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The debt of one of Europe’s largest chemicals companies has become a battleground for some of the world’s most aggressive credit hedge funds, as fears for the viability of the continent’s chemicals industry have almost wiped out the value of its bonds.
The financial decline of Kem One — a heavily indebted French chemicals producer owned by US private capital group Apollo — has pit credit funds in Europe and the US against each other, with some placing large bets against and some in favour of the company.
Credit funds betting on a recovery have scooped up the company’s bonds at deep discounts to their face value, while others have plied Kem One with even more debt in recent months. Some investors could be on the hook for steep losses as the company’s fortunes have worsened. Others who shorted Kem One’s debt have reaped large windfalls.
Among the company’s largest backers are London-based Arini Capital, one of the most active distressed credit investors in Europe, and New York-based Monarch Alternative Capital. The two funds teamed up to provide Kem One with an extra €200mn of financing early last year.
At the time, Kem One’s other €450mn of publicly traded bonds were changing hands at about 70 cents on the euro. They have since sunk to trade at 2 cents on the euro, with investors anticipating near 100 per cent losses for lenders to what is one of the worst affected constituents of Europe’s ailing chemicals industry.
Arini and Monarch’s debt facility ranks senior to those bonds, meaning they would be repaid first in the event of a default. The two funds doubled down last month, lending the company an additional €30mn that has the same collateral as, and ranks alongside, their previous $200mn loan.
On the other side of the trade, hedge funds including London-based Sona Asset Management and Polus Capital Management have shorted the company’s debt, booking profits as its bonds cratered in value, according to people familiar with the matter.
Diameter Capital Partners — a New York-based credit hedge fund in which Kem One-owner Apollo holds a stake — also built a small short position against Kem One’s bonds as part of a wider bet against the global chemicals industry, according to people familiar with the matter.
“We had success in the fourth quarter in shorts of global chemicals companies bedevilled not so much by sudden drops in demand (RECESSION!) than by the evolution of supply,” Diameter, which oversees $25bn in assets, said in its most recent investor letter. “The problem is China, which seems determined to add capacity up and down the chemicals chain.”
It added: “We have shorts in the most impacted names and believe that 2026 will be a watershed inflection for chemicals.”
One high yield credit investor who used to own Kem One bonds said they expected investors to get a “First Brands-esque recovery — soon to be zero”, a reference to the collapse of the Ohio-based car-parts supplier that sent shockwaves through Wall Street last year, wiping out creditors owed billions of dollars.
Kem One’s difficulties are part of a broader slowdown that has plagued Europe’s chemicals sector in the past 12 months, as it has battled a combination of high production costs, driven by rising energy prices and carbon tariffs, and a huge influx of cheap supply from China.
Industry peer Ineos has also taken a hit in credit markets in recent months, as investors have sold out of its more than $20bn debt pile.
Jim Ratcliffe’s group previously warned that time was “running out” to rescue Europe’s chemicals industry and last year filed anti-dumping cases against imports of cheap chemicals products to the EU.
Apollo, Arini, Monarch, Sona, Diameter and Polus declined to comment.