All Posts from April 12, 2010

CF takes charge of Terra, begins integration; inks major loans to pay for deal

CF Industries Holdings Inc. announced April 5 the successful completion of its initial exchange offer for all of the outstanding shares of Terra Industries Inc. common stock.

The exchange offer and withdrawal rights expired at 12:00 midnight, New York City time, on April 2, 2010. The depositary for the exchange offer has advised that, as of the expiration time, 85,757,343 shares of Terra common stock (including shares subject to guarantees of delivery) were validly tendered and not withdrawn, representing approximately 85.6 percent of the outstanding shares of Terra common stock. All shares that were validly tendered and not properly withdrawn during the initial offering period have been accepted for payment.

April 5 marked the first day that CF and Terra were effectively a combined company.

“Today begins an exciting chapter in the history of CF Industries,” said Stephen Wilson, CF chairman, president, and CEO. “We are pleased to join with Terra Industries to form the premier nitrogen fertilizer manufacturing company in North America. The combination transforms both companies, creating a larger strategic platform, presenting substantial opportunities to increase efficiency and lower costs, and expanding access to the capital markets.”

“I am particularly pleased to announce that Mike Bennett has agreed to serve as a consultant to CF Industries as we integrate our two great companies,” added Wilson. “Mike will play an important role on our integration steering committee, and the combined company will benefit from the insight and passion that he brings to the role.”

Bennett resigned as president and CEO of Terra on April 5. He has agreed to serve as a consultant to CF through the end of 2010. Other Terra executives resigning on April 5 included Daniel Greenwell as senior vice president and CFO, John Huey as vice president, general counsel, and corporate secretary, Earl Smith as vice president, business development, and Douglas Stone as senior vice president, sales and marketing.

Also on April 5, the following members of Terra’s board of directors resigned: Bennett, David Fisher, Martha Hesse, James Kroner, John Lilly, Dennis McGlone, David Wilson, and Irving Yoskowitz. On the same date, the board filled the vacancies created by the resignations by appointing Anthony Nocchiero, Bert Frost, Lynn White, Stephen Wilson, Douglas Barnard, Phillip Koch, Wendy Jablow Spertus, and Anthony Will.

In addition, on April 5 Stephen Wilson was named president of Terra, with Anthony Nocchiero and Richard Hoker vice presidents.

CF and Terra have formed an integration team with members from both companies to integrate business practices, processes, systems, and cultures. The co-leaders of the integration project management office are Lynn White, CF vice president, corporate development, and Joe Ewing, who was most recently Terra vice president, investor relations and human resources.

On April 6 CF announced two appointments of Terra executives to major positions – Richard Sanders Jr. as vice president, manufacturing integration, and Edward Dillon as senior director, corporate development. Sanders will report to Anthony Will, vice president, manufacturing and distribution. Prior to accepting this appointment, Sanders served as vice president, manufacturing, of Terra since August 2003, and vice president, manufacturing, of Terra Nitrogen GP Inc., the general partner of Terra Nitrogen Co. L.P., since October 2003. He was plant manager of Terra Nitrogen’s Verdigris, Okla., manufacturing facility from 1995 to August 2003.

Dillon will be responsible for business development initiatives in support of CF’s long-term strategy, and will report to Lynn White, vice president, corporate development. Dillon currently serves as co-leader for the company’s finance integration team, and will phase in his new responsibilities in corporate development as integration progress allows. Prior to accepting his appointment at CF, he served as vice president and controller of Terra since November 2008 and vice president of TNGP since April 2009. Previously, he held a variety of finance positions at Arthur Andersen LLP, General Electric Co., and Koch Industries Inc.

CF also announced that it has commenced a subsequent offering period for all remaining shares of Terra common stock to give stockholders who have not yet tendered their shares the opportunity to do so. The subsequent offering period will expire at 5:00 p.m., New York City time, on Friday, April 9, 2010, unless extended. Any shares validly tendered during the subsequent offering period will be immediately accepted for payment. Tendering stockholders will be paid $37.15 in cash and 0.0953 of a share of CF common stock, less any required withholding taxes and without interest. This is the same amount per share that was paid in the initial offering period.

Following the expiration of the subsequent offering period, if CF owns at least 90 percent of the outstanding shares of Terra common stock, CF intends to complete the acquisition of Terra through the short-form merger procedure under Maryland law, without a vote or meeting of Terra’s stockholders. In the merger, each outstanding share of Terra common stock not tendered and purchased in the initial offering period or the subsequent offering period will be converted into the right to receive the same consideration provided in the exchange offer. As a result of the merger, which CF expects to close as soon as practicable, Terra’s common stock will cease to be traded on the New York Stock Exchange.

