Document
Confidential Treatment Requested by Hexion Holdings Corporation
As submitted confidentially to the Securities and Exchange Commission on June 7, 2021.
This draft registration statement has not been publicly filed with the Securities and Exchange Commission, and all information herein remains strictly confidential.
Registration No. 333-                
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Hexion Holdings Corporation
(Exact name of registrant as specified in its charter)
Delaware282184-2191440
(State or Other Jurisdiction of
Incorporation or Organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
180 East Broad Street
Columbus, Ohio 43215
Attention: Corporate Secretary
(614) 225-4000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Douglas A. Johns
Executive Vice President and General Counsel
Hexion Holdings Corporation
180 East Broad Street
Columbus, Ohio 43215
(614) 225-4000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)
Copies to:
David S. Huntington, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
(212) 373-3000
Michael Kaplan, Esq.
Marcel Fausten, Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
(212) 450-4000
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
  Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐


Confidential Treatment Requested by Hexion Holdings Corporation
CALCULATION OF REGISTRATION FEE
Title of each Class of
Securities to be Registered
Amount
to be
Registered
Proposed
Maximum
Offering Price
Per Share
Proposed
Maximum Aggregate
Offering Price(1)(2)
Amount of
Registration Fee(3)
Class A common stock, par value $0.01 per share    
 
(1)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2)Includes offering price of any additional shares that the underwriters have the option to purchase, if any. See “Underwriters.”
(3)To be paid in connection with the initial filing of the registration statement.
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


Confidential Treatment Requested by Hexion Holdings Corporation
The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, dated June 7, 2021
PRELIMINARY PROSPECTUS
         Shares
Hexion Holdings Corporation
Class A common stock
This is the initial public offering of Hexion Holdings Corporation, a Delaware corporation. We are offering                shares of Class A common stock and the selling stockholders identified in this prospectus are offering                shares of Class A common stock.
We expect the public offering price to be between $         and $         per share. Prior to this offering, no public market exists for the shares. We intend to apply to list our Class A common stock on the New York Stock Exchange (the “NYSE”) under the symbol “HXN.”
Investing in our Class A common stock involves risks that are described in the “Risk Factors” section beginning on page 24 of this prospectus.
 Per ShareTotal
Public offering price$$
Underwriting discounts and commissions(1)
$$
Proceeds to us, before expenses$$
Proceeds to the selling stockholders, before expenses$$
_____________________
(1)See “Underwriters” for additional information regarding the underwriters’ compensation and reimbursement expenses.
The underwriters may also exercise their option to purchase up to an additional          shares of Class A common stock from us at the public offering price, less underwriting discounts and commissions, for 30 days after the date of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares against payment on or about                 , 2021.
Morgan Stanley
The date of this prospectus is                , 2021


Confidential Treatment Requested by Hexion Holdings Corporation
TABLE OF CONTENTS
We, the selling stockholders and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We, the selling stockholders and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may provide you. We and the selling stockholders are offering to sell, and seeking offers to buy, shares of our Class A common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our Class A common stock.
For investors outside the United States: none of us, the selling stockholders or the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside of the United States.
Until                 , 2021, all dealers that buy, sell or trade our Class A common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.


Confidential Treatment Requested by Hexion Holdings Corporation
PRESENTATION OF FINANCIAL INFORMATION
Prior to July 1, 2019, the date we emerged from bankruptcy (the “Emergence Date”), Hexion Holdings Corporation had not conducted any business operations. Accordingly, unless otherwise noted or suggested by context, all financial information and data and accompanying financial statements and corresponding notes, with respect to periods prior to the Emergence Date, as contained in this prospectus, reflect the actual historical consolidated results of operations and financial condition of Hexion Inc. for the periods presented and do not give effect to our plan of reorganization or any of the transactions contemplated thereby or the adoption of fresh start accounting. Such financial information may not be representative of our performance or financial condition after the Emergence Date.
iv

Confidential Treatment Requested by Hexion Holdings Corporation
NON-GAAP FINANCIAL MEASURES
This prospectus includes certain non-GAAP financial measures, including EBITDA, Segment EBITDA, Pro Forma EBITDA and Non-GAAP combined results. For a discussion of the limitations on these measures, the rationales for using these measures and a reconciliation of these measures to the most directly comparable measures used in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), see “The Offering—Summary Historical Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
v

Confidential Treatment Requested by Hexion Holdings Corporation
INDUSTRY AND MARKET DATA
This prospectus includes industry data that we obtained from periodic industry publications and internal company surveys. This prospectus includes market share and industry data that we prepared primarily based on management’s knowledge of the industry and industry data. We are responsible for all industry and market data included in this prospectus. Unless otherwise noted, statements as to our market share and market position relative to our competitors are approximated and based on management estimates using the above-mentioned latest available third-party data and our internal analysis and estimates. We determined our market share and market positions utilizing periodic industry publications. If we were unable to obtain relevant periodic industry publications, we based our estimates on our knowledge of the size of our markets, our sales in each of these markets and publicly available information regarding our competitors, as well as internal estimates of competitors’ sales based on discussion with our sales force and other industry participants. Our estimates, in particular as they relate to market share and our general expectations, involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Risk Factors” and “Forward-Looking Statements.”
vi

Confidential Treatment Requested by Hexion Holdings Corporation
TRADEMARKS, TRADE NAMES AND SERVICE MARKS
We use various trademarks, trade names and service marks in our business, including Cardura™, EcoBind™, Epi-Rez™, EPIKOTE™, EPIKURE™, VeoVa™ and Versatic™. This prospectus contains references to our and other companies’ trade names, trademarks and service marks. Solely for convenience, trademarks, trade names or service marks referred to in this prospectus may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, trade names or service marks. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
vii

Confidential Treatment Requested by Hexion Holdings Corporation
FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus are forward-looking statements. All statements, other than statements of historical facts, are forward-looking statements. Forward-looking statements may be identified by the words “believe,” “expect,” “anticipate,” “project,” “might,” “plan,” “estimate,” “may,” “will,” “could,” “should,” “seek” or “intend” and similar expressions. Forward-looking statements reflect our current expectations and assumptions regarding our business, the economy and other future events and conditions and are based on currently available financial, economic and competitive data and our current business plans. Actual results could vary materially depending on risks and uncertainties that may affect our operations, markets, services, prices and other factors as discussed in the “Risk Factors” section of this prospectus. While we believe our assumptions are reasonable, we caution you against relying on any forward-looking statements as it is very difficult to predict the impact of known factors and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to:
a weakening of global economic and financial conditions;
interruptions in the supply of or increased cost of raw materials;
the impact of our indebtedness;
our failure to comply with financial covenants under our credit facilities or other debt;
pricing actions by our competitors that could affect our operating margins;
changes in governmental regulations and related compliance and litigation costs;
uncertainties related to the COVID-19 pandemic and the impacts of our responses to it; and
other factors, including the factors discussed in the “Risk Factors” section of this prospectus.
All forward-looking statements are expressly qualified in their entirety by this cautionary notice. The forward-looking statements made by us speak only as of the date on which they are made. Factors or events that could cause our actual results to differ may emerge from time to time. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
viii

Confidential Treatment Requested by Hexion Holdings Corporation
PROSPECTUS SUMMARY
This summary highlights the more detailed information contained elsewhere in this prospectus. This summary may not contain all the information that may be important to you. You should carefully read the entire prospectus before making an investment decision, especially the information presented under the heading “Risk Factors.”
In this prospectus, except as otherwise indicated, or as the context may otherwise require, all references to “Hexion,” the “Company,” “we,” “us,” and “our,” (i) with respect to periods prior to and including the Emergence Date (July 1, 2019) (the “Predecessor period”), refer to Hexion Inc. and its subsidiaries and (ii) with respect to periods after the Emergence Date (the “Successor period”), refer to Hexion Holdings Corporation and its subsidiaries.
Our Company
Overview
We are a leading global producer of adhesives, coatings and composites materials. Our products include a broad range of critical components and formulations used to impart valuable performance characteristics such as durability, gloss, heat resistance, adhesion and strength to our customers’ and their customers’ final products. As such, our products sold to our customers are highly value-added contributions to their final work product, even though they often represent only a small portion of the overall end-product cost. We serve highly diversified growing end-markets such as wind energy, residential and non-residential construction, industrial, automotive and agriculture.
Our products are well aligned with global mega-trends, which we believe are being driven by stringent safety and sustainability requirements and regulations, population growth and an increasing need for lighter, stronger, higher performance and engineered materials in many end-markets such as aerospace, automotive, energy and construction. We produce resins that are used in the formulation of adhesives, coatings and composites. Such resins are part of the broader thermoset resin industry. Thermosets are materials that permanently cure, harden or set in a final product application. Thermoset resins are generally considered specialty chemical products because they are principally produced based on customer product specifications and sold on the basis of performance, technical support, product innovation and customer service. We believe we have the broadest range of thermoset resin technologies in the world. We expect that favorable industry dynamics will continue to drive thermoset growth ahead of global GDP, driven by customers’ preferences that are shifting towards green energy, energy efficient production and lower volatile organic compounds (“VOCs”). We address our customers’ increasing sustainability requirements through our products such as the NextGen™ Epoxy waterborne system that delivers a low-VOC emitting system in construction, transportation and agricultural equipment markets, and the EPIKOTE™ resin systems and EPIKURE™ and the MGS™ curing agents that provide strength and fatigue performance for larger and heavier rotor blades in wind turbines.
Additionally, our wood adhesive technology enables the efficient use of engineered wood products, which is one of the most sustainable building materials in the world. Wood construction materials help sequester carbon by keeping it out of the atmosphere for the lifetime of the structure, or longer if the wood is reused. In addition, processing wood requires less energy and results in fewer greenhouse gas emissions than other building materials. We believe we are well positioned with our wood adhesives products as the global markets continue to shift to sustainable products.
We have leading market share positions across our integrated and global manufacturing platform in well-structured markets with over 80% of our sales being products that have the number one or two global positions. We are the number one wood adhesive supplier in the United States, Canada, Brazil and Australia. In composites, we are one of only three global suppliers in the epoxy resin market and we have leadership positions in each of the key end-markets and regions in which we participate. In addition to market leadership, we are integrated from key intermediates to final products, which gives us significant competitive advantages through a cost-effective position, security of supply and stable integrated margins across our value chain. Our manufacturing is localized, providing additional stability and barriers to entry due to the proximity of our sites to our customers. For example, the majority
1

Confidential Treatment Requested by Hexion Holdings Corporation
of our wood adhesive and merchant formaldehyde products are delivered through our pipelines or through truck and rail within the region to our customers.
In January 2020, we changed our reporting segments to align around our two growth platforms, Adhesives and Coatings & Composites. Our Adhesives segment produces construction and industrial adhesives and additives for energy and agricultural applications. In our Coatings & Composites segment, we produce resins used in energy, aerospace and automotive, as well as other high performance coatings applications. Our integrated manufacturing platform allows us to supply our derivatives internally and sell excess material to the market. We sell this excess material as Intermediates & Derivatives in the Adhesives segment and Base Chemicals in the Coatings & Composites segment. Our Adhesives segment had net sales of $1.2 billion and Segment EBITDA of $214 million for the year ended December 31, 2020. Our Coatings & Composites segment had net sales of $1.3 billion and Segment EBITDA of $151 million for the year ended December 31, 2020.
Our products are sold in approximately 80 countries to more than 2,000 customers. Our manufacturing network consists of 34 production facilities with regional and global supply to our customers in the United States, Europe, China, Latin America, Australia and New Zealand. We have approximately 2,600 employees with total net sales of $2.5 billion for the year ended December 31, 2020.
The breakdown of our diversified end-markets and global exposure for the year ended December 31, 2020 are included below:
https://cdn.kscope.io/78b9dd42ff5deef77ad2062bb5ce0e1c-chart-d79b0ad80d914e8eb78a.jpg
https://cdn.kscope.io/78b9dd42ff5deef77ad2062bb5ce0e1c-chart-2615ba55d3e847cead7a.jpg
2

Confidential Treatment Requested by Hexion Holdings Corporation
Our Business
Adhesives Segment
We are a leading producer of adhesive materials used in building products and furniture applications. Our products are used in engineered wood products, which is one of the most sustainable building materials in the world. Our adhesives are based on our vertically integrated formaldehyde-based resins production platform. These adhesive materials are critical components that provide the structural integrity from their binding properties to structural and decorative wood products such as oriented strand board, plywood and medium density fiberboard. We engineer our products with customized specifications based on collaboration with our customers who interface with our regional commercial, technical support and research and development organization. Through these collaborative relationships, we help our customers address the shifting requirements of their products due to new performance requirements, new standards related to workplace safety, new environmental standards and increasing energy conservation requirements.
Sub-segment / Products
Key Applications
Key Product Attributes 
Construction Adhesives (74% of 2020 Segment Sales)
   
Wood Adhesives: Phenol Formaldehyde, Amino Resins (Urea Formaldehyde, Melamine Formaldehyde), Laminates and Derivatives, Specialty
Plywood, particleboard, oriented strand board, medium density fiberboard, laminated veneer lumber particleboard, laminated beams, cross-laminated timber, truck-decking
Structural integrity, thermal stability, durability, moisture resistance
Wax Emulsions
Panel board, specialty applications
Long-term stability, consistency, water absorption, lubrication
Insulation: Mineral Wool Bonding, Phenolic Foams
Fiberglass insulation, fiberglass mat and coatings, floral foam, insulating foam
Imparts softness, shape recovery, moisture resistance and fire resistance
Low thermal conductivity, minimal density
Intermediates & Derivatives (26% of 2020 Segment Sales)
Formaldehyde: Solutions, Hexamine, Urea Formaldehyde Concentrates, Methaform
Methylene diphenyl diisocyanate, butanediol, herbicides and fungicides, oil and gas production scavengers, fabric softeners, formaldehyde-based resins
Essential chemical precursor
Formaldehyde: Triazines
Hydrogen sulfide scavenging for oil and gas applications
Heat, stress and corrosion resistance
3

Confidential Treatment Requested by Hexion Holdings Corporation
The schematic below showcases certain applications for our Construction Adhesives products:
https://cdn.kscope.io/78b9dd42ff5deef77ad2062bb5ce0e1c-business1aa.jpg
Coatings & Composites Segment
We are a leading producer of critical ingredients in highly engineered coatings and composites to growing sustainable and energy-efficient enabling markets. In industrial coatings, our epoxy specialty resins are used to impart superior adhesion, corrosion resistance and other high-performance characteristics. In addition, we produce Versatic™ acid derivatives, VeoVa™ and Cardura™, which are branded ingredients sold to coatings companies to produce high-performance coatings applications. Our epoxy resins are also used as the key component in composite materials. Composite materials are high strength, yet lightweight materials that consist of our resins and a reinforcement material, such as glass and carbon fibers. We supply specialty epoxy resins to producers that make composites for wind blades, aerostructures and automotive parts among many other lightweight structural parts. Given our integrated platform, we supply liquid epoxy resins primarily to our epoxy specialty resins business and also to the external market. In addition, we supply Versatic™ acid to our derivatives business and to the external market. These products are in our Base Chemicals sub-segment. Products in our Coatings & Composites segment require collaboration with our customers and a technical and formulation expertise given that wind energy, automotive, aerospace and other industrial products are highly engineered for specific applications. These end-markets require demanding performance requirements for these structural components and have long development cycles and long in-use time horizons.
4

Confidential Treatment Requested by Hexion Holdings Corporation
Sub-segment / Products
Key Applications
Key Product Attributes
Composites (34% of 2020 Segment Sales)
   
Epoxy Specialty Resins: Wind Infusion Resin, Bonding Paste, Electrical Castings, Composites
Wind turbine blades, pipes and tanks, automotive, aerospace, sports, boats, generators, bushings, transformers, switch gear components, post insulators, capacitors, automotive ignition coils, fiber sizing
 
Lightweighting, superior adhesion, durability, high tensile strength
Performance Coatings (51% of 2020 Segment Sales)
   
Epoxy Specialty Resins: Coatings, Civil Engineering, Waterborne Coatings
Flooring, marine, shipping containers, steel structures, electronic laminates
Superior adhesion, corrosion resistance, durability, long service life, broad application functionality
   
Epoxy Resins: Liquid Epoxy Resins
Automotive coatings, concrete coatings
Durability, corrosion resistance, superior adhesion, long service life
   
Versatic Acid & Derivatives: Re-dispersible Latex Powder, VeoVa, Cardura
Automotive, industrial, architectural, construction
Hydrolytic stability, water resistance, appearance, ease of application, adhesion and durability, low VOC emissions
 
Base Chemicals (15% of 2020 Segment Sales)
   
Epoxy Resins & Intermediates: Bisphenol A, Bisphenol F, Epichlorohydrin
Liquid and solid epoxy resins, polycarbonate resins, glycerol and derivatives
Essential chemical precursors
   
Versatic Acid & Derivatives: Acids
Peroxides, pharmaceuticals, agrochemicals, adhesion promoters
Hydrolytic stability, heat resistance, solubility in non-polar compounds
5

Confidential Treatment Requested by Hexion Holdings Corporation
The schematics below showcase certain applications for our composites products:
Commercial/ Automotive
 https://cdn.kscope.io/78b9dd42ff5deef77ad2062bb5ce0e1c-a202105revisedautographic_a.jpg
Wind Turbines
https://cdn.kscope.io/78b9dd42ff5deef77ad2062bb5ce0e1c-turbinea.jpg
Competitive Strengths
Leading End-Market Positions. We have long-standing number one or two positions in key markets in adhesives, coatings and composites that represented over 80% of our sales in the year ended December 31, 2020. We generally operate in end-markets where we are one of two or three global suppliers who can bring solutions to regional and global customers. We believe we have the broadest range of thermoset resin technologies in the world, with leading technical service, application development and research capabilities that we believe are unmatched in the sector. In addition, our facilities are well positioned to serve local customers in regional geographies. The
6

Confidential Treatment Requested by Hexion Holdings Corporation
majority of our wood adhesives resins and formaldehyde business are served to customers via pipelines or truck and rail within the region.
Segment / Sub-segment
Products
Leadership Position
Key Attributes
Adhesives
Construction AdhesivesWood Adhesives#1 in United States, Canada, Brazil and Australia
Regional market (300-mile economically viable shipping radius)
Approximately two-and-a-half times bigger than next competitor
    
Intermediates & DerivativesFormaldehyde#1 in North America
Approximately three times bigger than next competitor
40% of North America capacity
 
Coatings & Composites
    
CompositesEpoxy ResinsWaterborne coatings, aerospace and automotive, #1 in wind energy
One of only three global players
    
Performance Coatings
Versatic Acid Derivatives

#1 Globally
Only one other direct competitor in each of our product lines
Liquid Epoxy Resins#2 North America/Europe
    
