EXHIBIT B
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HERCULES INCORPORATED
Presentation to the Board of Directors
December 12, 2001
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AGENDA
Introduction
Current conditions in the debt capital markets
Recent performance of Hercules' debt vs. comparables
Refinancing strategies
Positioning
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INTRODUCTION
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INTRODUCTION
o Absent a substantial asset sale, Hercules must execute a refinancing by
the end of 2002
o Debt markets have been volatile, with notable improvement since 2Q01
(despite market weakness after 09/11)
o Hercules' debt has responded particularly well since the Company gave
guidance around improving performance in 2002
- lenders focused on merits of credit as opposed to "asset sale story"
o Original bank lenders fatigued in absence of strong bank group leadership
and protracted under-performance relative to plan
- loan classified as "Substandard" by SNC
o Today, Hercules has full access to the capital markets to pursue a
complete or partial refinancing
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SCHEDULED MATURITIES AND AMORTIZATION
Hercules currently faces substantial refinancing risk in 2003, which should be
addressed in any partial refinancing
[The following table was depicted as a bar chart in the printed materials.]
[BAR CHART]
YEARLY MATURITIES
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($ in millions)
2001 2002 2003 2004 2005 2006 2007 2008
$53.1 $234.2 $909.0 $3.8 $356.8 $58.0 $400.0 $0.0
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CURRENT CONDITIONS IN THE DEBT CAPITAL MARKETS
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CURRENT SENIOR DEBT MARKET CONDITIONS
o Substantial liquidity currently in the institutional loan market
- investors flush with uninvested cash / new issue volume off sharply
- secondary market levels up over 200 bps over the past 6 weeks
o Traditional bank loan market continues to shrink and remains weak
o Current credit problems tempering investors' appetite for new issues
o Flight to quality: investors favoring larger, higher-rated issuers
o Refocus on asset values to complement cash flows
o 6-month LIBOR of 1.98% represents lowest benchmark level in over 40 years
o Credit spreads, while currently higher than 1H01, are still attractive
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AVERAGE BB/BB- BANK DEBT RATING NEW ISSUE SPREAD
MONTH MONTH
ENDED ENDED
2Q01 3Q01 11/08/01 12/06/01
Pro rata spread L+278.0 L+277.0 L+341.7 L+333.3
Weighted avg. institutional spread L+318.0 L+329.0 L+416.7 L+354.2
Pro forma debt/EBITDA 4.0x 3.8x 3.3x 3.5x
Pro forma senior debt/EBITDA 2.5x 3.4x 2.5x 2.3x
HERCULES' CURRENT CREDIT STATISTICS
2001E 2002E
Sr. Secured Debt/EBITDA 4.0x 3.0x
Total Debt/EBITDA 4.9x 3.7x
Total Financings/EBITDA 6.3x 4.7x
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BOND MARKET CONDITIONS
o Substantial liquidity in the market
o Current trading levels price in a very robust economic recovery
o Primary use of proceeds has been for bank debt refinancing
o BB rated, industrial issuers are in the sweetspot of the current market
o Significant volatility in 2001
- despite market weakness post September 11th, today's market is as
strong as ever
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RECENT PERFORMANCE OF HERCULES' DEBT VS. COMPARABLES
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HERCULES' DEBT TRADING PERFORMANCE
11 1/8% SR. UNSECURED NOTES
HERCULES 11 1/8% SPREAD-TO-WORST HERCULES 11 1/8% DOLLAR PRICE
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Graph omitted reflecting Graph omitted reflecting
Hercules 11 1/8% Sr. Unsecured Hercules 11 1/8% Sr. Unsecured
Notes spread-to-worst range of Notes dollar price range of
approximately 550 bps to 850 bps approximately 92 to 104 per
for dates from 11/23/00 to 12/05/01. $100 face value for dates from
11/23/00 to 12/05/01.
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HERCULES' DEBT TRADING PERFORMANCE (continued)
TERM LOAN D
HERCULES TERM LOAN D TRADING PERFORMANCE
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Graph omitted reflecting
Bid Level with range of approximately
92 to 100 per $100 face value
between 03/26/01 to 11/30/01 for
Hercules Term Loan D.
