David Matlin is used to finding diamonds in the rough. But the private-equity manager has never found a jewel like Huntsman Corp.
In late 2001, Huntsman, a Salt Lake-based chemicals maker, was saddled with too much debt, a beleaguered industry and no upturn in sight. Huntsman was close to filing for bankruptcy protection after defaulting on some of its debt. Unlike most other distressed companies, Huntsman had such a confusing capital structure that even "vulture" investors, who prey on struggling companies, were scared off.
But Matlin bet Huntsman could be salvaged, and this month his firm hit pay dirt. The initial public offering for Huntsman brought his firm, MatlinPatterson Asset Management LP, about $1.5 billion in paper profits from a $500 million investment less than four years ago.
It was the biggest score of Matlin's career. For years, he earned good returns but little notoriety buying beaten-down companies at Credit Suisse First Boston, and more recently at his own firm, launched in 2002. Matlin appeared on the radar screens of Wall Street pros when he recruited Rudolph Giuliani, the former mayor of New York, in a bid last year to gain control of MCI Inc. His effort to buy enough MCI bonds to gain control of the company foundered when the prices of the debt jumped on word of Matlin's interest. Still, MatlinPatterson profited from a rise in the price of MCI's bonds.
But the eye-popping gains from Huntsman, which pulled off a $1.45 billion IPO this month, likely more than make up for any frustration from MCI.
Through a spokesman, Matlin wouldn't comment.
Back in 2001, Huntsman was close to Chapter 11 bankruptcy. The company, started by Jon M. Huntsman, father of Utah Gov. Jon M. Huntsman Jr., saw a spike in natural-gas prices, which Huntsman uses to make chemical products such as meat trays, egg cartons and carry-out containers. At the same time, Huntsman couldn't raise prices it charged its own customers. And Huntsman was laboring under $6.5 billion of debt after a string of more than 30 acquisitions.
Huntsman defaulted on its bonds, triggering a default of its bank debt as well, in the fall of 2001, and hired financial advisers to try to turn around the company. Jon Huntsman Sr., a noted philanthropist who is a major donor to the Wharton School of the University of Pennsylvania, was especially reluctant for his company to enter bankruptcy protection, say people close to the company, even though a bankruptcy filing seemed the only way out.
Even his advisers weren't upbeat, in part because of Huntsman's convoluted capital structure, which included various subsidiaries and borrowings from as many as 90 banks. Also, Imperial Chemical Industries PLC, which had sold assets to Huntsman, held a claim on certain valuable assets of a subsidiary, Huntsman International.
Henry Miller, chairman of Miller Buckfire Ying & Co., a bank specializing in restructuring, recalls, "We had to do the most complicated valuation we've ever been involved in, and at a time the chemical business was in the doldrums."
Things got so bad that the Huntsman bonds skidded to as low as five cents on the dollar, and its bank debt got as cheap as 50 cents or so, signs that the market was expecting both a bankruptcy filing and little subsequent recovery for investors.
That is when Matlin got busy. The investor, who specializes in gaining control of troubled companies with hard assets, started buying up the company's debt, amassing about 85 percent of the bonds of Huntsman and an affiliate, paying prices of about 20 cents on the dollar on average, according to people following the deal.
Matlin then worked out deals to buy out other creditors, many of whom had little patience for holding Huntsman's paper. He also agreed to pay off Imperial Chemical for its claims and a stake in Huntsman International.
Turning to Jon Huntsman Sr., MatlinPatterson agreed to trade about $800 million of Huntsman Corp.'s debt, as well as the stakes Matlin had acquired in Huntsman's subsidiaries, for ownership of almost 50 percent in a new, simplified company holding all the Huntsman assets.
Miller says, "The bondholders saw David as a lunatic, but David saw enormous upside buying in at a low valuation and being associated with Jon Huntsman."
MatlinPatterson then invested money into Huntsman, financing top acquisitions of some rival chemical producers in the past two years, including spending about $200 million to gain control of Vantico Group SA, a Belgian resin maker that was coming off its own disappointing leveraged buyout.
By last year, prospects turned around for the chemical industry, enabling other chemical companies to go public and Huntsman to record sales of $8.36 billion in the first nine months of last year. Matlin's involvement in Huntsman was reported in the Daily Deal magazine.