Base Chemicals
Versatic Acid
 
#1 Globally
Large scale producer provides backward integration
Bisphenol ANorth America / Europe
Strategically Aligned with End-Market Growth Drivers. Our products are well aligned with global mega-trends in population growth and sustainability, as well as increasingly stringent safety and performance standards. Global population growth is expected to result in ever increasing demands for more sustainable solutions, such as in energy, wind turbines, aerospace, automotive, agriculture and construction. Demand for carbon efficient buildings drives growth in our low-emitting coatings and our resins that enable engineered structural wood. We believe growth in many of our key applications is being driven by an increasing need for lighter, stronger, higher performance engineered materials, as well as improved fire, smoke and toxicity properties.  
Our wood adhesives business serves the growing U.S. housing market, both through remodeling activity and new construction. Wood adhesives support a more sustainable structural market where wood products use renewable materials, such as tree plantations, that use much less energy per ton and have a lower carbon footprint than traditional materials such as steel, glass and concrete. Our epoxy coatings and phenolic resins businesses serve the global industrial construction market, providing solutions for a wide range of applications, including protective coatings for infrastructure, such as bridges, tunnels, large buildings, piping, insulation and industrial machinery. The lightweighting trend in aerospace and automotive applications is driving growth of our composite business through our supply of epoxy resins into carbon fiber and glass fiber composites. Demand for our coatings products is growing as a result of the global trend to use lower VOCs in specialty coatings applications due to environmental concerns. We are only one of two global epoxy resin players in China with local waterborne coatings assets and have over 20 years of technology heritage. The demand for sustainable energy alternatives is driving growth in the wind energy market that has seen a global installed electrical capacity increase of 277% from 2010 to 2020.
7

Confidential Treatment Requested by Hexion Holdings Corporation
Additionally, the increase of wind blade length will multiply our growth in bonding paste and infusion resin systems.
Diverse End-Markets and Customer Base Stabilizes Earnings and Reduces Volatility. Our products sold to our customers are used in thousands of applications and sold into diverse end-markets such as wind energy, residential and non-residential construction, furniture, energy, industrial, automotive and agriculture. Residential construction, one of our leading end-markets, represented only 12% of our total sales in 2020. Our broad product portfolio also addresses diverse applications and geographies within a single end-market. For example, our products are used in a broad set of automotive applications such as lightweighting and tire applications, which are growing due to trends in automotive materials that require the reduction of noise in electric vehicles and lightweighting to improve fuel efficiency. Our wood adhesives products are critical to engineered panel board production across diverse geographies including the United States, Canada, Brazil and Australia. Across our entire portfolio, we sell our products in approximately 80 countries. Our products are sold to a diverse global and regional set of customers that consist of more than 2,000 companies, with our top ten customers accounting for approximately 20% of our net sales in 2020. Our largest customer accounted for approximately 3% of our sales in 2020. Our global customers include leading multinational companies that collaborate with us to develop global product solutions. Many of these blue-chip companies are leaders in their respective industries such as Akzo Nobel, BASF, Norbord, Louisiana Pacific, Bayer, Owens Corning, PPG Industries, Sherwin Williams, Sinoma, Aeolon and Weyerhaeuser.
Leading Technology Platform Across Products and Applications. We have a leading technology platform of products that address critical performance attributes for our customers and their customers’ products through our global and regional network. Our product technologies are centered around our broad thermoset platform with leading research, applications development and technical service capabilities. We have 15 research and development sites and three innovation centers where we collaborate with local and global customers to develop customized products and solutions. These sites and innovation centers are located globally in North America, South America, Europe and Asia. We have the broadest wood adhesives platform with over 700 unique SKUs of products that make up the industry’s leading technology. In addition, we are strategically located near our customers with large-scale facilities such as Edmonton, Canada and Springfield, Oregon, which enables a low-cost position. Our epoxy resins provide unique solutions and capabilities in the wind energy (over 20-year history), waterborne coatings (over 30 years of research and development heritage), aerospace composites and automotive markets. Our VeoVa™ and Cardura™ products provide a unique technology to the market to allow coatings players to both lower VOCs and provide high performance. Our new product sales across the portfolio represented approximately 20% of our total sales in each of the last five years. In Coatings & Composites, we have the only continuous epoxy production lines in Deer Park, Texas and Pernis, Netherlands, which allow us to have cost efficient manufacturing capability.
Tailored Solutions and Regional Customer Engagement. We engage our customer base by providing solutions for their product development and formulation needs. We provide these solutions on both a global and regional basis. We utilize a network of technical sales, commercial development centers and research and development facilities to provide collaborative solutions. In wood adhesives we have experts who develop customer products and are embedded at our customers’ panelboard facilities. We offer panelboard pilot facilities in North America, Latin America and Asia Pacific for customers to test new products or create existing product modifications. Our epoxy coatings and composites platform engages in joint research and co-development with customers given their specifications unique to wind energy, aerospace, specialty coatings and automotive applications with long product life cycles. In 2017, we completed an expansion of the technology center at our Edmonton, Alberta site to focus on developing next generation resin chemistry for panel production. We also recently constructed an Application Development Center in Shanghai, China that will support new product development and customer collaboration to accelerate growth in growing waterborne coatings and composite applications. Our Versatic™ acids and derivatives business works with customers in regional labs based in Belgium, France, United States, Canada and China where customers utilize our unique polymerization, formulation and synthesis capabilities unmatched in the industry. In our Coatings & Composites segment we have multiple regional research and development tech centers and product support labs where we partner with our customers to develop leading formulations for highly specified coatings, electronics and industrial applications. We believe our tailored solutions and intimate customer engagement have allowed us to maintain industry leadership, profitability and growth potential.
8

Confidential Treatment Requested by Hexion Holdings Corporation
Integrated Value Chain Provides Stability and Competitive Advantage. We produce a majority of the critical intermediates for our key products across our portfolio. This integration gives us significant competitive advantages through cost effective production, security of supply to us and our customers and less volatility in our overall input costs. For example, we supply essentially all of the formaldehyde needed for our construction and adhesives business. Our North American and European specialty coatings and composites are 100% supplied through our backward integration via our world-scale liquid epoxy resin facilities. Our Cardura™ and VeoVa™ products source 100% of their Versatic™ acids needs from our facilities. This integrated platform allows us to lower costs through sourcing locally, often through pipelines, to reduce delivered costs of raw materials. In addition, we have the ability to run our intermediates facilities at high utilization rates to lower our operating cost per ton due to our internal needs for base-load operations.
Strong and Stable Free Cash Flow. We expect to generate strong and stable free cash flow given our limited working capital requirements, a right-sized capital structure, low capital-intensive operations and pass-through customer contract structures. Despite the COVID-19 pandemic, we generated operating cash flow from our continuing operations of $116 million during the year ended December 31, 2020. Year-end net working capital averaged approximately 10% of sales from 2016 through 2020, which is top decile in the chemical industry. Our annual investment in maintenance and environmental capital expenditures has typically ranged between $60 million and $70 million, which was approximately 3% of sales in 2020.
In a majority of our businesses, we benefit from strong contract structures that allow for raw material pass-through. In our formaldehyde and wood adhesives businesses, we leverage third-party raw material indexes to periodically adjust contractual and non-contractual pricing for approximately 90% of revenue, which has produced consistent material margins. We expect these attributes to help produce more stable profit and free cash flow through fluctuating raw material price environments.
Experienced Management Team with Impressive Track Record. Our management is highly experienced with a history and track record of creating value at other public companies. Craig Rogerson, our Chief Executive Officer, was chief executive officer of Chemtura Corporation for over seven years and chief executive officer of Hercules Inc. for five years. Our key segment leaders each have over 20 years of relevant industry experience. In addition, our management team has reduced fixed costs by $90 million between 2017 and 2020. Our management team has strong leadership experience navigating across a broad range of economic conditions. In addition, as a result of this team, the portfolio has been better positioned with a new product focus, where our new products across the portfolio have consisted of approximately 20% of our sales from 2014 to 2020.
Strategy
Our strategy is focused on increasing shareholder value by increasing our profit and free cash flow generation dollars through initiatives to grow our businesses from our foundation of attractive products and end-market demand. We continually seek to introduce new products to address our growing end-market needs. In addition, we plan to increase volumes and manage costs to create significant operating leverage from our well-invested base of technologies and global production. We also plan to optimize our portfolio to broaden and deepen our specialty product solutions.
Introduce New Products to Address Our Growing End-Markets. We have a platform of technologies in thermoset markets that we will leverage to continue to introduce new products to address market growth which is being driven by increasing population growth, increasing stringent safety requirements and increasing sustainability trends. Our new products across the portfolio have consisted of 20% of our sales from 2015 to 2020. We intend to continue this new product focus with our global commercial, technical support and research and development base of people and capabilities, such as in our commercial development centers and regional labs. For example, our new proprietary bonding paste for wind turbine blades enables the production of increasingly long blades, which create turbines with greater efficiency. Our waterborne coatings will address the increasing requirements by global customers to drive lower VOCs in industrial coatings. Our BPA-Free can coating materials address changing consumer preferences. Our composite materials will address sustainability through enabling automotive lightweighting for manufacturers by replacing heavier metal components to enable improved fuel efficiency. Our wood adhesive systems are ideal for new building applications, such as cross-laminated timbers for multi-story
9

Confidential Treatment Requested by Hexion Holdings Corporation
commercial buildings, for example. Hexion’s ArmorBuilt™ wrap protects utility poles during wildfires. Our constantly developing pipeline should drive growth of our business to increase profit and margin to increase shareholder value.
Focus on Driving Growth Through Productivity and Operating Leverage. We have continued to invest over the last decade in growing our global and regional commercial base, developing our research and development capabilities and expanding our production network. As we address our attractive growing markets through increased volumes of existing and new product sales, we intend to improve our profit through operating leverage across our global and regional base of operations. We also have a track record of effectively managing our cost base. For example, we reduced fixed costs by $90 million from 2017 to 2020. We believe this stable fixed cost base will support future operating leverage driven by increasing volumes. We believe we have sufficient capacity available in our formaldehyde and epoxy resin business to benefit from increased growth without need for increased capital investment or fixed costs. We will invest to support our businesses that have limited excess capacity, such as our intention to add phenolic resin capacity to expand our adhesives and binders business at our Brimbank, Australia site.
Investment in New Product Development and Innovation. We expect to continue to invest in our development and production capabilities to bring new products to the market that provide innovative lightweighting abilities, fire resistance and toxicity attributes that meet the needs of our customers and deliver attractive margins to the Company. Our goal of increasing the offerings of products with sustainable attributes is expected to create value for our customers and our stakeholders.
Increasing Demand for Products with Sustainable Attributes and Fire Safety Applications. We believe our diversified portfolio is uniquely aligned to serve our customers that are increasingly demanding products with sustainable attributes. Within our Adhesives segment, our ArmorBuilt™ fire resistant wrap is a new product which greatly improves fire protection when applied to a substrate. ArmorBuilt™ wrap is a proprietary wrap from Hexion that can be applied to either new or existing wood utility poles. Hexion has been providing high-performing adhesives for decades and has leveraged its expertise to develop a fire-retardant coating for more sustainable wooden utility poles that greatly improves their fire resistance and protects critical utility infrastructure. We also believe that the fire-retardant properties of ArmorBuilt™ positions us favorably to capture other high-growth applications as we bring on additional manufacturing capacity through our announced site expansions. We anticipate that new potential applications include roofing and siding “fire hardening” materials, as well as protective wrapping for storage tanks and natural gas and oil pipelines. Within our Coatings and Composites segment, we are constantly adapting our composite resin portfolio to answer manufacturers’ increasing need for strong yet lightweight alternatives to metal that can be produced at faster speeds. Our resin technology can help manufacturers reduce vehicle weight and at the same time, hasten production of high-performance composite components. For instance, an EPIKOTE™ epoxy resin system has been specified by the BMW group for the volume production of structural composite parts in the BMW 7-Series automobiles. In addition, our EPIKOTE™ epoxy resin system has been specified by Rassini for an innovative rear axle suspension system found in Ford Motor Company’s new 2021 model of the F-150 pickup truck.
Optimize Portfolio Through Targeted Strategic Mergers and Acquisitions. We plan to productively optimize our portfolio of businesses and solutions by focusing on the most attractive businesses we have today and through strategic bolt-on acquisitions. We believe our optimization, through divestitures, acquisitions and joint ventures, will drive our businesses to areas where our solutions and products achieve attractive margins based on their performance enabling characteristics for customers and where we can achieve high and increasing returns over the long term. We intend to explore new product technologies that complement our existing thermoset solution base and customer application set and/or our downstream formulation expertise. In addition, we intend to evaluate regional additions in our current product set that can broaden our global reach. Our acquisitions will be evaluated under a disciplined return on capital requirement considering achievable synergies. We believe this portfolio optimization will position us to expand globally as a stronger and higher valued specialty chemical company with capabilities to continue to deliver best-in-class solutions to our customers.
10

Confidential Treatment Requested by Hexion Holdings Corporation
Emergence Transactions
On July 1, 2019 (the “Emergence Date”), we emerged from bankruptcy proceedings pursuant to the terms of a Plan of Reorganization (the “Plan”). On the Emergence Date, we consummated the following exit financings (collectively, the “Exit Financings”) in accordance with the Plan:
We issued $450 million aggregate principal amount of 7.875% Senior Notes due 2027 (the “Senior Notes”);
We entered into a new $350 million asset-based revolving credit facility (the “ABL Facility”) and a new $1.2 billion senior secured term loan facility (the “Term Loan Facility” and, together with the ABL Facility, the “Credit Facilities”); and
We raised $300 million of gross cash proceeds from a rights offering (the “Rights Offering”) of our Class B common stock to certain eligible holders of Hexion Inc.’s pre-petition notes under the Plan.
In this prospectus, the “Emergence Transactions” refers, collectively, to the consummation of the Plan and related transactions, including the application of fresh start accounting principles, the consummation of the Rights Offering, the entry into the ABL Facility, the entry into the Term Loan Facility and the borrowing of $1.2 billion thereunder, the issuance of the Senior Notes and the application of the proceeds from the Exit Financings pursuant to the terms of the Plan.
Recent Divestiture
On April 30, 2021, we completed the sale of our Phenolic Specialty Resin, Hexamine and European-based Forest Products Resins businesses for approximately $425 million to Black Diamond and Investindustrial. The consideration consisted of $335 million in cash and certain assumed liabilities with the remainder in future proceeds based on the performance of the business. We used $150 million of the sale proceeds to repay a portion of the Euro denominated tranche of the Term Loan Facility and expect to invest the remainder of the proceeds in our business.
Risk Factors
Participating in this offering involves substantial risk. Our ability to execute our strategy also is subject to certain risks. The risks described under the heading “Risk Factors” immediately following this summary may cause us not to realize the full benefits of our competitive strengths or may cause us to be unable to successfully execute all or part of our strategy. Some of the more significant challenges and risks we face include the following:
If global economic conditions weaken or deteriorate, it will negatively impact our business, results of operations and financial condition;
Natural or other disasters or pandemics could disrupt our business and result in loss of revenue or higher expenses. The continued impact of the COVID-19 pandemic could adversely result in business and manufacturing disruption, inventory shortages, delivery delays, our ability to obtain financing on favorable terms and reduced sales due to an economic downturn that could affect demand for our products;
An inadequate supply of direct or indirect raw materials and intermediate products could have a material adverse effect on our business;
Our production facilities are subject to significant operating hazards which could cause environmental contamination, personal injury and loss of life, and severe damage to, or destruction of, property and equipment;
Because we manufacture and use materials that are known to be hazardous, we are subject to, or affected by, certain product and manufacturing regulations, for which compliance can be costly and time consuming. In addition, we may be subject to personal injury or product liability claims as a result of human exposure to such hazardous materials;
11

Confidential Treatment Requested by Hexion Holdings Corporation
We expect cost savings from our ongoing strategic initiatives, our in-process facility rationalizations and the creation of a business service group, and if we are unable to achieve these cost savings, or sustain our current cost structure, it could have a material adverse effect on our business operations, results of operations and financial condition;
We could face intellectual property infringement claims that could result in significant legal costs and damages and impede our ability to produce key products, which could have a material adverse effect on our business, financial condition and results of operations;
Our debt could adversely affect our operations and prevent us from satisfying our obligations under our debt obligations and may have an adverse effect on our stock price. As of March 31, 2021, we had approximately $1.8 billion aggregate principal amount of consolidated outstanding indebtedness. For the year ended December 31, 2020, we had interest expense of $100 million.
Our debt instruments contain restrictive covenants that, among other things, limit our ability to incur debt, grant liens on assets, pay dividends, make investments or acquisitions or merge or consolidate with another company. These restrictions may limit our ability to effectively execute our strategy;
Our pension obligations could be greater than we expect. For the year ended December 31, 2020, we made contributions totaling $40 million to our defined benefit pension plans; and
Cybersecurity attacks and other disruptions to our or our third-party vendors’ information systems could interfere with our operations, and could compromise our information and the information of our customers and suppliers, which would adversely affect our relationships with business partners and harm our brands, reputation and financial results;
We could face additional tax obligations based on the Emergence;
We could face additional tax obligations based on the Emergence and other income tax contingencies we have recorded on our books;
The enactment of tax reform legislation, including legislation implementing changes in taxation of international business activities, could adversely impact our financial position and results of operations;
If we fail to establish and maintain an effective internal control environment, our ability to both timely and accurately report our financial results could be adversely affected;
A downgrade in our debt ratings could restrict our access to, and negatively impact the terms of future financings or trade credit;
Our organizational documents may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium on their shares.
We may issue preferred stock, the terms of which could adversely affect the voting power or value of our Class A common stock.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiaries to meet our obligations.
Investors in this offering will experience immediate and substantial dilution and may be diluted by the future issuance of additional Class A common stock or convertible securities in connection with our incentive plans, acquisitions or otherwise, which could adversely affect our stock price.
12

Confidential Treatment Requested by Hexion Holdings Corporation
Our stock price could be adversely affected by the conversion of all outstanding shares of Class B common stock into Class A common stock following this offering and future sales of our Class A common stock in the public market, or the perception in the public market that such sales may occur, could reduce our stock price.
There can be no assurances that a viable public market for our Class A common stock will develop.
The initial public offering price of our Class A common stock may not be indicative of the market price of our Class A common stock after this offering and our stock price may fluctuate significantly.
If securities or industry analysts do not publish research or reports about our business or publish negative reports, our stock price could decline.
Ownership of our common stock is concentrated in the hands of certain stockholders that may have significant influence on corporate decisions sufficient to approve or veto most corporate actions requiring a vote of our stockholders.
Actions of activist stockholders, and such activism, could adversely impact our business.
Corporate Information
We were incorporated under the laws of the State of Delaware on June 24, 2019. Our principal executive offices are located at 180 East Broad Street, Columbus, Ohio 43215. Our telephone number is (614) 225-4000. Our website is located at www.hexion.com. Our website and the information contained on, or that can be accessed through, our website will not be deemed to be incorporated by reference in, and are not considered part of, this prospectus.
13

