LSB Industries Inc., Oklahoma City, reported on July 20 that a Special Committee of the Board of Directors representing the disinterested stockholders of the company has signed a definitive agreement with LSB Funding LLC, an affiliate of Eldridge, to exchange the shares of LSB Series E-1 and Series F-1 Redeemable Preferred Stock held by Eldridge for shares of LSB common stock.
Under the agreement, LSB would exchange, at the closing, approximately $300 million of preferred stock held by Eldridge into an equivalent value of LSB common stock based on an exchange price of $6.16, which is equal to the 30-day volume weighted average price as of the date of the Exchange Agreement. In connection with the transaction, existing unaffiliated LSB common stockholders will receive a special dividend in the form of 0.30 shares of LSB common stock for every share owned as of the record date.
LSB said the transaction eliminates the current financial impact and repayment of the accrued compounding preferred stock and future accruing dividends at 14.5 percent (increasing to 16.0 percent in April 2023), unburdening the company and unlocking shareholder value.
In addition, it believes this could lead to a rating upgrade, potentially allowing the company to refinance its senior secured notes at a lower interest rate and on improved terms, which would reduce its cash interest expense and overall cost of capital.
Citing nitrogen prices at multi-year highs, LSB President and CEO Mark Behrman said “now is an opportune time to take these actions, especially given our desire to refinance our senior secured notes and our need for flexibility to take advantage of numerous attractive organic growth opportunities, including the emerging blue/green ammonia and clean energy markets. Additionally, we regularly evaluate M&A prospects that we believe could be accretive to earnings as a result of the increased scale and expanded production capabilities that they would provide us.”
LSB added that the agreement preserves the company’s significant tax attributes, including approximately $620 million of federal net operating losses, thereby protecting potentially significant future cash savings and stockholder value.
Completion of the exchange transaction is subject to a number of customary closing conditions, including receipt of stockholder approval from the holders of a majority of the shares of our outstanding common stock not held by Eldridge or any of its affiliates.
LSB expects to file a preliminary proxy for a Special Meeting of Stockholders and deliver additional information related to the special meeting to stockholders within the next few weeks. Results of the stockholder vote will be tabulated at the Special Meeting of Stockholders expected to be held in the third quarter of 2021.