Obligor profile
Restructuring date	May 2025
Post-exchange rating/outlook	CCC+/Negative
Location/primary industry/GICS	U.S./specialty chemicals
Post-exchange total reported debt (change)	$593 million (+$24 million)
Sponsor/owner	One Rock Capital Partners
Forecasts (fiscal year end 2025)
Liquidity assessment	Adequate
Debt to EBITDA* (x)	8.5-8.8
EBITDA to total interest* (x)	1.0-1.5
*Adjusted by S&P Global Ratings. Footnote. GICS--Global Industry Classification Standard. Source: S&P Global Ratings.

Transaction Summary

Restructuring type: asset transfer/priming/double dip 

Flexsys recently completed a liability management transaction (LMT), through which it exchanged all its existing debt for new first-out and second-out credit facilities incurred by a newly formed Cayman unrestricted subsidiary (NewCo). To encourage participation in the debt exchange and new money facility, the company provided significant credit support for the NewCo credit facilities, including security interests in previously unencumbered assets and assets released from the collateral package of the legacy lenders, as well as the assets of--or equity interests in--certain foreign subsidiaries, intellectual property (IP), and real estate. Additionally, the new credit facilities benefit from a “double-dip” structure involving secured guarantees from the legacy loan parties (RemainCo) and an intercompany loan to RemainCo using the proceeds from the new money facility (with the effect of diluting the claims of the legacy lenders). All lenders were given the option to participate in the new money facility (backstopped by the steering group lenders) and exchange their existing term loans, though at varying discounts to par. Participating in the new money term loan did not affect the exchange terms. With full participation from its legacy revolver and term loan lenders, the company terminated its legacy credit agreement.

Transaction Flow

Flexsys--Pre-exchange debt structure
Original debt structure::	Exchange prices	Effective ranking in waterfall	Maturity (year)	Rate (%)	Principal (mil. USD)	Pre-exchange prices**	Recovery estimates (%)
Cash flow revolving credit facility (RCF, $100mm committed)	Fully repaid at par and subsequently terminated	1	Nov-2026	SOFR+4.75	98	N.A.	55
First-lien term loans	Various*	1	Nov-2028	SOFR+5.25	461	53.0	55
Sponsor bridge financing	Fully repaid at par	2	Nov-2028	SOFR+5.25	10	N.A.	NR

Flexsys--Post-exchange debt structure
Post-exchange debt structure:	Exchanged from*	Effective ranking in waterfall	Maturity (year)	Rate (%)	Principal (mil. USD)	Prices (on Jun. 8, 2025)	Recovery estimates (%)
First-lien, first-out (FLFO) RCF ($100 million committed)	--	1	Aug-2029, with 91-day springing maturity inside first-out and second-out TLs	SOFR+4.75	15	N.A.	95
FLFO term loans	New money and a portion of term loans held by steering lenders	1	Aug-2029	SOFR+6.25	187 (including 120 of new money)	N.A.	95
First lien, second-out (FLSO) term loans	Legacy 1L term loans	2	Aug-2029	SOFR+5.25	391	N.A.	15

*Size of the haircuts varied depending on the exchange group. **Prices are based on indicative mid-price. SOFR--Secured overnight financing rate. N.A.--Not available. NR--Not rated. Source: S&P Global Ratings.

Transaction Mechanics

Specifically, the restructuring involved the following:

• Flexsys transferred ownership of its German, Belgian, Dutch, Japanese, and Brazilian subsidiaries to NewCo (The legacy owner retained a small stake in the top German subsidiary.) The Belgian and German subsidiaries, which were legacy loan parties, became unrestricted subsidiaries under its legacy credit agreement; these subsidiaries and the company’s Dutch subsidiary provided secured guarantees to the NewCo credit facilities.
• 100% of the equity interests in the transferred foreign subsidiaries and in Flexsys’ Malaysian subsidiary was pledged to secure the NewCo debt. The Malaysian, Japanese, and Brazilian subsidiaries are non-guarantor restricted subsidiaries under the new credit agreement.
• Substantially all Flexsys’ IP was transferred to a newly formed non-guarantor restricted subsidiary (IPCo) under the legacy credit agreement, and IPCo provided a secured guarantee of the NewCo credit facilities.
• Ownership of the company’s manufacturing plant in Monongahela, Pa. was transferred to a subsidiary of NewCo (an unrestricted subsidiary under the legacy credit agreement), which provided a secured guarantee to the NewCo credit facilities.
• NewCo incurred $187 million of new first-lien, first-out (1O) term loans, which included $120 million of new money. The new money facility was funded by existing lenders, with some non-ad hoc lenders participating and the steering group backstopping the remainder.
• The proceeds of the new money facility were lent by NewCo to RemainCo. This intercompany loan was guaranteed by the RemainCo legacy guarantors on a first-lien basis pari passu with Flexsys’ legacy debt, and the resulting intercompany loan receivable was pledged as collateral for the NewCo credit facilities.
• The steering group lenders, which held approximately 67% of the legacy term loans prior to the exchange, rolled a small portion of their holdings (19.5 cents on the dollar) into the new first-out term loans. They exchanged their remaining holdings, after a modest discount, into the new first lien, second-out (2O) term loans.
• The rest of the lenders, including the remaining ad hoc lenders (16%) and non-ad hoc participants (17%), exchanged into the second-out term loans, with the non-ad hoc group accepting a steeper discount.
• The NewCo credit facilities were guaranteed by the legacy loan parties on a first-lien basis pari passu with Flexsys’ legacy debt.
• The company fully repaid the outstanding borrowings under its existing revolver and replaced it with a first-lien, first-out NewCo revolver that maintains the same commitment level and spread.
• All in, total funded debt increased roughly $24 million because the $120 million new money TL more than offset the modest par recaptured in the exchange, the repayment of a $10 million sponsor bridge loan, and the reduction in RCF borrowings (to $15 million from $98 million). Including unfunded revolving capacity, Flexsys' total debt could increase by about $107 million.

Flexsys--debt structure

Pre vs. Post-LMT

Impact On Recovery

We estimate very high recovery (rounded estimate: 95%) for the new first-lien, first-out revolver and term loans largely due to reduced claims sizes (now about half) and stronger collateral. The two credit facilities rank pari passu and are secured by priority claims against the additional and transferred collateral for the NewCo debt and the assets of the former loan parties under the legacy credit agreement (because of the secured guarantees for the NewCo debt from the legacy loan parties).

Additionally, the NewCo debt received structural support from the legacy loan parties through NewCo's pledge of its receivable for the secured intercompany loan to RemainCo.

In our assessment, the total recovery value for the NewCo debt combines the intrinsic value of the transferred assets with the expected recoveries from the guarantees provided by RemainCo and the pledge of the intercompany loan.

Lastly, the first-out facilities benefit from a senior position in the repayment waterfall, ranking ahead of nearly all other claims except for a small local loan in Brazil, which is structurally senior with respect to the company's local assets.

After the first-out facilities are repaid, we expect the remaining recovery sources to provide modest recovery (rounded estimate: 15%) for the second-out term loans, which share the same collateral. This second-out facility was exchanged for the legacy first-lien term loans and ranks behind the first-out revolver and first-out term loans with respect to the proceeds from the collateral.

With full participation, our calculation indicates that the expected dollar recovery relative to the legacy term loans, after factoring in the allocation debt mix and varying exchange discounts across lender groups, declined by 55% following the LMT. The decline was primarily driven by the non-ad hoc lenders, whose recovery dropped by 76%, compared to a reduction of 45% for the steering lenders (a difference of 31%) and a reduction of 73% for the remaining ad-hoc lenders (3%) due to a smaller exchange haircut.

Going forward, we expect the subsidiaries that are non-guarantors under the new credit agreement will contribute less than 25% of Flexsys' total EBITDA.

Impact On Liquidity

• The company has extended all its maturities to August 2029, and the injection of $120 million of new funding provides it with additional runway to execute its business plan. Further, it increased its revolving capacity by roughly $83 million through the substantial reduction of its RCF borrowings (to $15 million from $98 million).
• The new first-out term loans do not require amortization, and the second-out term loans are subject to a one-year amortization holiday, which provides Flexsys with temporary relief related to its fixed-charge coverage. However, this benefit is offset by the company's increased interest expense, which we expect will rise by approximately $6 million annually following the LMT.

This report does not constitute a rating action.

Primary Contact:	Hanna Zhang, New York 1-212-438-8288; Hanna.Zhang@spglobal.com
Additional Contact:	James T Siahaan, CFA, New York 1-347-2131346; james.siahaan@spglobal.com