Confidential Treatment Requested by Hexion Holdings Corporation
Organizational Structure
The following chart summarizes our organizational structure and illustrates the long-term debt outstanding as of March 31, 2021:
https://cdn.kscope.io/78b9dd42ff5deef77ad2062bb5ce0e1c-prospectussummary4aa.jpg
____________________
(1)Total availability of $350 million (subject to borrowing base availability), of which approximately $295 million was available as of March 31, 2021, after giving effect to $55 million of outstanding letters of credit.
(2)Direct and indirect ownership.
14

Confidential Treatment Requested by Hexion Holdings Corporation
The Offering
IssuerHexion Holdings Corporation
Class A common stock offered by us                 shares of Class A common stock (or
                 shares, if the underwriters exercise in full their option to purchase additional shares as described below).
Class A common stock offered by the selling stockholders                 shares of Class A common stock.
Option to purchase additional sharesWe have granted the underwriters an option to purchase from us up to an additional                  shares of Class A common stock. The underwriters may exercise this option at any time within 30 days from the date of this prospectus. See “Underwriters.”
Class A common stock outstanding after this offering
                 shares of Class A common stock (or                 shares if the underwriters exercise in full their option to purchase additional shares), giving effect to the conversion of all outstanding shares of Class B common stock into Class A common stock as described below and assuming exercise of all of the outstanding warrants to purchase                  shares of Class A common stock at an exercise price of $0.01 per share.
Use of proceedsWe estimate that our net proceeds from this offering will be approximately $        million (or approximately $        million if the underwriters exercise in full their option to purchase additional shares), after deducting underwriting discounts and commissions and estimated offering expenses payable by us, based on an assumed initial offering price of $        per share (the midpoint of the range set forth on the cover of this prospectus). We intend to use the net proceeds received by us in this offering for general corporate purposes and to redeem                  shares of Class B common stock. We will not receive any of the proceeds from the sale of shares offered by the selling stockholders. See “Use of Proceeds.”
Conversion of Class B common stockIn accordance with the terms of our amended and restated certificate of incorporation and the underwriting agreement, each outstanding share of Class B common stock immediately following this offering will be subject to the lock-up provisions contained in our amended and restated certificate of incorporation and will automatically convert into one share of Class A common stock on the date that is 180 days following the closing of this offering or such earlier date as may be specified by the board of directors with the prior consent of Morgan Stanley. Following such conversion, we will no longer have any shares of Class B common stock outstanding. See “Principal and Selling Stockholders” and “Description of Capital Stock.”
15

Confidential Treatment Requested by Hexion Holdings Corporation
Dividend policyWe have not paid any dividends on our common stock. We do not intend to declare or pay any cash dividends on our Class A common stock in the foreseeable future. We plan to review our dividend policy periodically. See “Dividend Policy.”
ListingWe intend to apply to list our Class A common stock on the NYSE under the symbol “HXN.”
Risk FactorsYou should read the section titled “Risk Factors” and the other information included in this prospectus for a discussion of some of the risks and uncertainties you should carefully consider before deciding to invest in our Class A common stock.

Except as otherwise indicated, all of the information in this prospectus assumes:
an initial public offering price of $         per share of Class A common stock, the midpoint of the range set forth on the cover of this prospectus;
no exercise of the underwriters’ option to purchase up to      additional shares of Class A common stock in this offering;
the conversion of all outstanding shares of Class B common stock into shares of Class A common stock;
the exercise of all outstanding warrants to purchase an aggregate of                  shares of Class A common stock at an exercise price of $0.01 per share;
that the                  shares of common stock reserved for future grant under our Management Incentive Plan have not been issued; and
that the                  shares of common stock reserved for issuance under our 2019 Omnibus Incentive Plan (the “2019 Incentive Plan”) have not been issued.
16

Confidential Treatment Requested by Hexion Holdings Corporation
Summary Historical Financial Information
The following table presents our summary historical financial information as of and for the periods presented. Prior to our emergence from bankruptcy on July 1, 2019 (the “Emergence Date”), Hexion Holdings Corporation had not conducted any business operations. Accordingly, unless otherwise noted or suggested by context, all financial information and data and accompanying financial statements and corresponding notes, as of and prior to the Emergence Date, as contained in this prospectus, reflect the actual historical consolidated results of operations and financial condition of Hexion Inc. for the periods presented and do not give effect to the Plan or any of the transactions contemplated thereby or the adoption of fresh start accounting.
Upon emergence from bankruptcy on the Emergence Date, we adopted fresh start accounting, which resulted in the creation of a new entity for financial reporting purposes. As a result of the application of fresh start accounting, as well as the effects of the implementation of the Plan, the consolidated financial statements after July 1, 2019 are not comparable with the consolidated financial statements on or prior to that date. Refer to Notes 1 and 3 to our audited consolidated financial statements included elsewhere in this prospectus for more information.
The summary historical financial information as of December 31, 2020 and December 31, 2019 and for the year ended December 31, 2020 and for the Successor period from July 2, 2019 through December 31, 2019 and the Predecessor period from January 1, 2019 through July 1, 2019 and for the Predecessor year ended December 31, 2018 has been derived from, and should be read in conjunction with, our audited consolidated financial statements included elsewhere in this prospectus. The summary unaudited historical financial information as of March 31, 2021 and March 31, 2020 and for the three months ended March 31, 2021 and March 31, 2020 has been derived from, and should be read in conjunction with, our unaudited consolidated financial statements included elsewhere in this prospectus.
The combined results (referred to as “Non-GAAP Combined” or “Combined”) for the year ended December 31, 2019, which we refer to herein as results for the “Year Ended December 31, 2019” represent the sum of the reported amounts for the Predecessor period January 1, 2019 through July 1, 2019 combined with the Successor period from July 2, 2019 through December 31, 2019. These Combined results are not considered to be prepared in accordance with U.S. GAAP and have not been prepared as pro forma results under applicable regulations. The Non-GAAP Combined operating results are presented for supplemental purposes only, may not reflect the actual results we would have achieved absent our emergence from bankruptcy, may not be indicative of future results and should not be viewed as a substitute for the financial results of the Predecessor period and Successor period presented in accordance with U.S. GAAP.
You should read the following summary information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements included elsewhere in this prospectus.
17

Confidential Treatment Requested by Hexion Holdings Corporation
 Successor
Predecessor
Non-GAAP Combined(1)
Predecessor
(in millions, except share and per share data)Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Year Ended December 31, 2020
Period from July 2, 2019 through December 31, 2019
Period from January 1, 2019 through July 1, 2019
Year Ended December 31, 2019
Year Ended December 31, 2018
Statements of Operations:
Net sales(2)
$753 $687 $2,510 $1,323 $1,481 $2,804 $3,137 
Cost of sales(2)(3)(4)
584 565 2,043 1,117 1,211 2,328 2,559 
Selling, general and administrative expense(2)(3)(4)
70 64 231 124 128 252 243 
Depreciation and amortization(4)(5)
49 49 191 93 43 136 98 
Gain on dispositions— — — — — — (44)
Asset impairments— 16 16 — — — 28 
Business realignment costs20 69 22 14 36 27 
Other operating (income) expense, net(3)24 16 17 33 37 
Operating income (loss)48 (34)(64)(49)68 19 189 
Interest expense, net24 26 100 55 89 144 365 
Reorganization items, net— — — — (2,970)(2,970)— 
Other non-operating income, net(3)
(4)— (15)— (11)(11)(12)
Income (loss) before income tax and earnings from unconsolidated entities28 (60)(149)(104)2,960 2,856 (164)
Income tax expense (benefit)16 (3)14 (10)201 191 31 
Income (loss) from continuing operations before earnings from unconsolidated entities12 (57)(163)(94)2,759 2,665 (195)
Earnings from unconsolidated entities, net of taxes— 
Net income (loss) from continuing operations, net of taxes12 (56)$(161)$(92)$2,760 $2,668 $(191)
(Loss) income from discontinued operations, net of taxes(1)(3)(69)135 139 28 
Net income (loss)$11 $(59)$(230)$(88)$2,895 $2,807 $(163)
Net (income) loss attributable to noncontrolling interest— — — (1)(1)(2)
Net income (loss) attributable to Hexion Holdings Corporation common stockholders and warrant holders$11 $(59)$(230)$(89)$2,894 $2,805 $(162)
Amounts attributable to Hexion Holdings Corporation common shareholders and warrant holders:
Net income (loss) from continuing operations$12 $(56)$(161)$(92)$2,760 $2,668 $(191)
Net (loss) income from discontinued operations(1)(3)(69)135 139 28 
Net income (loss)$11 $(59)$(230)$(88)$2,895 $2,807 $(163)
18

Confidential Treatment Requested by Hexion Holdings Corporation
 Successor
Predecessor
Non-GAAP Combined(1)
Predecessor
(in millions, except share and per share data)Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Year Ended December 31, 2020
Period from July 2, 2019 through December 31, 2019
Period from January 1, 2019 through July 1, 2019
Year Ended December 31, 2019
Year Ended December 31, 2018
Basic income (loss) per share attributable to Hexion Holdings Corporation common stockholders and warrant holders:   
Net income (loss) per share from continuing operations, basic$0.18 $(0.82)$(2.36)$(1.36)$33.41 32.05 $(2.30)
Net (loss) income per share from discontinued operations, basic(0.01)(0.04)(1.01)0.06 1.63 1.69 0.34 
Net (loss) income per share, basic$0.17 $(0.86)$(3.37)$(1.30)$35.04 $33.74 $(1.96)
Weighted average common shares and warrants outstanding, basic68.3 68.4 68.3 68.7 82.6 82.6 
Diluted income per share attributable to Hexion Holdings Corporation common stockholders and warrant holders:
Net income per share from continuing operations, diluted$0.17 
Net loss per share from discontinued operations, diluted(0.01)
Net income per share, diluted$0.16 
Weighted average common shares and warrants outstanding, Diluted68.8 
Cash Flows (used in) provided by continuing operations:
Operating activities(49)(94)$116 $174 $(163)$11 $(63)
Investing activities(6)
(17)(26)(105)(47)(40)(87)(31)
Financing activities(3)136 (57)(38)212 174 81 
Balance Sheet Data (at end of period):
Cash and cash equivalents$134 $250 $204 $254 $128 
Total assets(2)
3,985 4,097 4,002 4,146 1,961 
Total debt(7)
1,766 1,914 1,792 1,785 3,815 
Total liabilities(2)
3,149 3,143 3,179 3,071 4,875 
Total redeemable common stock144 145 144 147 — 
Total equity (deficit)692 809 679 928 (2,914)
Other Financial Data from continuing operations:
Capital Expenditures$(24)$(26)$(108)$(47)$(41)$(88)$(81)
EBITDA(8)
101 16 144 46 3,093 3,139 303 
Segment EBITDA(8)
114 73 294 139 201 340 381 
Hexion Inc. Pro Forma EBITDA(9)
343 404 304 
________________
(1)See “Management’s Discussion and Analysis—First Quarter 2021 Overview” for a discussion of the Non-GAAP Combined operating results for the year ended December 31, 2019.
(2)ASC 606 Revenue from Contracts with Customers and ASC 842 Leases, were effective for the year ended December 31, 2018 and for the Successor period from July 2, 2019 through December 31, 2019 and the Predecessor period from January 1, 2019 through July 1, 2019, respectively. Prior periods have not been adjusted for the adoption of these standards.
(3)“Cost of sales,” “Selling, general and administrative expense” and “Other non-operating income, net” have been adjusted for all periods presented to reflect the adoption of Accounting Standards Board Update No. 2017-07 (“ASU 2017-07”), which reclassified certain components of net periodic pension and postretirement benefit costs from “Cost of sales” and “Selling, general and administrative expense” to “Other non-operating income, net” within our consolidated statements of operations. See Note 2 to our audited consolidated financial statements included in this prospectus for more information.
(4)As a result of the application of fresh start accounting upon our emergence from Chapter 11, we elected to change our income statement presentation for depreciation and amortization expense. All depreciation and amortization expense has been reclassified from “Cost of sales” and “Selling, general and administrative expense” to “Depreciation and amortization” for all periods presented. In addition, we no longer present “Gross profit” as a subtotal caption.
(5)For the three months ended March 31, 2020, accelerated depreciation of $2 million has been included in depreciation and amortization. Depreciation and amortization for the years ended December 31, 2020 and 2018 includes accelerated depreciation of $2 million and $4 million, respectively, related to facility
19

Confidential Treatment Requested by Hexion Holdings Corporation
rationalizations. There was no accelerated depreciation in either the Successor period from July 2, 2019 through December 31, 2019 or in the Predecessor period from January 1, 2019 through July 1, 2019.
(6)“Investing activities” within our consolidated statement of cash flows has been adjusted for all periods presented to reflect the adoption of Accounting Standards Board Update No. 2016-18 (“ASU 2016-18”), which removed the change in restricted cash from “Investing activities” in the consolidated statement of cash flows. See Note 2 to our consolidated financial statements included in this prospectus for more information.
(7)Total debt represents the sum of “Debt payable within one year” and “Long-term debt” on our consolidated balance sheets. See Note 8 to our audited consolidated financial statements included in this prospectus for more information.
(8)EBITDA is defined as Net income (loss) (excluding loss (gain) on extinguishment of debt) before interest, income taxes and depreciation and amortization. Segment EBITDA is defined as EBITDA adjusted for certain non-cash items and other income and expenses. We have presented EBITDA and Segment EBITDA because we believe that these measures are useful to investors since they are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry. Segment EBITDA is the primary performance measure used by our senior management, the chief operating decision-maker and the board of directors to evaluate operating results and allocate capital resources among segments. Segment EBITDA is also the profitability measure used to set management and executive incentive compensation goals. EBITDA and Segment EBITDA are not recognized terms under GAAP, should not be viewed in isolation and do not purport to be alternatives to Net income (loss) as indicators of operating performance or cash flows from operating activities as measures of liquidity. There are material limitations associated with making the adjustments to our earnings to calculate EBITDA and Segment EBITDA and using these non-GAAP financial measures as compared to the most directly comparable GAAP financial measures. For instance, EBITDA and Segment EBITDA do not include:
interest expense, and because we have borrowed money in order to finance our operations, interest expense is a necessary element of our costs and ability to generate revenue;
depreciation and amortization expense, and because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate revenue; and
tax expense, and because the payment of taxes is part of our operations, tax expense is a necessary element of our costs and ability to operate.
Additionally, EBITDA and Segment EBITDA are not intended to be measures of free cash flow for management’s discretionary use, as they do not consider certain cash requirements such as capital expenditures, contractual commitments, interest payments, tax payments and debt service requirements. Because not all companies use identical calculations, this presentation of EBITDA and Segment EBITDA may not be comparable to other similarly titled measures for other companies.
20

Confidential Treatment Requested by Hexion Holdings Corporation
See below for a reconciliation of Net income (loss) to Segment EBITDA.
 SuccessorSuccessorPredecessorNon-GAAP CombinedPredecessor
(in millions)Three Months Ended March 31, 2021Three Months Ended March 31, 2020Year Ended December 31, 2020Period from July 2, 2019 through December 31, 2019Period from January 1, 2019 through July 1, 2019Year Ended December 31, 2019Year Ended December 31, 2018
Reconciliation:   
Net income (loss) attributable to Hexion Holdings Corporation$11 $(59)$(230)$(89)$2,894 $2,805 $(162)
Net income (loss) attributable to noncontrolling interest— — — (1)
Less: Net (loss) income from discontinued operations(1)(3)(69)135 139 28 
Net income (loss)12 (56)(161)(92)2,760 2,668 (191)
Income tax expense (benefit)16 (3)14 (10)201 191 31 
Interest expense, net24 26 100 55 89 144 365 
Depreciation and amortization(a)
49 49 191 93 43 136 98 
EBITDA101 16 144 46 3,093 3,139 303 
Adjustments to arrive at Segment EBITDA:   
Asset impairments and write-downs$— 16 $16 $— $— $— $32 
Business realignment costs(b)
20 69 22 14 36 27 
Realized and unrealized foreign currency losses (gains)— (7)(3)28 
Gain on dispositions— — — — — — (44)
Unrealized losses (gains) on pension and OPEB plan liabilities— — — (13)
Transaction costs(c)
— 11 26 37 13 
Reorganization items, net(d)
— — — — (2,943)(2,943)— 
Non-cash impact of inventory step-up(e)
— — — 27 (27)— — 
Accelerated deferred revenue(f)
— — — — 18 18 — 
Other non-cash items(g)
10 11 43 10 19 14 
Other(h)
(6)12 14 18 32 21 
Total adjustments13 57 150 93 (2,892)(2,799)78 
Segment EBITDA
114 73 $294 $139 $201 $340 $381 
Segment EBITDA:   
Adhesives$68 $55 $214 $116 $135 $251 $252 
Coatings & Composites65 39 151 60 96 156 200 
Corporate & Other(19)(21)(71)(37)(30)(67)(71)
Total
$114 $73 $294 $139 $201 $340 $381 
________________
(a)For the three months ended March 31, 2020, accelerated depreciation of $2 million has been included in “Depreciation and amortization.” For the year ended December 31, 2020 and Predecessor year ended December 31, 2018 accelerated depreciation of $2 million and $4 million has been included in “Depreciation and amortization.” There was no accelerated depreciation in either the Successor period from July 2, 2019 through December 31, 2019 or in the Predecessor period from January 1, 2019 through July 1, 2019.
21

