NEW YORK--(BUSINESS WIRE)--Brigade Capital Management, LP (“Brigade”), on behalf of a fund managed by it, sent the following letter to the board of directors of OCI Partners LP (“OCIP”; NYSE: OCIP) regarding the recently announced tender offer by OCI N.V.
June 11, 2018
Mr. Michael Bennett
Chairman of the Board
OCI GP LLC
P.O. Box 1647
Nederland, TX 77627
Via E-mail and USPS Priority Mail Express
Dear Mr. Bennett (on behalf of entire board of directors):
Funds managed by Brigade Capital Management LP (“Brigade”) beneficially own a meaningful economic interest in the common units of OCI Partners LP (“OCIP” or the “Company”). We noted with interest and concern that on June 4, 2018 OCI N.V. (“OCI”) announced that it made a proposal to tender for the remaining common units of OCIP that it does not currently own for a consideration of $11.00/unit (the “Tender Offer”). In effect, this would raise OCI’s ownership of OCIP from 88.25% to 100%. We remain aware that if OCI is able to raise its stake to 90% via this transaction, it could then effectively squeeze out remaining non-tendering unitholders as per the conditions outlined in the partnership agreement.
We view OCI’s current offer as another opportunistic attempt (similar to the one from December 2016 and continuation of the December 2017 strategy when it purchased 7.3 million common units) to acquire 100% of OCIP at a significant discount to its intrinsic value. In our January 9, 2018 letter to the OCIP Board (herein enclosed along with all past written correspondences to the Board for your convenience), we have outlined our assessment of conservative mid-cycle fair value for OCIP common units at $14.00/unit. At peak cycle, the fair value would rise meaningfully above that estimate. Only a quick glance at share price performance of Methanex Corporation since our January 9, 2018 letter would further bolster our case. And just last week, MMSA – a leading industry consultant – projected a methanol upcycle through 2023 implying steadily improving profitability (from already strong current levels) over the five-year horizon.
We also believe the timing of the Tender Offer is opportunistic as OCIP is likely to report a very strong second quarter with a distribution to common unit holders of approximately $0.50/unit, according to our analysis. Furthermore, despite the generally negative near-term bias to forward estimates, methanol pricing remains robust and recent spot price trends in China demonstrate increased strength.
In response to OCI’s purchase of 8.4% of OCIP’s common units in December 2017 (thereby increasing OCI’s ownership from 79.85% to 88.25%), our January 2018 letters to OCIP’s Board look prescient now. In those letters we warned the Board about the possibility of OCI attempting to opportunistically reach the 90% ownership threshold in the near term and we urged the Board to “communicate clearly and promptly to investor community true prospects of OCIP’s financial performance so as to minimize or fully eliminate the real risk of minority unitholders being taken advantage of.” We were disappointed to see the Board clearly failing to deliver on that request.
In light of the above considerations, Brigade urges the OCIP Board and the Conflicts Committee in particular to immediately engage in negotiations with OCI in order to improve the Tender Offer to a price reflective of OCIP’s fair value. If the Conflicts Committee is unable to achieve this, we urge the OCIP Board and the Conflicts Committee to recommend to its common unit holders AGAINST the Tender Offer. We trust that the Conflicts Committee’s review of the Tender Offer, as well as its deliberations regarding any third party proposals or other alternatives (including the scenario of OCIP remaining a standalone entity), will be guided solely by its views as to what is in the best interests of all OCIP unitholders. We note that all members of OCIP’s board owe a fiduciary duty to all OCIP unitholders, whether with respect to the OCI proposal or any other possible bidder or transaction.
Brigade reserves all its legal rights, including a right to challenge a potential minority squeeze out that results in grossly inadequate consideration to unitholders. We look forward to further productive dialogue with the Conflicts Committee and are willing and ready to engage with committee members as necessary. Please note that we intend to publicly release a copy of this letter shortly after delivering it to you.
Very truly yours,
About Brigade Capital Management, LP
Brigade Capital Management, LP is an SEC-registered investment advisor focusing on investing in the global high-yield market and levered equities. The firm was founded in 2006 and is managed by Donald E. Morgan, III, CIO and Managing Partner. The firm is headquartered in New York City with offices in the United Kingdom, Japan and Australia. The firm employs a multi-strategy, multi-asset class investment approach focused on leveraged balance sheets. The core strategies include long/short credit, distressed debt, capital structure arbitrage and levered equities. Brigade Capital Management, LP’s investment process is fundamentally driven, focusing on asset coverage and free cash flow, with an emphasis on capital preservation. The team possesses deep sector expertise throughout the entire leveraged finance market and has extensive experience in capital restructurings and bankruptcy reorganization.