To pay for Terra, CF announced that it has entered into two financial agreements. The first is a $2.3 billion senior credit agreement, dated April 5, 2010, with the lenders party thereto; Morgan Stanley Senior Funding Inc. (MSSF), as agent for such lenders and as collateral agent; MSSF and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as joint lead arrangers and book runners; and Morgan Stanley MUFG Loan Partners LLC, as global coordinator. This agreement provides for multiple-draw term loans of up to $2.0 billion and for a revolving credit facility of up to $300.0 million. In a second agreement, CF will receive a $1.75 billion senior bridge loan, dated April 5, 2010, with the lenders party thereto, MSSF, as agent for such lenders and as collateral agent, and MSSF also as lead arranger and book runner.

PHI expects 1Q profit, $25 M in new financing; IPO back on front burner

Phosphate Holdings Inc. (PHI) executives told analysts April 8 that the company expects to make a profit in the first quarter ended March 31, 2010. This would be the first quarter with a profit for the company in the last six. PHI reported a net loss of $2.8 million for the fourth quarter ending Dec. 31, 2009 (GM March 29, p. 1).

PHI, which is the sole shareholder in Mississippi Phosphates Inc., said that a rebound of DAP prices will help it make a profit in the first quarter, though production will be crimped by turnarounds.

PHI CEO Robert Jones said that after 18 months of a myopic focus on liquidity, PHI’s financial condition has also improved. Jones said it has no money drawn on its revolving credit account.

Jones said that from Jan. 1, 2010, through the third week of March 2010, export DAP prices went from $380/mt to $505/mt. He said prices in late March dropped to $440/mt based on large volume purchases from India. He noted that since then prices have recovered to $460/mt FOB, and added that the near-term outlook is for stable to slightly improving prices.

Jones expects a good healthy demand for the U.S. spring season. He said anhydrous ammonia is moving and DAP prices have nudged upward over the last week. Like most, he noted dealer caution, but said empty bins now are good for the fall season. Jones said that while some may still be reporting wet conditions, compared to last year, conditions are normal.

First-quarter cold weather plagued the Pascagoula, Miss., facility, as did problems with the company’s sulfuric acid plants. Both served to cut production levels below expectations.

Equipment for the acid plant is being delivered this month, and repairs are still to be made. Once repairs are made, PHI expects improved production rates; however, it noted that these are old plants, and that outages are to be expected, though it is considering its long-term options.

“Murphy was at work and hitting all cylinders during the first quarter,” said Jones.

PHI capital expenditures are expected to be $12 million in 2010. During the first quarter it spent about $2.2 million on turnarounds, and expects another turnaround later in the year to cost $3.5 million.

As for raw material costs, Jones said that while spot sulfur sales have been concluded at over $200/lt due to tight conditions in the first quarter, PHI is now seeing a loosening of supply. He said expectations of $200/lt for second quarter contracts now appear to be exaggerated. However, he still expects to see a significant increase in the second quarter, but not as much as expected earlier.

Jones noted that import ammonia prices have been going down, with Tampa April prices dropping to $415/mt DEL from March’s $450/mt DEL. He expects the balance of the second quarter to see weakening ammonia prices.

Asked if the company might look elsewhere for phosphate rock, as other phosphate producers have done, Jones said PHI has a more than 20-year relationship with Morocco’s OCP, with incredible supply and delivery. He said it was mutually beneficial to both companies.

Jones revealed that PHI has signed a term sheet for off-market financing for $25 million. He expects the deal to be closed within 30 days. The identity of the provider remains confidential at this time. “The primary purpose is to give us a cushion,” said Jones. “We have been at peril for some period of time without adequate financing.”

Jones also said the company’s initial public offering (GM Nov. 24, 2008, Oct. 20, 2008) is back on the front burner and being aggressively analyzed. He said the main question is when to proceed – soon, or after the company has a couple of quarters of profits under its belt. He noted that the company initiated an IPO process 18 months ago, but that in September 2008 the roof caved in. Since then the industry has been through an extended trough, with the company focusing on liquidity and survival. Jones expects a decision on when to proceed in coming weeks.

Proceeds from the IPO were to help the company fund a new sulfuric acid plant and DAP expansion.