Confidential Treatment Requested by Hexion Holdings Corporation
(b)Business realignment costs for the Successor and Predecessor periods below included:
SuccessorPredecessor
(in millions)Three Months Ended March 31, 2021Three Months Ended March 31, 2020Year Ended December 31, 2020July 2, 2019 through
December 31, 2019
January 1, 2019 through
July 1, 2019
Year Ended December 31, 2018
Severance costs$(1)$$16 $$$
In-process facility rationalizations11 11 
Contractual costs from exited business— — — — 
Business services implementation22 — — — 
Legacy environmental reserves(2)
Other— 
Total$$20 $69 $22 $14 $27 
______________
i.The Company had $8 million of severance liabilities accrued within “Other current liabilities” on the Consolidated Balance Sheets at both December 31, 2020 and 2019. The Company expects the amounts associated with these severance liabilities to be paid over the next 12 months.
(c)For the three months ended March 31, 2020, transaction costs included certain professional fees related to strategic projects. For the year ended December 31, 2020, transaction costs included certain professional fees related to strategic projects. For the Successor period from July 2, 2019 through December 31, 2019 and the Predecessor period from January 1, 2019 through July 1, 2019, transaction costs primarily included $6 million and $23 million, respectively, of certain professional fees and other expenses related to the Company’s Chapter 11 proceedings.
(d)Represents incremental costs incurred directly as a result of the Company’s Chapter 11 proceedings after the date of filing, gains on settlement of liabilities under the Plan and the net impact of fresh start accounting adjustments. The amounts excludes the “Non-cash impact of inventory step-up” discussed below.
(e)Represents $27 million of non-cash expense related to the step up of finished goods inventory on July 1 as part of fresh start accounting that was expensed in the Successor period upon the sale of the inventory.
(f)For the Predecessor period from January 1, 2019 through July 1, 2019, $18 million of deferred revenue was accelerated on July 1 as part of fresh start accounting.
(g)Other non-cash items for the Successor and Predecessor periods presented below included:
SuccessorPredecessor
(in millions)Three Months Ended March 31, 2021Three Months Ended March 31, 2020Year Ended December 31, 2020July 2, 2019 through December 31, 2019January 1, 2019 through July 1, 2019Year Ended December 31, 2018
Fixed asset write-offs$$$13 $$$
Stock-based compensation costs17 — — 
Long-term retention programs(2)
One-time capitalized variance impact of inventory fresh start step-up— — — (4)— — 
Other— 
Total$10 $11 $43 $10 $$14 
(h)Other for the periods presented below included:
SuccessorPredecessor
(in millions)Three Months Ended March 31, 2021Three Months Ended March 31, 2020Year Ended December 31, 2020July 2, 2019 through December 31, 2019January 1, 2019 through July 1, 2019Year Ended December 31, 2018
Legacy and other non-recurring items$— $$$$$
IT outage (recoveries) costs, net— (1)(4)— — 
Gain on sale of assets(4)— — — — — 
Financing fees and other(2)14 
Total$(6)$$12 $14 $18 $21 
(9)Hexion Inc. Pro Forma EBITDA reflects certain other adjustments permitted in calculating compliance under the indenture governing our Senior Notes and under our Credit Facilities, including reflecting the expected future impact of announced acquisitions and in-process cost savings initiatives associated with our in-process facility rationalizations and the creation of a business service group. The estimated cost savings are based on certain assumptions and our current estimates, but they involve risks, uncertainties, projections and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied. Any of the assumptions could be inaccurate and, therefore, there can be no assurance that the estimated cost savings will prove to be accurate.
22

Confidential Treatment Requested by Hexion Holdings Corporation
The following table reconciles Hexion Inc.’s net loss to EBITDA, Segment EBITDA and Hexion Inc. Pro Forma EBITDA for the twelve month period ended March 31, 2021.
(In millions)
March 31, 2021
LTM Period
(Hexion Inc.)
 (unaudited)
Net loss$(160)
Net loss from discontinued operations(67)
Net loss from continuing operations(93)
Income tax expense33 
Interest expense, net98 
Depreciation and amortization191 
EBITDA$229 
Adjustments to arrive at Segment EBITDA: 
Business realignment costs(a)
54 
Unrealized loss on pension and OPEB plan liabilities(b)
Transaction costs(c)
Realized and unrealized foreign currency losses(2)
Other non-cash(d)
42 
Other(e)
Segment EBITDA
$335 
Cost reduction programs savings(f)
Business operations expenses(g)
Hexion Inc. Pro Forma EBITDA
$343 
_____________________
(a)Primarily represents costs related to certain in-process cost reduction activities, including severance costs of $7 million, $6 million related to certain in-process facility rationalizations, $10 million of contractual costs for exited businesses, $5 million for future environmental clean-up of closed facilities and one-time implementation and transition costs associated with the creation of a business services group within the Company of $20 million.
(b)Represents non-cash losses resulting from pension and postretirement benefit plan liability remeasurements.
(c)Represents certain professional fees related to strategic projects.
(d)Primarily includes expenses for retention programs of $8 million, fixed asset disposals of $12 million and share-based compensation costs of $18 million.
(e)Primarily represents $6 million of expenses related to legacy expenses and other non-recurring items, $5 million related to financing fees and other expenses, offset by $3 million of IT outage recoveries and $4 million of gain on dispositions.
(f)Represents pro forma impact of in-process cost reduction programs savings. Cost reduction program savings represent the unrealized headcount reduction savings and plant rationalization savings related to cost reduction programs and other unrealized savings associated with our business realignments activities, and represent our estimate of the unrealized savings from such initiatives that would have been realized had the related actions been completed at the beginning of the period presented. The savings are calculated based on actual costs of exiting headcount and elimination or reduction of site costs. We expect the savings to be realized within the next 12 months.
(g)Represents costs incurred related to the systematic reduction of operating costs.
23

Confidential Treatment Requested by Hexion Holdings Corporation
RISK FACTORS
You should carefully consider the risk factors set forth below, as well as the other information contained in this prospectus. The risks described below are not the only risks facing us. Any of the following risks could materially;and adversely affect our business, financial condition or operating results. In such a case, you may lose all or a part of your original investment.
Risks Related to Our Business
If global economic conditions are weak or deteriorate, it will negatively impact our business operations, results of operations and financial condition.
Changes in global economic and financial market conditions could impact our business operations in a number of ways including, but not limited to, the following:
reduced demand in key customer segments, such as wind energy, building, construction, oil and gas, automotive and electronics, compared to prior years;
weak economic conditions in our primary regions of operations: United States, Europe and Asia;
payment delays by customers and reduced demand for our products caused by customer insolvencies and/or the inability of customers to obtain adequate financing to maintain operations;
insolvency of suppliers or the failure of suppliers to meet their commitments resulting in product delays;
more onerous credit and commercial terms from our suppliers such as shortening the required payment period for outstanding accounts receivable or reducing or eliminating the amount of trade credit available to us; and
potential delays in accessing our ABL Facility and the potential inability of one or more of the financial institutions included in our syndicated ABL Facility to fulfill their funding obligations.
Many of our key customer segments are sensitive to macroeconomic conditions, which are currently uncertain. Accordingly, the short and long-term outlook for our business is difficult to predict and our results of operations could, as a result of this uncertainty, fall below our expectations.
Fluctuations in direct or indirect raw material costs could have an adverse impact on our business.
Raw materials costs made up approximately 75% of our cost of sales (excluding depreciation expense) in 2020. The prices of our direct and indirect raw materials have been, and we expect them to continue to be, volatile. If the cost of direct or indirect raw materials increases significantly and we are unable to offset the increased costs with higher selling prices, our profitability will decline. Increases in prices for our products could also hurt our ability to remain both competitive and profitable in the markets in which we compete.
Although some of our raw materials contracts include competitive price clauses that allow us to buy outside the contract if market pricing falls below contract pricing, and certain contracts have minimum-maximum monthly volume commitments that allow us to take advantage of spot pricing, we may be unable to purchase raw materials at market prices. In addition, some of our customer contracts have fixed prices for a certain term, and as a result, we may not be able to pass on raw material price increases to our customers immediately, if at all. Due to differences in timing of the pricing trigger points between our sales and purchase contracts, there is often a “lead-lag” impact. In many cases this “lead-lag” impact can negatively impact our margins in the short term in periods of rising raw material prices and positively impact them in the short term in periods of falling raw material prices. Future raw material prices may be impacted by new laws or regulations, suppliers’ allocations to other purchasers, changes in our suppliers’ manufacturing processes as some of our products are byproducts of these processes, interruptions in production by suppliers, natural disasters, volatility in the price of crude oil and related petrochemical products and changes in exchange rates.
24

Confidential Treatment Requested by Hexion Holdings Corporation
Our operations and results have been impacted and may be negatively impacted by the COVID-19 outbreak.
Global or national health concerns, including the outbreak of pandemic or contagious disease, such as the recent COVID-19 pandemic, may adversely affect us.
Since December 2019, the COVID-19 virus which was first reported in Wuhan, China, has spread further in China and other regions including Europe and the United States, where we have operations. In March 2020, the World Health Organization declared that the COVID-19 outbreak is a global pandemic. Around the world, local governments’ responses to the COVID-19 pandemic continue to evolve, which has led to stay-at-home orders and social distancing guidelines and other measures that have disrupted various industries in the global economy and created significant volatility in the financial markets.
While we have continued to operate during the pandemic, we incurred adverse financial impacts to our sales and profitability results during the year ended December 31, 2020 from the COVID-19 pandemic, primarily related to reduced volumes associated with the pandemic. In particular, demand for our products in some of our key end markets like aerospace, automotive and construction deteriorated at a rapid pace in the second quarter of 2020, which had an adverse impact on our revenues and financial results for fiscal year 2020. Although we experienced improved conditions in our core markets in the third and fourth quarters of 2020, there continues to be uncertainty regarding the impact of the COVID-19 pandemic. In particular, a significant improvement in our core markets is attributable to a rapid growth in the demand for new residential construction in the U.S. However, such demand for new residential construction in the U.S. may not continue at the same level, in which case our results of operations could be negatively affected. Additionally, notwithstanding general recovery of the global economy from the COVID-19 pandemic, several of our key end markets, including aerospace have been disproportionately impacted by the effects of the COVID-19 pandemic and have experienced relatively slow recoveries.
Future COVID-19 pandemic developments could adversely result in business and manufacturing disruptions, staffing impacts at our manufacturing facilities, restrictions on our employees’ ability to work and travel, inventory shortages, delivery delays, our ability to obtain financing on favorable terms, and reduced sales due to an economic downturn that could affect demand for our products. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic and the actions to contain COVID-19 or treat its impact, among others. A prolonged economic downturn from the COVID-19 pandemic could also result in impairments to long-lived assets, including goodwill and intangibles.
An inadequate supply of direct or indirect raw materials and intermediate products could have a material adverse effect on our business.
Our manufacturing operations require adequate supplies of raw materials and intermediate products on a timely basis. The loss of a key source or a delay in shipments could have a material adverse effect on our business. Raw material availability may be subject to curtailment or change due to, among other things:
new or existing laws or regulations;
suppliers’ allocations to other purchasers;
interruptions in production by suppliers; and
natural disasters.
Many of our raw materials and intermediate products are available in the quantities we require from a limited number of suppliers. Should any of our key suppliers fail to deliver these raw materials or intermediate products to us or no longer supply us, we may be unable to purchase these materials in necessary quantities, which could adversely affect our volumes, or may not be able to purchase them at prices that would allow us to remain competitive. During the past several years, certain of our suppliers have experienced force majeure events rendering them unable to deliver all, or a portion of, the contracted-for raw materials. On these occasions, we have been forced to limit production or were forced to purchase replacement raw materials in the open market at significantly higher
25

Confidential Treatment Requested by Hexion Holdings Corporation
costs or place our customers on an allocation of our products. In the past, some of our customers have chosen to discontinue or decrease the use of our products as a result of these measures. We have experienced force majeure events by certain of our suppliers which have had significant negative impacts on our business. For example, over the past several years there have been various supply interruption events due to hurricanes, supplier production fires and other supply issues which have impacted our ability to obtain key raw materials. Additionally, we cannot predict whether new regulations or restrictions may be imposed in the future which may result in reduced supply or further increases in prices. We cannot assure investors that we will be able to renew our current materials contracts or enter into replacement contracts on commercially acceptable terms, or at all. Fluctuations in the price of these or other raw materials or intermediate products, the loss of a key source of supply or any delay in the supply could result in a material adverse effect on our business.
Our production facilities are subject to significant operating hazards which could cause environmental contamination, personal injury and loss of life, and severe damage to, or destruction of, property and equipment.
Our production facilities are subject to hazards associated with the manufacturing, handling, storage and transportation of chemical materials and products, including human exposure to hazardous substances, pipeline and equipment leaks and ruptures, explosions, fires, inclement weather and natural disasters (including as a result of climate change), mechanical failures, unscheduled downtime, transportation interruptions, remedial complications, chemical spills, discharges or releases of toxic or hazardous substances or gases, storage tank leaks and other environmental risks. Additionally, a number of our operations are adjacent to operations of independent entities that engage in hazardous and potentially dangerous activities. Our operations or adjacent operations could result in personal injury or loss of life, severe damage to or destruction of property or equipment, environmental damage or a loss of the use of all or a portion of one of our key manufacturing facilities. Such events at our facilities, or adjacent third-party facilities, could have a material adverse effect on us.
We may incur losses beyond the limits or coverage of our insurance policies for liabilities that are associated with these hazards. In addition, various kinds of insurance for companies in the chemical industry have not been available on commercially acceptable terms, or, in some cases, have been unavailable altogether. In the future, we may not be able to obtain coverage at current levels, and our premiums may increase significantly on coverage that we maintain.
Environmental obligations and liabilities could have a substantial negative impact on our financial condition, cash flows and profitability.
Our operations involve the use, handling, processing, storage, transportation and disposal of hazardous materials and are subject to extensive and complex U.S. federal, state, local and non-U.S. supranational, national, provincial and local environmental, health and safety laws and regulations. These laws and regulations include those that govern the discharge of pollutants into the air and water, the generation, use, storage, transportation, treatment and disposal of hazardous materials and wastes, the cleanup of contaminated sites, occupational health and safety and the safe operation of our equipment, and those requiring permits, licenses or other government approvals for specified operations or activities. Our products are also subject to a variety of international, national, regional, state and provincial requirements and restrictions applicable to the manufacture, import, export or subsequent use of such products. In addition, we are required to maintain, and may be required to obtain in the future, environmental, health and safety permits, licenses or government approvals to continue current operations at most of our manufacturing and research facilities throughout the world.
Compliance with environmental, health and safety laws and regulations, and maintenance of permits, can be costly and complex, and we have incurred and will continue to incur costs, including capital expenditures and costs associated with the issuance and maintenance of letters of credit, to comply with these requirements. In 2020, our continuing operations incurred capital expenditures of approximately $13 million to comply with environmental, health and safety laws and regulations and to make other environmental improvements. If we are unable to comply with environmental, health and safety laws and regulations, or maintain our permits, we could incur substantial costs, including fines and civil or criminal sanctions, third party property damage or personal injury claims or costs associated with upgrades to our facilities or changes in our manufacturing processes in order to achieve and maintain compliance, and may also be required to halt permitted activities or operations until any necessary permits can be
26

Confidential Treatment Requested by Hexion Holdings Corporation
obtained or complied with, or decide to close the impacted facility. In addition, future developments or increasingly stringent regulations could require us to make additional unforeseen environmental expenditures, which could have a material adverse effect on our business.
Environmental, health and safety requirements change frequently and have tended to become more stringent over time. We cannot predict what environmental, health and safety laws and regulations or permit requirements will be enacted or amended in the future, how existing or future laws or regulations will be interpreted or enforced or the impact of such laws, regulations or permits on future production expenditures, supply chain or sales. Our costs of compliance with current and future environmental, health and safety requirements could be material. Such future requirements include legislation designed to reduce emissions of carbon dioxide and other substances associated with climate change (“greenhouse gases” or “GHGs”). The European Union (the “EU”) has enacted GHG emissions legislation and continues to expand the scope of such legislation. The U.S. Environmental Protection Agency (the “USEPA”) has promulgated regulations applicable to projects involving GHG emissions above a certain threshold, and the United States and certain states within the United States have enacted, or are considering, limitations on GHG emissions. These requirements to limit GHG emissions could significantly increase our energy costs, and may also require us to incur material capital costs to modify our manufacturing facilities.
In addition, we are subject to liability associated with hazardous substances in soil, groundwater and elsewhere at a number of sites. These include sites that we formerly owned or operated and sites where hazardous wastes and other substances from our current and former facilities and operations have been sent, treated, stored or recycled or disposed of, as well as sites that we currently own or operate. Depending upon the circumstances, our liability may be strict, joint and several, meaning that we may be held responsible for more than our proportionate share, or even all, of the liability involved regardless of our fault or whether we are aware of the conditions giving rise to the liability. Even where liability has been allocated among parties, we may be subject to material changes in such allocation in the future for a number of reasons, including the discovery of new contamination, the insolvency of a responsible party, or a heightened nexus to the remediation site. Environmental conditions at these sites can lead to environmental cleanup liability and claims against us for personal injury or wrongful death, property damages and natural resource damages, as well as to claims and obligations for the investigation and cleanup of environmental conditions. The extent of any of these liabilities is difficult to predict, but in the aggregate such liabilities could be material.
We have been notified that we are or may be responsible for environmental remediation at a number of sites in North America, Europe and South America. We are also performing a number of voluntary cleanups. The most significant sites at which we are performing or participating in environmental remediation are sites formerly owned by us in Geismar, Louisiana and Plant City, Florida. As the result of former, current or future operations, there may be additional environmental remediation or restoration liabilities or claims of personal injury by employees or members of the public due to exposure or alleged exposure to hazardous materials in connection with our operations, properties or products. Sites sold by us in past years may have significant site closure or remediation costs and our share, if any, may be unknown to us at this time. These environmental liabilities or obligations, or any that may arise or become known to us in the future, could have a material adverse effect on our financial condition, cash flows and profitability.
Future chemical regulatory actions may decrease our profitability.
Several governmental agencies have enacted, are considering or may consider in the future, regulations that may impact our ability to manufacture and sell formaldehyde based and BPA containing chemical products, primarily in North America and Europe, and potentially elsewhere if regulations develop. The European Registration, Evaluation and Authorization of Chemicals (“REACH”) regulation requires manufacturers, importers and consumers of certain chemicals manufactured in, or imported into, the EU to register such chemicals and evaluate their potential impacts on human health and the environment. REACH may result in certain chemicals being further regulated, restricted or banned from use in the EU. In addition, the Frank R. Lautenberg Chemical Safety for the 21st Century Act (“LCSA”) was signed into law on June 22, 2016, and updates and revises the Toxic Substances Control Act. LCSA regulates manufacturing, importing and commercial sale of chemical products in the United States and requires the implementing agency to conduct risk evaluations on high priority chemicals, which could include chemical products we manufacture and sell. LCSA requires the implementing agency to conduct risk evaluations on high priority
27

