continuing, such Guarantor is unconditionally released and discharged from its liability with respect to Indebtedness in connection with which such guarantee was executed pursuant to the covenant described under the caption ‘‘—Certain Covenants—Limitation on Issuance of Guarantees of Indebtedness by Restricted Subsidiaries’’;
(f) in connection with a Distressed Disposal;
(g) pursuant to a transaction described under the caption entitled ‘‘—Certain Covenants—
Consolidation, Merger, Sale of Assets—Guarantors’’ whereby the Guarantee is released pursuant to the second paragraph thereto; and
(h) as described under ‘‘—Modifications and Amendments’’.
Restricted and Unrestricted Subsidiaries
As of the Issue Date, all of the Issuer’s Subsidiaries will be ‘‘Restricted Subsidiaries’’. Under the circumstances described below under ‘‘—Certain Covenants—Limitation on Restricted Subsidiaries’’, the Issuer will be permitted to designate certain of its other Subsidiaries as ‘‘Unrestricted Subsidiaries’’.
Any Unrestricted Subsidiaries will not be subject to the covenants in the Indenture and will not guarantee the Notes.
Security General
The obligations of the Issuer under the Notes will be secured by certain assets (the
‘‘Collateral’’) the benefit of which will be subject, under the Security Documents (as defined below) and the Intercreditor Agreement, to priority repayment (the ‘‘Priority Liens’’) of the Issuer’s
obligations under the Priority Hedging Liabilities and other priority Indebtedness permitted to be incurred under the Indenture and the Notes (including Additional Notes) and the Intercreditor Agreement.
On the Escrow Release Date, the obligations of the Issuer under the Notes will be secured by the following Collateral:
(1) A pledge of the Capital Stock of the Issuer.
(2) A pledge of the Capital Stock of the following subsidiaries of the Issuer:
(a) Mexican New Co.;
(b) Styrolution Belgium N.V.;
(c) Styrolution GmbH;
(d) Styrolution Korea Ltd;
(e) Styrolution South East Asia Pte. Ltd.;
(f) Styrolution USA LLC;
(g) INEOS ABS (Deutschland) GmbH;
(h) INEOS ABS (Jersey) Limited;
(i) INEOS ABS (Thailand) Co., Ltd.;
(j) INEOS Industries US LLC;
(k) INEOS Industries US II LLC;
(l) INEOS Styrenics Europe SA;
(m) INEOS Styrenics LLC;
(n) INEOS Styrenics Ltd.; and (o) Elix Polymers, S.L.
Within 60 days of the Escrow Release Date, the Issuer will cause its obligations under the Notes to be secured with additional Collateral representing the material assets of the Issuer and certain Guarantors (comprising, where applicable, and without limitation, bank accounts, inventory, intellectual property and real property), subject to the Agreed Security Principles and limitations and restrictions imposed by local law. The Agreed Security Principles provide that a Security Interest need not be created where, among other things, the Issuer determines in good faith that an enforceable Security Interest cannot be provided or the cost of providing such Security Interest is disproportionate to the benefit obtained. Please see ‘‘Description of Other Indebtedness—Intercreditor Agreement—Agreed Security Principles’’.
Mexican asset security
On the Escrow Release Date, 49% of the Capital Stock of Styrolution Mexicana, S.A. de C.V.
will be transferred to the Issuer. The remaining 51% will be transferred on or around January 2, 2013, pursuant to a forward sale agreement. On the Escrow Release Date, the obligations of the Issuer under the Notes will be secured by a pledge over 49% of the Capital Stock of Styrolution Mexicana, S.A. de C.V. The Issuer will use commercially reasonable efforts to cause its obligations under the Notes to be secured by an assignment by way of security over the forward sale agreement within 60 days of the Escrow Release Date; however, as a result of local registration requirements, there can be no assurance that an enforceable Security Interest will be created within such 60 day period. Once the remaining
51% of Styrolution Mexicana, S.A. de C.V. has been transferred to the Issuer, the Issuer will use commercially reasonable efforts to cause the obligations of the Issuer under the Notes to be secured by all of the Capital Stock of Styrolution Mexicana, S.A. de C.V.
Certain local law limitations
In relation to security to be provided by INEOS ABS (Thailand) Co., Ltd., the provisions of certain security interests may not be completed within 60 days of the Escrow Release Date because they are beyond the control of the Issuer or INEOS ABS (Thailand) Co., Ltd., as INEOS ABS (Thailand) Co., Ltd. must obtain a discretionary license from the Ministry of Commerce, pursuant to section 17 and annex 3(21) of the Alien Business Operation Act 1999.
For a pledge of shares in a Thai limited company, sections 753 and 1129 of a Thai Civil and Commercial Code require that the pledgor and pledgee be clearly identified, and the name and address of each pledgee must be entered in the share register book of the Thai company. As a result, if only the Security Trustee is registered as the pledgee, the pledge may not be valid.
Under German law the perfection of security over real estate requires registration in the land register. Such registration depends on the payment of land register fees and the filing of the security documents. There is a risk that such registration may not be completed within 60 days.
German account banks have a pledge over the bank accounts of their customers according to their general business conditions. In order for a pledge over bank accounts in favour of the Security Trustee to be first ranking, the German account bank has to waive its pledge. There is a risk that the German account bank will not waive its first ranking pledge at all or not within 60 days and that the security in favour of the Security Trustee will not become first ranking at all or within 60 days.
Excluded Assets
Certain assets, property and rights will be excluded from the Collateral described under
‘‘—General’’, including the Receivables Assets.
The Liens on the Collateral will be limited as necessary to recognize certain limitations arising under or imposed by local law and defenses generally available to providers of Collateral (including those that relate to fraudulent conveyance or transfer, voidable preference, financial assistance, corporate purpose or benefit, capital maintenance or similar laws, regulations or defenses affecting the rights of creditors generally) or other considerations under applicable law. Please see ‘‘Risk Factors—
Risks Relating to the Notes and Our Capital Structure—Your rights as a creditor may not be the same under German insolvency laws as under U.S. or other insolvency laws. Corporate benefit, capital maintenance and other limitations on the Guarantees and the security interests may adversely affect the validity and
enforceability of the Guarantees of the Notes and the security interests and will limit the amount that can be recovered under the Guarantees and security interests granted by the Issuer and its subsidiaries’’.
Security Documents
The agreements to be entered into between, among others, the Security Agent, the Issuer and the Guarantors pursuant to which security interests in the Collateral are granted to secure the Notes and the Guarantees are referred to as the ‘‘Security Documents’’. The security interests that secure the obligations under the Notes and the Guarantees created by the Security Documents are referred to as the ‘‘Security Interests’’. As described above certain of the Security Interests will be created following the consummation of the Joint Venture Transaction and, in relation to Styrolution Mexicana, S.A. de C.V., on or after January 2, 2013, in each case in accordance with applicable law.
The Collateral will be pledged pursuant to the Security Documents to the Security Agent on behalf of the holders of the Notes that are secured by the Collateral. Neither the Trustee nor the
holders of the Notes may, individually or collectively, take any direct action to enforce any rights in their favor under the Security Documents. The Trustee and the holders of the Notes, as the case may be, may only take action through the Security Agent. In certain jurisdictions, including Germany, due to the laws and other jurisprudence governing the creation and perfection of security interests in such
holders of the Notes may, individually or collectively, take any direct action to enforce any rights in their favor under the Security Documents. The Trustee and the holders of the Notes, as the case may be, may only take action through the Security Agent. In certain jurisdictions, including Germany, due to the laws and other jurisprudence governing the creation and perfection of security interests in such