Shares of Trinseo PLC TSE grew 37% since the company announced on Tuesday that it has entered a Transaction Support Agreement to restructure its debt and extend maturities. This move will solidify Trinseo’s ability to carry out its strategic initiatives to aid the ongoing transformation into a leading provider of specialty materials and sustainable solutions.

Details on Trinseo’s Transaction Support Agreement

Under the agreement, the supporting creditors will support transactions to refinance upcoming maturities, enhance liquidity and extend Trinseo’s nearest debt maturity to 2028. The creditors will secure discounts by exchanging the company’s 2029 senior notes.

The company will redeem and refinance existing $115 million 2025 Senior Notes through the issuance of new $115 million 2028 Refinance Term Loans, considering the terms of the existing credit facility established in September 2023.

Per the agreement, a new $300 million revolving credit facility will be put in place that will feature a reset springing covenant and a maturity date of February 2028. This will replace the existing revolving credit facility set to mature in May 2026.

TSE will exchange at least $330 million of 2029 Senior Notes for new 2029 Second Lien Senior Secured Notes at a discounted rate. This will result in a discount capture of at least $49 million from the supporting creditors.

The added financial flexibility will help the company focus on portfolio optimization, investment in leading circular technologies, and further solidify its financial position.

TSE’s Structural Changes

The company announced that it is consolidating its Engineered Materials, Plastics Solutions and Polystyrene businesses beginning Oct. 1, 2024. This move will minimize the workforce by consolidating management positions and support roles. Francesca Reverberi, senior vice president of engineered materials, will lead the newly consolidated businesses. 

The company expects the restructuring to be substantially complete by the end of 2025. 

Trinseo also announced that it would discontinue virgin polycarbonate production at its Stade, Germany, facility by January 2025. The company will then purchase polycarbonate from external vendors, resulting in a yearly run rate profitability improvement of $15-20 million.

Trinseo anticipates saving $30 million annually by consolidating the business, with $25 million realized in 2025 and the full benefits by 2026.

However, the restructuring will lead to one-time costs of $23-28 million, comprising $22-26 million in severance packages, and $1-2 million in asset and contract termination fees, mainly related to the Stade polycarbonate facility.

Trinseo’s Financial Position

As of Sept. 30, 2024, Trinseo had cash of $167 million, including $2 million in restricted cash. It also had around $177 million in additional liquidity through two committed financing facilities. The company’s long-term debt as of Sept. 30, 2024, was $2.19 billion.

TSE’s Shares Underperform Industry

Shares of Trinseo have lost 5.6% in the past year compared with the industry's fall of 5.7%.

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Trinseo’s Zacks Rank & Stocks to Consider

TSE currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks from the Industrial Products sector are Graham Corporation GHM, Federal Signal Corporation FSS and RBC Bearings Incorporated RBC. While GHM sports Zacks Rank #1 (Strong Buy) at present, FSS and RBC each carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Graham has an average trailing four-quarter earnings surprise of 101.85%. The Zacks Consensus Estimate for GHM’s 2024 earnings is pinned at $1.03 per share, which indicates year-over-year growth of 145.2%. The company’s shares have gained 136.8% in a year.

Federal Signal has an average trailing four-quarter earnings surprise of 11.8%. The Zacks Consensus Estimate for FSS’ 2024 earnings is pinned at $3.34 per share, which indicates year-over-year growth of 29.5%. The company’s shares have gained 40% in a year.

The Zacks Consensus Estimate for RBC Bearings’ fiscal 2025 earnings is pegged at $9.80 per share. The company has a trailing four-quarter average earnings surprise of 2.5%. RBC shares have gained 37.5% in a year.

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