Confidential Treatment Requested by Hexion Holdings Corporation
chemicals, which could include chemical products we manufacture and sell. Other countries have implemented, or are considering implementation of, similar chemical regulatory programs. When fully implemented, REACH, LCSA and other similar regulatory programs may result in significant adverse market impacts on the affected chemical products. If we fail to comply with REACH, LCSA or other similar laws and regulations, we may be subject to penalties or other enforcement actions, including fines, injunctions, recalls or seizures, which would have a material adverse effect on our financial condition, cash flows and profitability. Additionally, studies conducted in association with these regulatory programs, or otherwise conducted through trade associations, may result in new information regarding the health effects and environmental impact of our products and raw materials. Such studies could result in future regulations restricting the manufacture or use of our products, liability for adverse environmental or health effects linked to our products, and/or de-selection of our products for specific applications. These restrictions, liability and product de-selection could have a material adverse effect on our business, our financial condition and/or liquidity.
Because of certain government public health agencies’ concerns regarding the potential for adverse human health effects, formaldehyde is a regulated chemical and public health agencies continue to evaluate its safety. A division of the World Health Organization, the International Agency for Research on Cancer (“IARC”), and the National Toxicology Program (“NTP”) within the U.S. Department of Health and Human Services, have classified formaldehyde as being carcinogenic to humans. The USEPA, under its Integrated Risk Information System (“IRIS”), released a draft of its toxicological review of formaldehyde in 2010, stating that formaldehyde meets the criteria to be described as “carcinogenic to humans.” The National Academy of Sciences (“NAS”) peer reviewed the draft IRIS toxicological review and issued a report in April 2011 that criticized the draft IRIS toxicological review and stated that the methodologies and the underlying science used in the draft IRIS review did not clearly support a conclusion of a causal link between formaldehyde exposure and leukemia. USEPA may or may not issue a revised draft IRIS toxicological review to reflect the NAS findings, including the conclusions regarding a causal link between formaldehyde exposure and leukemia. Formaldehyde has been designated to undergo a risk evaluation under the 2016 amended Toxic Substances Control Act (“TSCA”). The TSCA review process for formaldehyde has started and a final risk determination is expected at the end of 2022. The risk evaluation will include an assessment of most consumer, general public and occupational exposure conditions of use. The final risk determinations will drive how the chemistry of formaldehyde and its many applications will be regulated going forward. A high-priority designation means the USEPA has nominated formaldehyde for further risk evaluation. Effective January 1, 2016, the European Chemicals Agency did not classify formaldehyde as a Category 2 Mutagen, but instead, classified it as a Category 1B “presumed carcinogen”. It is possible that new regulatory requirements could be promulgated to limit human exposure to formaldehyde, that we could incur substantial additional costs to meet any such regulatory requirements, and that there could be a reduction in demand for our formaldehyde-based products in North America and Europe, and potentially elsewhere if regulations develop. These additional costs and reduced demand could have a material adverse effect on our operations and profitability.
BPA, which is manufactured and used as an intermediate at our Deer Park, Texas, Pernis, Netherlands and Duisburg, Germany manufacturing facilities, and is also sold directly to third parties, is currently considered under certain state and international regulatory programs as a reproductive toxicant and an “endocrine disrupter,” meaning BPA could disrupt normal biological processes. BPA continues to be subject to scientific, regulatory and legislative review and negative media attention. In Europe, the EU Committee for Risk Assessment adopted an opinion to change the existing harmonized classification and labeling of BPA from a category 2 reproductive Toxicant to a category 1B reproductive Toxicant. This classification change was effective beginning March 1, 2018. The EU Member State Committee agreed to add BPA to the Substance of Very High Concern (“SVHC”) candidate list based upon its classification as a reproductive toxicant, as well as for its endocrine disrupting properties to both human health and the environment. The REACH Risk Management Option Analysis (“RMOA”) was released on July 6, 2017, in which BPA is identified as an endocrine disruptor for the environment due to its aquatic toxicity with no safe threshold, and REACH restrictions are identified as the preferred risk management measure. In addition, certain BPA-containing products (phenolic hardeners for epoxy resins) have been proposed for authorization under REACH. The decision to initiate the authorization process has not been taken yet, but may occur. The California Environmental Protection Agency’s Office of Environmental Health Hazard Assessment (“OEHHA”) listed BPA under Proposition 65 as a developmental and reproductive toxicant, requiring warning labels unless BPA exposures are shown to be less than a risk-based level (the maximum allowable dose level (“MADL”)). As of May 11, 2016,
28

Confidential Treatment Requested by Hexion Holdings Corporation
products containing BPA sold into California must comply with Proposition 65’s requirements. Despite these hazard designations and listings, the US Food and Drug Administration (“FDA”) is also actively engaged in the scientific and regulatory review of BPA and, in a letter submitted to OEHHA dated April 6, 2015, reaffirmed that BPA is safe as currently permitted in FDA-regulated food contact uses and concluded that FDA’s National Center for Toxicological Research study did not support the listing of BPA as a reproductive toxicant. In 2018, NTP released the results of the CLARITY Core Study. Senior scientists at FDA’s National Center for Toxicological Research (“NCTR”) conducted the study with funding from NTP. The study involved exposure of laboratory animals to BPA beginning and during pregnancy and continuing in the offspring throughout their entire lifetime. A wide range of dose levels were examined, from low doses close to actual consumer exposure to doses about 250,000 times higher. As stated in the conclusion of the study report, “BPA produced minimal effects that were distinguishable from background.” NTP selected a panel of six independent expert scientists to conduct a formal peer review of the study. In general, the peer review panel supported the design and conduct of the study and agreed with the overall conclusion that the study found minimal effects for the range of doses studied. In December 2012, France enacted a law that bans direct contact of packaging containing BPA with food and consumer products. In January 2015, the European Food Safety Authority (“EFSA”) concluded that BPA poses no health risk to consumers of any age group (including unborn children, infants and adolescents) at currently permitted exposure levels. EFSA confirmed this conclusion in October 2016. EFSA is concluding its re-evaluation of BPA in food contact applications and the results are expected in 2021. Regulatory and legislative initiatives such as these, or product de-selection resulting from such regulatory actions, may result in a reduction in demand for BPA and our products containing BPA and could also result in additional liabilities as well as an increase in operating costs to meet more stringent regulations. Such increases in operating costs and/or reduction in demand could have a material adverse effect on our operations and profitability.
Scientists periodically conduct studies on the potential human health and environmental impacts of chemicals, including products we manufacture and sell. Also, nongovernmental advocacy organizations and individuals periodically issue public statements alleging human health and environmental impacts of chemicals, including products we manufacture and sell. Based upon such studies or public statements, our customers may elect to discontinue the purchase and use of our products, even in the absence of any government regulation. Such actions could significantly decrease the demand for our products and, accordingly, have a material adverse effect on our business, financial condition, cash flows and profitability.
We are subject to certain risks related to litigation filed by or against us and adverse results may harm our business.
We cannot predict with certainty the cost of defense, of prosecution or of the ultimate outcome of litigation and other proceedings filed by or against us, including penalties or other civil or criminal sanctions, or remedies or damage awards, and adverse results in any litigation and other proceedings may materially harm our business. Litigation and other proceedings may include, but are not limited to, actions relating to intellectual property, international trade, commercial arrangements, product liability, environmental, health and safety, joint venture agreements, labor and employment or other harms resulting from the actions of individuals or entities outside of our control. In the case of intellectual property litigation and proceedings, adverse outcomes could include the cancellation, invalidation or other loss of material intellectual property rights used in our business and injunctions prohibiting our use of business processes or technology that are subject to third-party patents or other third-party intellectual property rights. Litigation based on environmental matters or exposure to hazardous substances in the workplace or based upon the use of our products could result in significant liability for us, which could have a material adverse effect on our business, financial condition and/or profitability.
Because we manufacture and use materials that are known to be hazardous, we are subject to, or affected by, certain product and manufacturing regulations, for which compliance can be costly and time consuming. In addition, we may be subject to personal injury or product liability claims as a result of human exposure to such hazardous materials.
We produce hazardous chemicals that require care in handling and use that are subject to regulation by many U.S. and non-U.S. national, supra-national, state and local governmental authorities. In some circumstances, these authorities must review and, in some cases approve, our products and/or manufacturing processes and facilities
29

Confidential Treatment Requested by Hexion Holdings Corporation
before we may manufacture and sell some of these chemicals. To be able to manufacture and sell certain new chemical products, we may be required, among other things, to demonstrate to the relevant authority that the product does not pose an unreasonable risk during its intended uses and/or that we are capable of manufacturing the product in compliance with current regulations. The process of seeking any necessary approvals can be costly, time consuming and subject to unanticipated and significant delays. Approvals may not be granted to us on a timely basis, or at all. Any delay in obtaining, or any failure to obtain or maintain, these approvals would adversely affect our ability to introduce new products and to generate revenue from those products. New laws and regulations may be introduced in the future that could result in additional compliance costs, bans on product sales or use, seizures, confiscation, recall or monetary fines, any of which could prevent or inhibit the development, distribution or sale of our products and could increase our customers’ efforts to find less hazardous substitutes for our products. We are subject to ongoing reviews of our products and manufacturing processes.
As discussed above, we manufacture and sell products containing formaldehyde, and certain governmental bodies have stated that there is a causal link between formaldehyde exposure and certain types of cancer, including myeloid leukemia and NPC. These conclusions could adversely impact our business and also become the basis of product liability litigation.
Other products we have made or used have been and could be the focus of legal claims based upon allegations of harm to human health. While we cannot predict the outcome of pending suits and claims, we believe that we maintain adequate reserves, in accordance with our accounting policy, to address currently pending litigation and are adequately insured to cover currently pending and foreseeable future claims. However, an unfavorable outcome in these litigation matters could have a material adverse effect on our business, financial condition and/or profitability and cause our reputation to decline.
We are subject to claims from our customers and their employees, environmental action groups and neighbors living near our production facilities.
We produce and use hazardous chemicals that require appropriate procedures and care to be used in handling them or in using them to manufacture other products. As a result of the hazardous nature of some of the products we produce and use, we may face claims relating to incidents that involve our customers’ improper handling, storage and use of our products. We have historically faced lawsuits, including class action lawsuits that claim liability for death, injury or property damage caused by products that we manufacture or that contain our components. Additionally, we may face lawsuits alleging personal injury or property damage by neighbors living near our production facilities. These lawsuits, and any future lawsuits, could result in substantial damage awards against us, which in turn could encourage additional lawsuits and could cause us to incur significant legal fees to defend such lawsuits, either of which could have a material adverse effect on our business, financial condition and/or profitability. In addition, the activities of environmental action groups could result in litigation or damage to our reputation.
Our manufacturing facilities are subject to disruption due to operating hazards.
The storage, handling, manufacturing and transportation of chemicals at our facilities and adjacent facilities could result in leaks, spills, fires or explosions, which could result in production downtime, production delays, raw material supply delays, interruptions and environmental hazards. We have experienced incidents at our own facilities and a raw material supplier located adjacent to our facility that have resulted mostly in short term, but some long term, production delays. Production interruption may also result from severe weather (including as a result of climate change), particularly with respect to our southern U.S. operations near the Gulf Coast. Production lapses caused by any such delays can often be absorbed by our other manufacturing facilities, and we maintain insurance to cover such potential events. However, such events could negatively affect our operations.
30

Confidential Treatment Requested by Hexion Holdings Corporation
As a global business, we are subject to numerous risks associated with our international operations that could have a material adverse effect on our business.
We have significant manufacturing and other operations outside the United States. Some of these operations are in jurisdictions with unstable political or economic conditions. There are numerous inherent risks in international operations, including, but not limited to:
exchange controls and currency restrictions;
currency fluctuations and devaluations;
tariffs and trade barriers imposed by the current U.S. administration or foreign governments;
renegotiation of trade agreements by the current U.S. administration;
export duties and quotas;  
changes in local economic conditions;
changes in laws and regulations;
exposure to possible expropriation or other government actions;
acts by national or regional banks, including the European Central Bank, to increase or restrict the availability of credit;
hostility from local populations;
diminished ability to legally enforce our contractual rights in non-U.S. countries;
restrictions on our ability to repatriate dividends from our subsidiaries; and
unsettled political conditions and possible terrorist attacks against U.S. interests.
Our international operations expose us to different local political and business risks and challenges. For example, we may face potential difficulties in staffing and managing local operations, and we may have to design local solutions to manage credit risks of local customers and distributors. In addition, some of our operations are located in regions that may be politically unstable, having particular exposure to riots, civil commotion or civil unrest, acts of war (declared or undeclared) or armed hostilities or other national or international calamity. In some of these regions, our status as a U.S. company also exposes us to increased risk of sabotage, terrorist attacks, interference by civil or military authorities or to greater impact from the national and global military, diplomatic and financial response to any future attacks or other threats.
In addition, intellectual property rights may be more difficult to enforce in non-U.S. or non-Western European countries.
If global economic and market conditions, or economic conditions in Europe, China, Brazil, Australia, the United States or other key markets remain uncertain or deteriorate further, the value of associated foreign currencies and the global credit markets may weaken. Additionally, general financial instability in countries where we do not transact a significant amount of business could have a contagion effect and contribute to the general instability and uncertainty within a particular region or globally. If this were to occur, it could adversely affect our customers and suppliers and in turn have a materially adverse effect on our international business and results of operations.
Our overall success as a global business depends, in part, upon our ability to succeed under different economic, social and political conditions. We may fail to develop and implement policies and strategies that are effective in each location where we do business, and failure to do so could have a material adverse effect on our business, financial condition and results of operations.
31

Confidential Treatment Requested by Hexion Holdings Corporation
Our business is subject to foreign currency risk.
In 2020, approximately 54% of our net sales originated outside the United States. In our consolidated financial statements, we translate our local currency financial results into U.S. dollars based on average exchange rates prevailing during a reporting period or the exchange rate at the end of that period. During times of a strengthening U.S. dollar, at a constant level of business, our reported international revenues and earnings would be reduced because the local currency would translate into fewer U.S. dollars.
In addition to currency translation risks, we incur a currency transaction risk whenever we enter into a purchase or a sales transaction or indebtedness transaction using a different currency from the currency in which we record revenues. Given the volatility of exchange rates, we may not manage our currency transaction and/or translation risks effectively, and volatility in currency exchange rates may materially adversely affect our financial condition or results of operations, including our tax obligations. Since the majority of our indebtedness is denominated in U.S. dollars, a strengthening of the U.S. dollar could make it more difficult for us to repay our indebtedness.
We have entered and expect to continue to enter into various hedging and other programs in an effort to protect against adverse changes in the non-U.S. exchange markets and attempt to minimize potential material adverse effects. These hedging and other programs may be unsuccessful in protecting against these risks. Our results of operations could be materially adversely affected if the U.S. dollar strengthens against non-U.S. currencies and our protective strategies are not successful. Likewise, a strengthening U.S. dollar provides opportunities to source raw materials more cheaply from foreign countries.
Fluctuations in energy costs could have an adverse impact on our profitability and negatively affect our financial condition.
Oil and natural gas prices have fluctuated greatly over the past several years and we anticipate that they will continue to do so. Natural gas and electricity are essential to our manufacturing processes, which are energy-intensive. Our energy costs represented approximately 4% of our total cost of sales for the year ended December 31, 2020.
Our operating expenses will increase if our energy prices increase. Increased energy prices may also result in greater raw materials costs. If we cannot pass these costs through to our customers, our profitability may decline. Increased energy costs may also negatively affect our customers and the demand for our products. In addition, as oil and natural gas prices fall, while having a positive effect on our overall costs, such falling prices can have a negative impact on our oilfield business, as the number of oil and natural gas wells drilled declines in response to market conditions.
If energy prices decrease, we expect benefits in the short-run with decreased operating expenses and increased operating income, but may face increased pricing pressure from competitors that are similarly impacted by energy prices. As a result, profitability may decrease over an extended period of lower energy prices. Moreover, any future increases in energy prices after a period of lower energy prices may have an adverse impact on our profitability for the reasons described above.
Globally, our operations are increasingly subject to regulations that seek to reduce emissions of GHGs, such as carbon dioxide and methane. The EU GHG Emissions Trading System (“ETS”) was established pursuant to the Kyoto Protocol to reduce GHG emissions in the EU. The EU has set a binding target to reduce domestic GHG emissions by at least 40% below the 1990 level by 2030 and a binding target to increase the share of renewable energy to at least 32% of the EU’s energy consumption by 2030. The European Commission proposed to increase the GHG emission reduction target to at least 55% in September 2020, and expects to complete the associated legislative proposals by June 2021. Additionally, domestic efforts to curb GHG emissions are being led by the USEPA’s GHG regulations and similar programs of certain states. To the extent that our foreign or domestic operations are subject to either the EU’s or the USEPA’s GHG regulations, we may face increased capital and operating costs associated with our current, new or expanded facilities.
We are already managing and reporting GHG emissions, to varying degrees, as required by law for our sites in locations subject to U.S. federal and state requirements, Kyoto Protocol obligations and/or ETS requirements.
32

Confidential Treatment Requested by Hexion Holdings Corporation
Although these sites are subject to existing GHG legislation, few have experienced or anticipate significant cost increases as a result of these programs, although it is possible that GHG emission restrictions may increase over time.
We face increased competition from other companies and from substitute products, which could force us to lower our prices, which would adversely affect our profitability and financial condition.
Several of the markets that we operate in are highly competitive, and this competition could harm our results of operations, cash flows and financial condition. Our competitors include major international producers as well as smaller regional competitors. We believe that the most significant competitive factor that impacts demand for certain of our products is selling price. We may be forced to lower our selling price based on our competitors’ pricing decisions, which would reduce our profitability. Certain markets that we serve have become commoditized in recent years and have given rise to several industry participants, resulting in fierce price competition in these markets. In addition, we face competition from a number of products that are potential substitutes for our products. Growth in substitute products could adversely affect our market share, net sales and profit margins.
Additional trends include current and anticipated consolidation among our competitors and customers which may cause us to lose market share as well as put downward pressure on pricing. There is also a trend in our industries toward relocating manufacturing facilities to lower cost regions, such as Asia, which may permit some of our competitors to lower their costs and improve their competitive position. Furthermore, there has been an increase in new competitors based in these regions.
Some of our competitors are larger, have greater financial resources, have a lower cost structure, and/or have less debt than we do. As a result, those competitors may be better able to withstand a change in conditions within our industry and in the economy as a whole. If we do not compete successfully, our operating margins, financial condition, cash flows and profitability could be adversely affected. Furthermore, if we do not have adequate capital to invest in technology, including expenditures for research and development, our technology could be rendered uneconomical or obsolete, negatively affecting our ability to remain competitive.
We expect cost savings from our ongoing strategic initiatives, and if we are unable to achieve these cost savings, or sustain our current cost structure, it could have a material adverse effect on our business operations, results of operations and financial condition.
We have not yet realized all of the cost savings and synergies we expect to achieve from our ongoing strategic initiatives. Our cost reductive programs include certain in-process facility rationalizations and the creation of a business service group within the Company to provide certain administrative functions for us going forward are expected to have a net positive impact on our liquidity. A variety of risks could cause us not to realize the expected cost savings and synergies, including but not limited to, higher than expected severance costs related to staff reductions; higher than expected retention costs for employees that will be retained; higher than expected stand-alone overhead expenses; delays in the anticipated timing of activities related to our cost-savings plans; and other unexpected costs associated with operating our business. During 2020, we achieved $23 million in cost savings related to our cost reduction programs and as of December 31, 2020, we had approximately $6 million of additional in-process cost savings.
If we are unable to achieve these cost savings or synergies it could adversely affect our profitability and financial condition. In addition, while we have been successful in reducing costs and generating savings, factors may arise that may not allow us to sustain our current cost structure. As market and economic conditions change, we may also make changes to our operating cost structure.
Our success depends in part on our ability to protect our intellectual property rights and our inability to enforce these rights could have a material adverse effect on our competitive position.
We rely on the patent, trademark, copyright and trade secret laws of the United States and the countries where we do business to protect our intellectual property rights. We may be unable to prevent third parties from using our intellectual property without our authorization. The unauthorized use of our intellectual property could reduce any competitive advantage we have developed, reduce our market share or otherwise harm our business. In the event of
33