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HERCULES' RELATIVE SPREADS
CURRENT VS AT ISSUE
RELATIVE VALUE: INSTITUTIONAL TERM LOAN VS SR. UNSECURED DEBT
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[The following table was depicted as a bar chart in the printed materials.]
[BAR CHART] [BAR CHART]
AT ISSUE (11/09/00) CURRENT (12/07/01)
Bond 529 Bond 550
Term loan 333 Term loan 383
AT ISSUE CURRENT
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PRICE ABSOLUTE YIELDS PRICE ABSOLUTE YIELDS
Bonds 100.00 11.125% Bonds 104.00 10.21%
Bank 99.75 10.02% Bank 98.25 5.81%
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REFINANCING STRATEGIES
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TRANSACTION SUMMARY
SCENARIO I -- PARTIAL REFINANCING - BALANCE SHEET AS OF 09/30/01
SOURCES USES
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($ in millions)
Term Loan E $500.0 Revolver(1) $227.0
Senior Unsecured Notes 350.0 Term Loan A 543.0
ESOP 60.0
Fees 20.0
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TOTAL SOURCES $850.0 TOTAL USES $850.0
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(1) Commitment reduced to $800 million.
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LIQUIDITY ANALYSIS
SCENARIO I
Even after making the 2002 tax payment, the revolving credit facility provides
roughly $300 million of liquidity
($ in millions)
Revolver (09/30/01) $517
Letter of credit 100
TOTAL USAGE $617
Taxes due in 2002 120
PROJECTED USAGE $737
Refinancing payment 227
PRO FORMA USAGE $510
Total availability 800
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AVAILABLE LIQUIDITY $290
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2003 REFINANCING RISK
Refinancing will smooth maturities while limiting refinancing risk to the
Revolving Credit Facility and Notes due in 2003
[The following tables were depicted as bar charts in the printed materials.]
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SCHEDULED MATURITIES -
PRE REFINANCING
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($ in millions)
2001 2002 2003 2004 2005 2006 2007 2008
$53.1 $234.2 $909.0 $3.8 $356.8 $58.0 $400.0 $0.0
[BAR CHART]
SCHEDULED MATURITIES -
POST REFINANCING
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($ in millions)
2001 2002 2003 2004 2005 2006 2007 2008 2009
$0.0 $3.8 $418.8 $3.8 $356.8 $58.0 $400.0 $500.0 $389.0
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PROJECTED CREDIT STATISTICS AND PROPOSED COVENANT
LEVELS
Immediately following a transaction, covenants would be set at 5.5x, stepping
down to a level between 5.00x and 5.25x after a year
($ in millions) FYE 2002
SUMMARY PRO FORMA CREDIT STATISTICS
Sr. Secured debt / EBITDA 2.53x
Total debt / EBITDA 3.93x
Total financings / EBITDA 4.82x
PROPOSED COVENANT LEVELS
EBITDA $599
Total debt $2,357
Total debt / EBITDA 3.93x
Proposed test 5.00x
EBITDA cushion 115
MINIMUM EBITDA FOR COMPLIANCE 485
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TRANSACTION SUMMARY
SCENARIO II - COMPREHENSIVE REFINANCING
We believe that the Company could also embark upon a comprehensive refinancing
SOURCES USES
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($ in millions) ($ in millions)
$300 million Revolver $0 Revolver $517
Additional Term Loans 913 Term Loan A 543
Senior Unsecured Notes 400 ESOP 103
Tax payment 120
Fees and expenses 30
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TOTAL SOURCES $1,313 TOTAL USES $1,313
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POSITIONING
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POSITIONING
o Diverse business
- products
- end markets
- geography
o Strong market positions
o Limited downside/significant upside
o Defined cost cutting plan
o Well respected CEO with proven track record
o Diminimis refinancing risk
o Stable earnings performance in challenging environment
o Scale
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