Confidential Treatment Requested by Hexion Holdings Corporation
unauthorized use of our intellectual property, litigation to protect or enforce our rights could be costly and we may not prevail.
Many of our technologies are not covered by any patent or patent application, and our issued and pending U.S. and non-U.S. patents may not provide us with any competitive advantage and could be challenged by third parties. Our inability to secure issuance of our pending patent applications may limit our ability to protect the intellectual property rights that these pending patent applications were intended to cover. Our competitors may attempt to design around our patents to avoid liability for infringement and, if successful, our competitors could adversely affect our market share. Furthermore, the expiration of our patents may lead to increased competition.
Our pending trademark applications may not be approved by the responsible governmental authorities and, even if these trademark applications are granted, third parties may seek to oppose or otherwise challenge these trademark applications. A failure to obtain trademark registrations in the United States and in other countries could limit our ability to protect our products and their associated trademarks and impede our marketing efforts in those jurisdictions.
In addition, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in some foreign countries. In some countries we do not apply for patent, trademark or copyright protection. We also rely on unpatented proprietary manufacturing expertise, continuous technological innovation and other trade secrets to develop and maintain our competitive position. While we generally enter into confidentiality agreements with our employees and third parties to protect our intellectual property, these confidentiality agreements are limited in duration and could be breached, and may not provide meaningful protection of our trade secrets or proprietary manufacturing expertise. Adequate remedies may not be available if there is an unauthorized use or disclosure of our trade secrets and manufacturing expertise. In addition, others may obtain knowledge about our trade secrets through independent development or by legal means. The failure to protect our processes, apparatuses, technology, trade secrets and proprietary manufacturing expertise, methods and compounds could have a material adverse effect on our business by jeopardizing critical intellectual property.
Where a product formulation or process is kept as a trade secret, third parties may independently develop or invent and patent products or processes identical to our trade-secret products or processes. This could have an adverse impact on our ability to make and sell products or use such processes and could potentially result in costly litigation in which we might not prevail.
We could face intellectual property infringement claims that could result in significant legal costs and damages and impede our ability to produce key products, which could have a material adverse effect on our business, financial condition and results of operations.
Our production processes and products are specialized; however, we could face intellectual property infringement claims from our competitors or others alleging that our processes or products infringe on their proprietary technology. If we were subject to an infringement suit, we may be required to change our processes or products, or stop using certain technologies or producing the infringing product entirely. Even if we ultimately prevail in an infringement suit, the existence of the suit could cause our customers to seek other products that are not subject to infringement suits. Any infringement suit could result in significant legal costs and damages and impede our ability to produce key products, which could have a material adverse effect on our business, financial condition and results of operations.
We depend on certain of our key executives and our ability to attract and retain qualified employees.
Our ability to operate our business and implement our strategies depends, in part, on the skills, experience and efforts of key members of our leadership team. We do not maintain any key-man insurance on any of these individuals. In addition, our success will depend on, among other factors, our ability to attract and retain other managerial, scientific and technical qualified personnel, particularly research scientists, technical sales professionals and engineers who have specialized skills required by our business and focused on the industries in which we compete. Competition for qualified employees in the chemicals industry is intense and the loss of the services of any of our key employees or the failure to attract or retain other qualified personnel could have a material adverse effect on our business or business prospects. Further, if any of these executives or employees joins a competitor, we could
34

Confidential Treatment Requested by Hexion Holdings Corporation
lose customers and suppliers and incur additional expenses to recruit and train personnel, who require time to become productive and to learn our business.
If we fail to extend or renegotiate our collective bargaining agreements with our works councils and labor unions as they expire from time to time, if disputes with our works councils or unions arise, or if our unionized or represented employees were to engage in a strike or other work stoppage, our business and operating results could be materially adversely affected.
As of December 31, 2020, approximately 35% of our employees were unionized or represented by works councils that were covered by collective bargaining agreements. In addition, some of our employees reside in countries in which employment laws provide greater bargaining or other employee rights than the laws of the United States. These rights may require us to expend more time and money altering or amending employees’ terms of employment or making staff reductions. For example, most of our employees in Europe are represented by works councils, which generally must approve changes in conditions of employment, including restructuring initiatives and changes in salaries and benefits. A significant dispute could divert our management’s attention and otherwise hinder our ability to conduct our business or to achieve planned cost savings.
We may be unable to timely extend or renegotiate our collective bargaining agreements as they expire. We have collective bargaining agreements which will expire during the next two years. We also may be subject to strikes or work stoppages by, or disputes with, our labor unions. If we fail to extend or renegotiate our collective bargaining agreements, if disputes with our works councils or unions arise or if our unionized or represented workers engage in a strike or other work stoppage, we could incur higher labor costs or experience a significant disruption of operations, which could have a material adverse effect on our business, financial position and results of operations.
Our pension plans are unfunded or under-funded and our required cash contributions could be higher than we expect, each of which could have a material adverse effect on our financial condition and liquidity.
We sponsor various pension and similar benefit plans worldwide. Our U.S. and non-U.S. defined benefit pension plans were under-funded in the aggregate by $35 million and $154 million, respectively, as of December 31, 2020. We are legally required to make contributions to our pension plans in the future, and those contributions could be material.
In 2021, we expect to contribute approximately $3 million and $33 million to our U.S. and non-U.S. defined benefit pension plans, respectively, which we believe is sufficient to meet the minimum funding requirements as set forth in employee benefit and tax laws.
Our future funding obligations for our employee benefit plans depend upon the levels of benefits provided for by the plans, the future performance of assets set aside for these plans, the rates of interest used to determine funding levels, the impact of potential business dispositions, actuarial data and experience and any changes in government laws and regulations. In addition, certain of our funded employee benefit plans hold a significant amount of equity securities. If the market values of these securities decline, our pension expense and funding requirements would increase and, as a result, could have a material adverse effect on our business.
Any decrease in interest rates and asset returns, if and to the extent not offset by contributions, could increase our obligations under these plans. If the performance of assets in the funded plans does not meet our expectations, our cash contributions for these plans could be higher than we expect, which could have a material adverse effect on our financial condition and liquidity.
Natural or other disasters have, and could in the future, disrupt our business and result in loss of revenue or higher expenses.
Any serious disruption at any of our facilities, our suppliers’ facilities or our customers’ facilities due to hurricane, fire, earthquake, flood, terrorist attack, public health crises (including, but not limited to, the coronavirus outbreak) or any other natural or man-made disaster could impair our ability to use our facilities or demand from our customers and have a material adverse impact on our revenues and increase our costs and expenses. If there is a
35

Confidential Treatment Requested by Hexion Holdings Corporation
natural disaster or other serious disruption at any of our facilities or our suppliers’ facilities, it could impair our ability to adequately supply our customers and negatively impact our operating results. For example, our manufacturing facilities in the U.S. Gulf Coast region were impacted by Hurricane Harvey in 2017. In addition, many of our current and potential customers are concentrated in specific geographic areas. A disaster in one of these regions could have a material adverse impact on our operations, operating results and financial condition. Our business interruption insurance may not be sufficient to cover all of our losses from a disaster, in which case our unreimbursed losses could be substantial. Some of our operations are located in regions with particular exposure to natural disasters such as storms, floods, fires and earthquakes. It would be difficult or impossible for us to relocate these operations and, as a result, any of the aforementioned occurrences could materially adversely affect our business. At the time of this filing, the coronavirus has not had a material impact to our operations or financial results, however any future impacts of the coronavirus are highly uncertain and cannot be predicted.
Cybersecurity attacks and other disruptions to our or our third-party vendors’ information systems could interfere with our operations, and could compromise our information and the information of our customers and suppliers, which would adversely affect our relationships with business partners and harm our brands, reputation and financial results.
In the ordinary course of business, we rely upon information systems, some of which are managed by third parties, to process, transmit and store digital information, and to manage or support a variety of business processes and activities, including supply chain, manufacturing, distribution, invoicing, and collection of payments from customers. We use information systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. Additionally, we collect and store sensitive data, including intellectual property, proprietary business information, the proprietary business information of our customers and suppliers, as well as personally identifiable information of our customers, suppliers, and employees.
The secure operation of our systems or the technology systems of third parties on which we rely, and the processing and maintenance of this information is critical to our business operations and strategy. We recently transitioned certain of our information technology, procurement administration, accounting and finance functions to our new third party business services partner. Failure to effectively implement these technology services could expose us to security breaches, processing integrity, damage to our reputation, harm to our customer agreements, availability of data and financial reporting integrity. Implementation failure or execution issues with our third party business services partner could lead to a loss of revenue, supply chain issues, disruption of business, loss of customers or regulatory non-compliance. As cyber threats continue to evolve, we may be required to expend significant additional capital and other resources to further enhance our information security measures to protect against, and alleviate problems caused by, such incidents and/or to investigate and remediate any information security vulnerabilities regardless of whether they affect our systems or networks, or the systems and networks of our third-party vendors. Further, because we rely on third-party vendors, we may be affected by security incidents that we can neither control nor mitigate, including their vulnerability to damage or interruption from physical theft, fire, natural disasters, acts of terrorism, power loss, war, telecommunications and other service failures, computer viruses, degradation of service attacks, ransomware, insider theft or misuse, break-ins, human error, and similar events. Our crisis management procedures, business continuity plans and disaster recovery capabilities may not be effective at preventing or mitigating the effects of such disruptions, particularly in the case of a catastrophic event.
Despite actions to mitigate or eliminate risk, our information systems may be vulnerable to damage, disruptions or shutdowns due to the activity of hackers, employee error or malfeasance, or other disruptions including, power outages, telecommunication or utility failures, natural disasters or other catastrophic events. The occurrence of any of these events could compromise our systems and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability or regulatory penalties under laws and regulations regarding data privacy, data security and protection of personal information, disrupt operations, and damage our reputation which could adversely affect our business, financial condition and results of operations.
Our insurance policies may not be adequate to reimburse us for losses caused by security breaches, and we may not be able to collect fully, if at all, under these insurance policies. The successful assertion of one or more large
36

Confidential Treatment Requested by Hexion Holdings Corporation
claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our business. Furthermore, we cannot be certain that insurance coverage will continue to be available on acceptable terms or at all, or that the insurer will not deny coverage as to any future claim.
In March 2019, we experienced a network security incident that temporarily prevented access to certain information technology systems and data within our network, primarily impacting our corporate functions. We took immediate steps to isolate the issue and implemented our technical recovery plan. Our manufacturing sites, which rely on different networks, continued to operate safely and with limited interruption.
Divestitures that we pursue may present unforeseen obstacles and costs and alter the synergies we expect to continue to achieve from our ongoing cost reduction programs. Acquisitions and joint ventures that we pursue may present unforeseen integration obstacles and costs, increase our leverage and negatively impact our performance.
We have selectively made, and may in the future, pursue divestitures of certain of our businesses as one element of our portfolio optimization strategy, including the recently announced Purchase Agreement for the sale of our PSR, Hexamine and European-based Forest Products Resins businesses. Divestitures may require us to separate integrated assets and personnel from our retained businesses and devote our resources to transitioning assets and services to purchasers, resulting in disruptions to our ongoing business and distraction of management. Divestitures may alter synergies we expect to continue to achieve from our ongoing cost reduction programs. In the event of a large divestiture, we could use a significant amount of our net operating losses to offset taxable gain on the transaction, which would reduce the amount of losses available to offset our future taxable income and thus could increase the amount of our future cash taxes. In addition, divestitures may result in the retention of certain current and future liabilities as well as obligations to indemnify or reimburse a buyer for certain liabilities of a divested business. These potential obligations could have an adverse effect on our results of operations and financial condition if triggered.
In addition, we have made acquisitions of related businesses, and entered into joint ventures in the past and could selectively pursue acquisitions of, and joint ventures with, related businesses as one element of our growth strategy. If such acquisitions are consummated, the risk factors we describe above and below, and for our business generally, may be intensified or we may be subject to new risks as a result of such acquisitions.
We could face additional tax obligations based on the Emergence.
According to the Plan, the Successor Company indemnified the Predecessor Company for historical tax liabilities, including those related to the Emergence and prior tax contingencies. Tax laws are complex and subject to various interpretations. Tax authorities often challenge certain of our tax positions and may challenge other historical tax positions that are subject to indemnification under the Plan. If these challenges are successful, they could adversely affect the Successor Company’s effective tax rate and/or cash tax payments.
We have recorded on our books and records certain U.S. state income tax contingencies.
We have recorded on our books and records, and may be required to so record for our current or future taxable years, a state income tax contingency related to nexus due to certain royalty payments received in connection with the licensing of our intangible trademarks. As of December 31, 2020, the amount of such contingency totaled approximately $42.3 million (which is primarily interest expense related to the underlying income tax contingency).
The enactment of tax reform legislation, including legislation implementing changes in taxation of international business activities, could adversely impact our financial position and results of operations.
Legislation or other changes in U.S. and international tax laws could increase our liability and adversely affect our after-tax profitability. For example, the current U.S. administration has proposed to increase the U.S. corporate income tax rate to 28% from 21%, increase the U.S. taxation of our international business operations, including by modifying the taxation of global intangible low-taxed income earned by foreign subsidiaries, and impose a global minimum corporate tax. We are unable to predict which, if any, of these proposals will be enacted
37

Confidential Treatment Requested by Hexion Holdings Corporation
into law. Such proposed changes, as well as regulations and legal decisions interpreting and applying these changes, may have significant impacts on our effective tax rate, cash tax expenses and net deferred tax assets in future periods.
If we fail to establish and maintain an effective internal control environment, our ability to both timely and accurately report our financial results could be adversely affected.
Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires companies to conduct a comprehensive evaluation of their internal control over financial reporting. To comply with this statute, each year we are required to document and test our internal control over financial reporting, and our management is required to assess and issue a report concerning our internal control over financial reporting.
The existence of one or more material weaknesses has previously resulted in, and could continue to result in, errors in our financial statements, and substantial costs and resources may be required to rectify these errors or other internal control deficiencies and may cause us to incur other costs, including potential legal expenses. If we cannot produce reliable financial reports, investors could lose confidence in our reported financial information, and we may be unable to obtain additional financing to operate and expand our business and our business and financial condition could be harmed.
We have an established process to remediate identified control deficiencies timely and we continue to take appropriate actions to strengthen our internal control over financial reporting, but we cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.
Risks Related to Our Chapter 11 Proceedings and Emergence
Our actual financial results may vary significantly from the projections that were filed with the Bankruptcy Court.
In connection with our disclosure statement relating to the Plan (the “Disclosure Statement”), and the hearing to consider confirmation of the Plan, we prepared projected financial information to demonstrate to the Bankruptcy Court the feasibility of the Plan and our ability to continue operations upon Emergence. This projected financial information was prepared by, and is the responsibility of, our management. PricewaterhouseCoopers LLP has not audited, reviewed, compiled or applied agreed-upon procedures with respect to the projected financial information and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP report included in this document relates to our financial statements. It does not extend to the projected financial information and should not be read to do so. Those projections were prepared solely for the purpose of the Bankruptcy Petitions and have not been, and will not be, updated on an ongoing basis. At the time they were prepared, the projections reflected numerous assumptions concerning our anticipated future performance and with respect to prevailing and anticipated market and economic conditions that were and remain beyond our control and that may not materialize. Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks and the assumptions underlying the projections and/or valuation estimates may prove to be wrong in material respects. Actual results may vary significantly from those contemplated by the projections that were prepared in connection with the Disclosure Statement and the hearing to consider confirmation of the Plan. The projections have not been included in this prospectus, are not incorporated by reference in this prospectus and should not be relied upon in connection with the purchase or sale of our Class A common stock.
Our financial condition and results of operations are not comparable to the financial condition or results of operations reflected in our historical financial statements.
Following our emergence from bankruptcy, we have been operating our existing business under a new capital structure. In addition, we have been subject to the fresh start accounting rules. As required by fresh start accounting, assets and liabilities were recorded at fair value, based on values determined in connection with the implementation of the Plan. Accordingly, our financial condition and results of operations from and after the Emergence Date will
38

Confidential Treatment Requested by Hexion Holdings Corporation
not be comparable to the financial condition and results of operations reflected in our historical financial statements included in this prospectus.
Risks Related to Our Indebtedness
We may be unable to generate sufficient cash flows from operations to meet our consolidated debt service payments.
Our ability to generate sufficient cash flows from operations to make scheduled debt service payments depends on a range of economic, competitive and business factors, many of which are outside of our control. Our business may generate insufficient cash flows from operations to meet our debt service and other obligations, and currently anticipated cost savings, working capital reductions and operating improvements may not be realized on schedule, or at all. For the year ended December 31, 2020, we had interest expense of $100 million. If we are unable to meet our expenses and debt service obligations, we may need to refinance all or a portion of our indebtedness on or before maturity, sell assets or issue additional equity securities. We may be unable to refinance any of our indebtedness, sell assets or issue equity securities on commercially reasonable terms, or at all, which could cause us to default on our obligations and result in the acceleration of our debt obligations. Our inability to generate sufficient cash flows to satisfy our outstanding debt obligations, or to refinance our obligations on commercially reasonable terms, would have a material adverse effect on our business, financial condition and results of operations.
Availability under the ABL Facility is subject to a borrowing base based on a specified percentage of eligible accounts receivable (85% or, in the case of investment grade receivables, 90%) and inventory and, with respect to the foreign loan parties, a specified percentage of eligible machinery, equipment and real property, subject to certain limitations. To the extent the borrowing base is lower than we expect, that could significantly impair our liquidity. In addition, if our fixed charge coverage ratio falls to less than 1.0 to 1.0, we will need to ensure that our availability under the ABL Facility is at least the greater of (x) $30 million and (y) 10% of the lesser of (i) the borrowing base and (ii) the total ABL Facility commitments at such time.
Our indebtedness could adversely affect our ability to raise additional capital to fund our operations and limit our ability to react to changes in the economy or our industry.
As of December 31, 2020, we had approximately $1.8 billion of indebtedness, including payments due within the next twelve months and short-term borrowings.
Our consolidated indebtedness could have other important consequences, including but not limited to the following:
it may limit our flexibility in planning for, or reacting to, changes in our operations or business;
we are more highly leveraged than many of our competitors, which may place us at a competitive disadvantage;
it may make us more vulnerable to downturns in our business or in the economy;
a portion of our cash flows from operations will be dedicated to the repayment of our indebtedness and will not be available for other purposes;
it may restrict us from making strategic acquisitions, introducing new technologies or exploiting business opportunities;
it may make it more difficult for us to satisfy our obligations with respect to our existing indebtedness;
it may adversely affect terms under which suppliers provide material and services to us; and
it may limit our ability to borrow additional funds or dispose of assets.
There would be a material adverse effect on our business and financial condition if we were unable to service our indebtedness or obtain additional financing, as needed.
39

Confidential Treatment Requested by Hexion Holdings Corporation
Despite our indebtedness, we may still be able to incur significant additional indebtedness. This could intensify the risks described above and below.
We may be able to incur substantial additional indebtedness in the future. Although the terms governing our indebtedness contain restrictions on our ability to incur additional indebtedness, these restrictions are subject to numerous qualifications and exceptions, and the indebtedness we may incur in compliance with these restrictions could be substantial. Increasing our indebtedness could intensify the risks described above and below.
The terms governing our outstanding debt, including restrictive covenants, may adversely affect our operations.
The terms governing our outstanding debt contain, and any future indebtedness we incur would likely contain, numerous restrictive covenants that impose significant operating and financial restrictions on our ability to, among other things:
incur or guarantee additional indebtedness;
pay dividends and make other distributions to our stockholders;
create or incur certain liens;
make certain loans, acquisitions, capital expenditures or investments;
engage in sales of assets and subsidiary stock;
enter into sale/leaseback transactions;
enter into transactions with affiliates;
enter into agreements that restrict dividends from subsidiaries; and
transfer all or substantially all of our assets or enter into merger or consolidation transactions.
In addition, the credit agreement governing our ABL Facility requires Hexion Inc. to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 at any time when excess availability is less than the greater of (x) $30 million and (y) 10% of the lesser of the (i) the borrowing base at such time and (ii) the total ABL Facility commitments at such time. The fixed charge coverage ratio under the credit agreement governing the ABL Facility is generally defined as the ratio of (a) Pro Forma EBITDA minus non-financed capital expenditures and cash taxes during such period to (b) debt service plus cash interest expense plus certain restricted payments, each measured for the four most recent quarters for which financial statements have been delivered. We may not be able to satisfy such ratio in future periods. If we anticipate we will be unable to meet such ratio, we expect not to allow our availability under the ABL Facility to fall below such levels.
A breach of our fixed charge coverage ratio covenant, if in effect, would result in an event of default under our ABL Facility. Pursuant to the terms of our ABL Facility, we will have the right, but not the obligation, to cure such default through the purchase of additional equity of Hexion Inc. for cash and the contribution of such cash to the capital of Hexion Inc. in up to two of any four consecutive quarters and seven total during the term of the ABL Facility. If a breach of a fixed charge coverage ratio covenant is not cured or waived, or if any other event of default under the ABL Facility occurs, the lenders under such credit facility:
would not be required to lend any additional amounts to us;
could elect to declare all borrowings outstanding under the Credit Facilities, together with accrued and unpaid interest and fees, due and payable and could demand cash collateral for all letters of credit issued thereunder;
could apply all of our available cash that is subject to the cash sweep mechanism of the Credit Facilities to repay these borrowings; and/or
40

Confidential Treatment Requested by Hexion Holdings Corporation
could prevent us from making payments on the Senior Notes;
any or all of which could result in an event of default under the Senior Notes.
The ABL Facility provides for “springing control” over the cash in our deposit accounts constituting collateral for the ABL Facility, and such cash management arrangements includes a cash sweep at any time that availability under the ABL Facility is less than the greater of (x) $30 million and (y) 10% of the lesser of (i) the borrowing base at such time and (ii) the total ABL Facility commitments at such time. Such cash sweep, if in effect, will cause substantially all our available cash to be applied to outstanding borrowings under our ABL Facility. If we satisfy the conditions to borrowings under the ABL Facility while any such cash sweep is in effect, we may be able to make additional borrowings under the ABL Facility to satisfy our working capital and other operational needs. If we do not satisfy the conditions to borrowing, we will not be permitted to make additional borrowings under our ABL Facility, and we may not have sufficient cash to satisfy our working capital and other operational needs.
Repayment of our indebtedness, including required principal and interest payments, depends on cash flows generated by our subsidiaries, which may be subject to limitations beyond our control.
Our subsidiaries own a significant portion of our consolidated assets and conduct a significant portion of our consolidated operations. Repayment of our indebtedness depends, to a significant extent, on the generation of cash flows and the ability of our subsidiaries to make cash available to us by dividend, debt repayment or otherwise. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments on our indebtedness. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from subsidiaries. While there are limitations on the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make intercompany payments, these limitations are subject to certain qualifications and exceptions. In the event that we are unable to receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.
A downgrade in our debt ratings could restrict our access to, and negatively impact the terms of, current or future financings or trade credit.
Standard & Poor’s Ratings Services (“S&P”) and Moody’s Investors Service (“Moody’s”) maintain credit ratings on us and certain of our debt. Each of these ratings is currently below investment grade. Any decision by these or other ratings agencies to downgrade such ratings in the future could restrict our access to, and negatively impact the terms of, current or future financings and trade credit extended by our suppliers of raw materials or other vendors.
Risks Related to Our Class A Common Stock
Our stock price may fluctuate significantly.
The market price of our Class A common stock could vary significantly as a result of a number of factors, some of which are beyond our control. In the event of a drop in the market price of our Class A common stock, you could lose a substantial part or all of your investment in our Class A common stock.
our operating and financial performance and prospects;
quarterly variations in the rate of growth (if any) of our financial indicators, such as net income per share, net income and revenues;
the public reaction to our press releases, our other public announcements and our filings with the SEC;
strategic actions by our competitors;
changes in operating performance and the stock market valuations of other companies;
announcements related to litigation;
41

Confidential Treatment Requested by Hexion Holdings Corporation
our failure to meet revenue or earnings estimates made by research analysts or other investors;
changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts;
speculation in the press or investment community;
sales of our Class A common stock by us or our stockholders, or the perception that such sales may occur;
changes in accounting principles, policies, guidance, interpretations or standards;
additions or departures of key management personnel;
actions by our stockholders;
general market conditions;
domestic and international economic, legal and regulatory factors unrelated to our performance;
material weakness in our internal controls over financial reporting; and
the realization of any risks described under this “Risk Factors” section, or other risks that may materialize in the future.
The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources and harm our business, financial condition and results of operations.
We will incur significant costs and devote substantial management time as a result of operating as a public company.
As a public company, we will continue to incur significant legal, accounting, and other expenses. For example, we will be required to comply with certain of the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC, and the rules of the NYSE, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to continue incurring significant expenses and to devote substantial management effort toward ensuring compliance with the requirements of the Sarbanes-Oxley Act. In that regard, we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.
Our organizational documents may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium of their shares.
Provisions of our amended and restated certificate of incorporation and by-laws may make it more difficult for, or prevent a third party from, acquiring control of us without the approval of our board of directors. These provisions include:
prohibiting cumulative voting in the election of directors;
42

Confidential Treatment Requested by Hexion Holdings Corporation
empowering only the board to fill any vacancy on our board of directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise;
authorizing the issuance of “blank check” preferred stock without any need for action by stockholders;
prohibiting stockholders from acting by written consent; and
establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
An issuance of shares of preferred stock could delay or prevent a change in control of us. Our board of directors has the authority to cause us to issue, without any further vote or action by the stockholders, shares of preferred stock, par value $0.01 per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series. The issuance of shares of our preferred stock may have the effect of delaying, deferring or preventing a change in control without further action by the stockholders, even where stockholders are offered a premium for their shares.
We may issue preferred stock, the terms of which could adversely affect the voting power or value of our Class A common stock.
Our amended and restated certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our Class A common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our Class A common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the Class A common stock.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (a) any derivative action or proceeding brought on our behalf; (b) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders; (c) any action asserting a claim arising pursuant to any provision of the DGCL or of our amended and restated certificate of incorporation or our amended and restated bylaws; or (d) any action asserting a claim related to or involving us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition and results of operations.
This exclusive forum provision would not apply to suits brought to enforce any duty or liability created by the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any other claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and
43

Confidential Treatment Requested by Hexion Holdings Corporation
regulations thereunder. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and, to the fullest extent permitted by law, to have consented to the provisions described in this paragraph. However, the enforceability of similar forum provisions in other companies’ certificates of incorporation have been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be unenforceable.
We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiaries to meet our obligations.
We are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent upon cash dividends and distributions and other transfers, including for payments in respect of our indebtedness, from our subsidiaries to meet our obligations. The agreements governing the indebtedness of our subsidiaries impose restrictions on our subsidiaries’ ability to pay dividends or other distributions to us. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Each of our subsidiaries is a distinct legal entity, and under certain circumstances legal and contractual restrictions may limit our ability to obtain cash from them and we may be limited in our ability to cause any future joint ventures to distribute their earnings to us. The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could also limit or impair their ability to pay dividends or other distributions to us.
Investors in this offering will experience immediate and substantial dilution.
Based on our pro forma net tangible book value per share as of March 31, 2021 and an assumed initial public offering price of $                per share (the midpoint of the range set forth on the cover of this prospectus), purchasers of our Class A common stock in this offering will experience an immediate and substantial dilution of $                per share, representing the difference between our pro forma net tangible book value per share and the assumed initial public offering price. This dilution is due in large part to earlier investors having paid substantially less than the initial public offering price when they purchased their shares. See “Dilution.”
You may be diluted by the future issuance of additional Class A common stock or convertible securities in connection with our incentive plans, acquisitions or otherwise, which could adversely affect our stock price.
After the completion of this offering, we will have                shares of Class A common stock authorized but unissued (assuming no exercise of the underwriters’ option to purchase additional shares and after giving effect to the conversion of our Class B common stock). Our amended and restated certificate of incorporation authorizes us to issue these shares of Class A common stock and options, rights, warrants and appreciation rights relating to Class A common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. At the closing of this offering, we will have approximately                options outstanding, which are exercisable into approximately                shares of Class A common stock and we will have approximately                 warrants outstanding, which are exercisable into approximately                shares of Class A common stock. We have reserved approximately                shares for issuance upon exercise of outstanding stock options (    of which are issuable under our 2019 Incentive Plan) and an additional approximately                shares for issuance under our 2019 Incentive Plan. See “Compensation Discussion and Analysis—2019 Omnibus Incentive Plan.” Any Class A common stock that we issue, including under our 2019 Incentive Plan or other equity incentive plans that we may adopt in the future, as well as under outstanding options or warrants would dilute the percentage ownership held by the investors who purchase Class A common stock in this offering.
From time to time in the future, we may also issue additional shares of our Class A common stock or securities convertible into Class A common stock pursuant to a variety of transactions, including acquisitions. Our issuance of additional shares of our Class A common stock or securities convertible into our Class A common stock would dilute your ownership of us and the sale of a significant amount of such shares in the public market could adversely affect prevailing market prices of our Class A common stock.
44

Confidential Treatment Requested by Hexion Holdings Corporation
Our stock price could be adversely affected by the conversion of all outstanding shares of Class B common stock into Class A common stock following this offering.
Each of our outstanding shares of Class B common stock will automatically convert into one share of Class A common stock on the date that is 180 days following the closing of this offering or earlier as determined by the board of directors with the prior consent of Morgan Stanley. The issuances of Class A common stock upon conversion of our outstanding Class B common stock will dilute your percentage ownership interest in the Class A common stock and may have a negative effect on the trading price of our Class A common stock.
Future sales of our Class A common stock in the public market, or the perception in the public market that such sales may occur, could reduce our stock price.
After the completion of this offering, we will have                shares of Class A common stock outstanding (assuming no exercise of the underwriters’ option to purchase additional shares and including shares of Class A common stock issued upon conversion of our Class B common stock in connection with this offering). The number of outstanding shares of Class A common stock includes                shares (assuming no exercise of the underwriters’ option to purchase additional shares and including shares of Class A common stock issued upon conversion of our Class B common stock in connection with this offering) beneficially owned certain of our employees, that are “restricted securities,” as defined under Rule 144 under the Securities Act, and eligible for sale in the public market subject to the requirements of Rule 144. We, the selling stockholders and each of our officers and directors have agreed that (subject to certain exceptions), for a period of 180 days after the date of this prospectus, we and they will not, without the prior written consent of certain underwriters and, in certain cases, our board of directors, dispose of any shares of common stock or any securities convertible into or exchangeable for our common stock. In addition, pursuant to our amended and restated certificate of incorporation and the underwriting agreement, none of the holders of our Class B common stock will be permitted to dispose of any shares of common stock or any securities convertible into or exchangeable or exercisable for common stock for a period of 180 days after the date of this prospectus or such less period as determined by the board of directors with the prior consent of Morgan Stanley. See “Underwriters” and “Description of Capital Stock—Common Stock—Conversion.” Following the expiration of the applicable lock-up period, all of the issued and outstanding shares of our Class A common stock will be eligible for future sale, subject to the applicable volume, manner of sale, holding periods and other limitations of Rule 144. Certain underwriters may, in their sole discretion, release all or any portion of the shares subject to lock-up agreements at any time and for any reason. In addition, certain of our existing stockholders have the right to require us to register the sale of shares of Class A common stock held by them, including in conjunction with underwritten offerings. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.” Sales of significant amounts of stock in the public market upon expiration of lock-up agreements, the perception that such sales may occur, or early release of any lock-up agreements, could adversely affect prevailing market prices of our Class A common stock or make it more difficult for you to sell your shares of Class A common stock at a time and price that you deem appropriate. See “Shares Eligible for Future Sale” for a discussion of the shares of Class A common stock that may be sold into the public market in the future.
There can be no assurances that a viable public market for our Class A common stock will develop.
Prior to this offering, our Class A common stock was not traded on any market. An active, liquid and orderly trading market for our Class A common stock may not develop or be maintained after this offering. Active, liquid and orderly trading markets usually result in less price volatility and more efficiency in carrying out investors’ purchase and sale orders. We cannot predict the extent to which investor interest in our Class A common stock will lead to the development of an active trading market on the NYSE or otherwise or how liquid that market might become. The initial public offering price for the Class A common stock will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. See “Underwriters.” If an active public market for our Class A common stock does not develop, or is not sustained, it may be difficult for you to sell your shares at a price that is attractive to you or at all.
45

Confidential Treatment Requested by Hexion Holdings Corporation
The initial public offering price of our Class A common stock may not be indicative of the market price of our Class A common stock after this offering.
The initial public offering price was determined by negotiations between us, the selling stockholders and representatives of the underwriters, based on numerous factors which we discuss in “Underwriters,” and may not be indicative of the market price of our Class A common stock after this offering. If you purchase our Class A common stock, you may not be able to resell those shares at or above the initial public offering price.
If securities or industry analysts do not publish research or reports about our business or publish negative reports, our stock price could decline.
The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover our company downgrades our common stock or if our operating results do not meet their expectations, our stock price could decline.  
Ownership of our common stock is concentrated in the hands of certain stockholders that may have significant influence on corporate decisions sufficient to approve or veto most corporate actions requiring a vote of our stockholders.
We have a small number of stockholders that collectively have a large concentration of ownership of Class B common stock. After giving effect to this offering, our five largest shareholders collectively will beneficially own     % of our Class B common stock. This large concentration of ownership could collectively have significant influence over the outcome of actions requiring stockholder approval, including the election of directors and the approval of mergers, consolidations, the sale of all or substantially all of our assets and an amendment to our amended and restated certificate of incorporation and/or by-laws. They collectively could be in a position to prevent or cause a change in control of us.
Additionally, any future change in control of us could result in events that would have an adverse effect on our business or financial condition. For example, a change in control could place limitations on our future ability to use our tax net operating losses.
Actions of activist stockholders, and such activism, could adversely impact our business.
We may be subject to proposals by stockholders urging us to take certain corporate actions. Responding to actions by activist stockholders can be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees. Such activities could also interfere with our ability to execute our business strategies. The perceived uncertainties as to our future direction caused by activist actions could affect the market price of our securities, result in the loss of potential business opportunities and make it more difficult to attract and retain qualified personnel, board members and business partners.
46

Confidential Treatment Requested by Hexion Holdings Corporation
USE OF PROCEEDS
We expect to receive approximately $            of net proceeds (based upon the assumed initial public offering price of $            per share, the midpoint of the range set forth on the cover of this prospectus and assuming no exercise of the underwriters’ option to purchase additional shares from us) from the sale of the Class A common stock offered by us, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Assuming no exercise of the underwriters’ option to purchase additional shares from us, each $1.00 increase (decrease) in the public offering price would increase (decrease) our net proceeds by approximately $            million. We estimate that the net proceeds to us, if the underwriters exercise their right to purchase the maximum number of additional shares of Class A common stock from us, will be approximately $            , after deducting underwriting discounts and commissions and estimated expenses payable by us in connection with this offering (based upon the assumed initial public offering price of $            per share, the midpoint of the range set forth on the cover of this prospectus).
We intend to use approximately $      of the net proceeds received by us in this offering to redeem                shares of Class B common stock and the remaining $            for general corporate purposes. See “Description of Capital Stock—Common Stock—Mandatory Redemption.” We will not receive any of the proceeds from the sale of shares offered by the selling stockholders.

47

Confidential Treatment Requested by Hexion Holdings Corporation
DIVIDEND POLICY
We currently do not intend to pay cash dividends on our Class A common stock in the foreseeable future. However, we may, in the future, decide to pay dividends on our Class A common stock. Any declaration and payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, cash flows, capital requirements, levels of indebtedness, restrictions imposed by applicable law, our overall financial condition, restrictions in our debt agreements and any other factors deemed relevant by our board of directors.
As a holding company, our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries. Our ability to pay dividends will therefore be restricted as a result of restrictions on their ability to pay dividends to us under the Credit Facilities and the Senior Notes and under future indebtedness that we or they may incur. See “Risk Factors—Risks Related to this Offering and Ownership of Our Class A Common Stock,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “Description of Indebtedness.”
48

Confidential Treatment Requested by Hexion Holdings Corporation
CAPITALIZATION
The following table sets forth our cash and cash equivalents, and our capitalization as of March 31, 2021 on:
an actual basis; and
on an as adjusted basis to give effect to (i) the issuance and sale by us and the selling stockholders of shares of Class A common stock (assuming no exercise of the underwriters’ option to purchase additional shares from us) and the application of the net proceeds of this offering as described under “Use of Proceeds” and (ii) the conversion of all outstanding shares of our Class B common stock into shares of Class A common stock.
You should read this table together with the information included elsewhere in this prospectus, including “Prospectus Summary—Summary Historical Financial Information”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto.
 
As of March 31, 2021 (unaudited)
(in millions, except share data)ActualAs Adjusted
Cash and cash equivalents$134 
Credit Facilities:  
ABL Facility(1)
— — 
Senior secured term loan—USD due 2026 (includes $6 of unamortized debt discount)706 706 
Senior secured term loan—EUR due 2026 (includes $4 of unamortized debt discount)(2)
495 495 
Senior Notes due 2027450 450 
Other debt115 115 
Total debt1,766 1,766 
Redeemable common stock Class B—subject to redemption, $0.01 par value; 8,779,459 shares authorized and issued and 8,635,244 outstanding actual and 0 outstanding as adjusted144 — 
Stockholders’ Equity:  
Preferred stock—50,000,000 shares authorized, 0 issued and outstanding actual and as adjusted— — 
Common stock Class A—$0.01 par value; 300,000,000 shares authorized, 0 issued and outstanding actual          issued and outstanding as adjusted— 
Common stock Class B—$0.01 par value; 291,220,541 authorized, 49,750,268 issued and 48,933,051 outstanding actual and 0 outstanding as adjusted— 
Warrants—10,225,445 issued and 10,177,908 outstanding actual and as adjusted171 171 
Additional paid-in capital871 
Treasury stock, at cost—961,432 shares actual and as adjusted (12)(12)
Accumulated deficit(308)
Accumulated other comprehensive income (loss)(31)
Total stockholders’ equity692 
Total capitalization
$2,602 
___________________
(1)The ABL Facility has a total maximum availability of $350 million (subject to borrowing base availability), of which approximately $295 million would have been available as of March 31, 2021, after giving effect to no outstanding borrowings and $55 million of outstanding letters of credit. See “Description of Indebtedness—Credit Facilities—ABL Facility.”
(2)On April 30, 2021, we completed the sale of our Phenolic Specialty Resins, Hexamine and European-based Forest Products Resins businesses for cash proceeds of $304 million. In May 2021, we used $150 million of the sale proceeds to repay a portion of the Euro denominated tranche of our Term Loan Facility.
49

Confidential Treatment Requested by Hexion Holdings Corporation
DILUTION
Purchasers of the Class A common stock in this offering will experience immediate and substantial dilution to the extent of the difference between the initial public offering price per share of our Class A common stock and the net tangible book value per share of our Class A common stock as of March 31, 2021.
Our historical net tangible book value (deficit) as of March 31, 2021 was $            , or $             per share of our Class A common stock. Our historical net tangible book value (deficit) represents the amount of our total tangible assets (total assets less goodwill and total intangible assets) less total liabilities. Historical net tangible book value (deficit) per share represents historical net tangible book value divided by the number of shares of Class A common stock issued and outstanding as of March 31, 2021.
Our pro forma net tangible value (deficit) as of March 31, 2021 was $             or $            per share of our Class A common stock. Pro forma net tangible book value (deficit) per share represents our pro forma net tangible book value (deficit) divided by the total number of shares outstanding as of March 31, 2021, after giving effect to the sale of                  shares of Class A common stock in this offering at the assumed initial public offering price of $                per share (the midpoint of the range set forth on the cover of this prospectus) and the application of the net proceeds from this offering. For purposes of this dilution analysis, information with respect to our existing stockholders includes shares being sold by the selling stockholders in this offering. Information with respect to new investors does not include shares being purchased by the new investors from the selling stockholders in this offering.
The following table illustrates the dilution per share of our Class A common stock, assuming the underwriters do not exercise their option to purchase additional shares of our Class A common stock:
Assumed initial public offering price per share$            
Historical net tangible book value (deficit) per share as of March 31, 2021
$
Increase per share attributable to the pro forma adjustments described above
Pro forma net tangible book value (deficit) per share after this offering 
Dilution in net tangible book deficit per share$
Dilution is determined by subtracting pro forma as adjusted net tangible book value (deficit) per share after this offering from the initial public offering price per share of Class A common stock.
The following table summarizes, as of March 31, 2021, the total number of shares of Class A common stock owned by existing stockholders and to be owned by new investors, the total consideration paid, and the average price per share paid by our existing stockholders and to be paid by new investors in this offering at the assumed initial public offering price of $                per share, calculated before deduction of estimated underwriting discounts and commissions.
 Shares PurchasedTotal ConsiderationAverage Price per Share 
 NumberPercentNumberPercent
Existing stockholders %$%$
Investors in the offering    
Total 100 %$100 %$
To the extent the underwriters’ option to purchase additional shares is exercised, there will be further dilution to new investors.
A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and average price per share paid by new investors by $            , $            and $            per share, respectively.
50

Confidential Treatment Requested by Hexion Holdings Corporation
If the underwriters were to fully exercise their option to purchase additional shares of our Class A common stock, the percentage of Class A common stock held by existing investors would be    %, and the percentage of shares of Class A common stock held by new investors would be    %.
The foregoing tables and calculations are based on                  shares of our Class A common stock outstanding as of March 31, 2021, and except as otherwise indicated assume:
an initial public offering price of $            per share of Class A common stock, the midpoint of the range set forth on the cover of this prospectus;
no exercise of the underwriters’ option to purchase                additional shares of Class A common stock from us in this offering;
the conversion of all outstanding shares of Class B common stock into shares of Class A common stock in connection with this offering;
the exercise of all outstanding warrants to purchase an aggregate of                 shares of Class A common stock at an exercise price of $0.01 per share;
that the                shares of common stock reserved for future grant under our Management Incentive Plan have not been issued; and
that the                shares of common stock reserved for issuance under our 2019 Incentive Plan have not been issued.
We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in further dilution to our stockholders.
51

Confidential Treatment Requested by Hexion Holdings Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this prospectus. The following discussion and analysis contains forward-looking statements about our business, operations and financial performance based on current plans and estimates that involve risks, uncertainties and assumptions. Actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause such differences are discussed in the sections of this prospectus titled “Risk Factors” and “Forward-Looking Statements.”
Overview and Outlook
We are a large participant in the specialty chemicals industry and a leading producer of adhesive and structural resins and coatings. Thermosets are a critical ingredient for most paints, coatings, glues and other adhesives produced for consumer or industrial uses. We provide a broad array of thermosets and associated technologies and have significant market positions in all of the key markets that we serve.
Our products are used in thousands of applications and are sold into diverse markets, such as forest products, architectural and industrial paints, packaging, consumer products and automotive coatings, as well as higher growth markets, such as wind energy and electrical composites. Major industry sectors that we serve include wind energy, industrial/marine, construction, consumer/durable goods, automotive, aviation, electronics, architectural, civil engineering, repair/remodeling and oil and gas drilling. Key drivers for our business include general economic and industrial conditions, including housing starts and auto build rates. In addition, due to the nature of our products and the markets we serve, competitor capacity constraints and the availability of similar products in the market may impact our results. As is true for many industries, our financial results are impacted by the effect on our customers of economic upturns or downturns, as well as by the impact on our own costs to produce, sell and deliver our products. Our customers use most of our products in their production processes. As a result, factors that impact their industries can and have significantly affected our results.
Through our worldwide network of strategically located production facilities, we serve more than 2,000 customers in approximately 80 countries. Our global customers include large companies in their respective industries, such as Akzo Nobel, BASF, Norbord, Louisiana Pacific, Bayer, Owens Corning, PPG Industries, Sherwin Williams, Sinoma, Aeolon and Weyerhaeuser.
Business Strategy
As a significant player in the specialty chemicals industry, we believe we have opportunities to strategically grow our business over the long term. Our products are well aligned with global mega-trends. We believe growth in many of our key applications is being driven by an increasing need for lighter, stronger, higher performance and engineered materials in many end-markets such as aerospace, automotive, energy and construction. Population growth is expected to result in ever increasing demands for more sustainable solutions in energy, such as wind turbines, agriculture, low-emitting coatings, carbon efficient buildings through engineered structural wood, lightweighting composite applications and improved fire, smoke and toxicity performance. Through these growth strategies we strive to create shareholder value and generate solid operating cash flow.
COVID-19 Impact
In March 2020, the World Health Organization categorized COVID-19 as a global pandemic. Around the world, local governments’ responses to COVID-19 continue to evolve, which has led to stay-at-home orders, social distancing guidelines and other preventative measures that have disrupted various industries in the global economy and the markets in which our products are manufactured, distributed and sold.
During this pandemic, we have implemented additional guidelines to further protect the health and safety of our employees as we continue to operate with our suppliers and customers. We have committed to maintaining a paramount focus on the safety of our employees while minimizing potential disruptions caused by COVID-19. For
52

Confidential Treatment Requested by Hexion Holdings Corporation
example, we are following all legislatively-mandated travel directives in the various countries where we operate, and we have also put additional travel restrictions in place for our associates designed to reduce the risk from COVID-19. Additionally, we are utilizing extended work from home options to protect our office associates, while adjusting our meeting protocols and processes at our manufacturing sites.
Our businesses have been designated by many governments as essential businesses and our operations have continued through March 31, 2021. The ultimate impact that COVID-19 will have on our future financial position, operating results and cash flows involves numerous risks and uncertainties, including new information which may emerge concerning the severity and duration of COVID-19 and actions to contain the virus or treat its impact.
Sale of Phenolic Specialty Resins Business
On September 27, 2020, we entered into a definitive agreement (the “Purchase Agreement”) for the sale of our Phenolic Specialty Resins (“PSR”), Hexamine and European-based Forest Products Resins businesses (together with PSR, the “Held for Sale Business”) to Black Diamond Capital Management, LLC and Investindustrial (the “Buyers”) for a purchase price of approximately $425 million. The consideration consists of $335 million in cash and certain assumed liabilities with the remainder in future contingent proceeds based on the performance of the Held for Sale Business. The final purchase price is subject to customary post-closing adjustments. The Held for Sale Business was formerly included in our Adhesives reportable segment.
On April 30, 2021, we completed the sale of our Held for Sale Business pursuant to the terms of the Purchase Agreement with the Buyers. We received gross cash consideration for the Held for Sale Business in the amount of $304 million. In addition, the Buyers assumed approximately $31 million of certain liabilities, net of preliminary working capital and other closing adjustments as part of the Purchase Agreement. A subsequent post-closing adjustment to the initial cash consideration will be made in accordance with the Purchase Agreement. We expect to use a portion of the net proceeds to invest in our business, and in May 2021, we used a portion of the net proceeds to pay down the aggregate principal of the euro denominated tranche of the Term Loan Facility for $150 million, in accordance with the credit agreement governing the Term Loan Facility.
As of March 31, 2021 and December 31, 2020, we reclassified the assets and liabilities of our Held for Sale Business as held for sale on the Consolidated Balance Sheets and reported the results of the operations for the year ended December 31, 2020 as “(Loss) income from discontinued operations, net of taxes” on the Consolidated Statements of Operations. Amounts for prior periods have similarly been retrospectively reclassified for all periods presented.
Emergence from Chapter 11 Bankruptcy
On April 1, 2019 (the “Petition Date”), Hexion Inc., Hexion Holdings LLC, Hexion LLC and certain of our subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware. The Chapter 11 proceedings were jointly administered under the caption In re Hexion TopCo, LLC, No. 19-10684. The Debtors continued to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
On June 25, 2019, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Plan. On the Emergence Date, in accordance with the terms of the Plan and the Confirmation Order, the Plan became effective and the Debtors emerged from bankruptcy.
Fresh Start Accounting
On the Effective Date, in accordance with ASC 852, the Company applied fresh start accounting to its financial statements as (i) the holders of existing voting shares of the Company prior to its emergence received less than 50% of the voting shares of the Company outstanding following its emergence from bankruptcy and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the plan of reorganization was less than the post-petition liabilities and allowed claims. Fresh start accounting was applied to the Company’s consolidated financial statements as of July 1, 2019, the date it emerged from bankruptcy, which resulted in a new
53

Confidential Treatment Requested by Hexion Holdings Corporation
basis of accounting and the Company became a new entity for financial reporting purposes. As a result, the Company allocated the reorganization value of the Company to its individual assets based on their estimated fair values. Reorganization value represents the fair value of the Company’s assets before considering liabilities. The excess reorganization value over the fair value of identified tangible and intangible assets was reported as goodwill. Refer to Note 6 to our audited consolidated financial statements included in this prospectus for more information.
Reportable Segments
As part of our continuing efforts to drive growth and greater operating efficiencies, in January 2020 we changed our reportable segments to align around our two growth platforms: (i) Adhesives and (ii) Coatings and Composites. Corporate and Other continued to be a reportable segment with this segment realignment in 2020. At March 31, 2021, we have three reportable segments, which consist of the following:
Adhesives: these businesses are focused on the global adhesives market. They include our global wood adhesives business, which also includes the oilfield technologies group, as well as the forest products resin assets in North America, Latin America, Australia and New Zealand; and global formaldehyde.
Coatings and Composites: these businesses are focused on the global coatings and composites market. They include our base and specialty epoxy resins and Versatic™ Acids and Derivatives businesses.
Corporate and Other: primarily corporate general and administrative expenses that are not allocated to the other segments, such as shared service and administrative functions and foreign exchange gains and losses.
Financial Results Summary
Our financial results for the period from January 1, 2019 through July 1, 2019 and for fiscal year ended December 2018 are referred to as those of the “Predecessor” period. Our financial results for the period from July 2, 2019 through December 31, 2019 are referred to as those of the “Successor” period. Our results of operations as reported in our consolidated financial statements for these periods are prepared in accordance with U.S. GAAP, which requires that we report on our results for the period from January 1, 2019 through July 1, 2019 and the period from July 2, 2019 through December 31, 2019 separately.
We do not believe that reviewing the results of these periods in isolation would be useful in identifying any trends in or reaching any conclusions regarding our overall operating performance. Management believes that the key performance metrics such as Net sales, Operating income and Segment EBITDA for the Successor period when combined with the Predecessor period provides more meaningful comparisons to other periods and are useful in identifying current business trends. Although the 2019 Successor period and the 2019 Predecessor period are distinct reporting periods, the effects of the emergence and fresh start reporting did not have a material impact on the comparability of our results of operations between the periods, unless otherwise noted below. Accordingly, in addition to presenting our results of operations as reported in our consolidated financial statements in accordance with U.S. GAAP, the tables and discussions below also present the combined results for the year ended December 31, 2019.
The combined results (referred to as “Non-GAAP Combined” or “Combined”) for the year ended December 31, 2019, which we refer to herein as results for the “Year Ended December 31, 2019” represent the sum of the reported amounts for the Predecessor period January 1, 2019 through July 1, 2019 combined with the Successor period from July 2, 2019 through December 31, 2019. These Combined results are not considered to be prepared in accordance with U.S. GAAP and have not been prepared as pro forma results under applicable regulations. The Non-GAAP Combined operating results are presented for supplemental purposes only, may not reflect the actual results we would have achieved absent our emergence from bankruptcy, may not be indicative of future results and should not be viewed as a substitute for the financial results of the Predecessor period and Successor period presented in accordance with U.S. GAAP.
54

Confidential Treatment Requested by Hexion Holdings Corporation
First Quarter 2021 Overview
Following are highlights from our results of operations for the unaudited three months ended March 31, 2021 and 2020:
(In millions)Three Months Ended March 31, 2021Three Months Ended March 31, 2020$ Change% Change
Statements of Operations:
Net sales$753 $687 $66 10 %
Operating income (loss)48 (34)82 n/m
Income (loss) before income tax28 (60)88 n/m
Net income (loss) from continuing operations12 (56)68 n/m
Segment EBITDA:
Adhesives68 55 13 24 %
Coatings and Composites65 39 26 67 %
Corporate and Other(19)(21)(10)%
Total
$114 $73 $41 56 %
Net Sales—In the first three months of 2021, net sales increased by $66 million, or 10%, compared to the first three months of 2020. Pricing positively impacted sales by $64 million due to raw material price increases contractually passed through to customers across many of our businesses, as well as favorable product mix and improved market conditions in our base epoxy resins and specialty epoxy resins businesses. Foreign currency translation positively impacted net sales by $13 million due to the strengthening of various foreign currencies against the U.S. dollar in the first three months of 2021 compared to the first three months of 2020. Volumes negatively impacted net sales by $11 million, primarily due to the impact of Winter Storm Uri in the U.S. Gulf Coast on several of our businesses, offset by volume increases in our specialty epoxy resins and global resins businesses.
Net Income (Loss) from continuing operations—In the first three months of 2021, net income from continuing operations increased by $68 million from a net loss of $56 million as compared to in the first three months of 2020. The increase was driven by an increase in operating income of $82 million, primarily due to an increase in gross profit as a result of improved market conditions across many of our businesses mentioned above as well as the absence of a $16 million asset impairment charge related to our oilfield and phenolic specialty resins businesses in the first quarter of 2020, and a $15 million decrease in business realignment costs driven by lower severance expenses.
Segment EBITDA—For the first three months of 2021, Segment EBITDA was $114 million, an increase of 56% compared with $73 million in the first three months of 2020. This increase was primarily due to improved market conditions in our base epoxy resins, specialty epoxy resins business, and due to raw material productivity impacting our forest products resins and formaldehyde businesses, partially offset by $6 million of repair costs and $12 million of lost volume due to temporary manufacturing outages caused by Winter Storm Uri in the U.S. Gulf Coast. Additionally, our Corporate and Other charges in the first three months of 2021 decreased by $2 million compared to the first three months of 2020.
Growth Initiatives and New Product Development— We continue to focus on new product development to further strengthen our industry-leading research and development, technical services capabilities, and to strategically invest in our R&D footprint to increase opportunities for innovation and stimulate growth. These growth activities include the following:
Our new Adhesives product Armorbuilt™, which is designed to protect the critical utility pole infrastructure against wildfires. We expect incremental growth in 2021 from this product.
55

Confidential Treatment Requested by Hexion Holdings Corporation
Extensive conversions were initiated at several major customers in 2020 for next generation OSB PF technology for board surface applications and additional applications are scheduled for 2021 as productivity gains and further reduction in resin usage, positions our products favorably compared to pMDI.
As an alternative technology, we have also developed BPA-free alternative coating technologies to address changing consumer preferences.
An expansion of our Brimbank, Australia facility to develop fire-resistant cladding materials leveraging proprietary phenolic resin technology.
Short-term Outlook
In 2021, we anticipate continued strong economic recovery from the COVID-19 global pandemic resulting in increased demand in many of our key end markets. While our businesses have been designated by many governments as essential businesses, which has allowed our operations to continue during the pandemic, we saw weak economic conditions develop in the first half of 2020, specifically within automotive and certain industrial markets. The majority of our businesses have continued to steadily improve throughout 2020 and into the first quarter of 2021 as multiple end markets recover from the impact of the pandemic. We have posted three consecutive quarters of year-over-year growth in Segment EBITDA, including the third quarter of 2020, fourth quarter of 2020 and the first quarter of 2021, each compared to the prior year quarters, respectively, as multiple end markets recover from the impact of the pandemic. We expect these strong tailwinds to continue into the second quarter and second half of 2021.
While we expect these current positive economic trends to continue during 2021, delays in COVID-19 vaccine distributions, increases in COVID-19 cases, hospitalizations, deaths, restrictions on trade or government lock-downs could disrupt the current recovery and our expectations. The ultimate impact that COVID-19 will have on our operating results will depend on the overall severity and duration of the COVID-19 pandemic and actions to contain the virus or treat its impact.
Within our Coatings and Composites segment, we continue to expect significant year over year improvement in our base epoxy business in 2021 due to strong improvements in market conditions. Our Versatic AcidsTM and Derivatives business should continue to benefit from modest growth in architectural coatings. Additionally, within our epoxy specialty resins business we anticipate lower demand in the China wind energy market in the second half of 2021.
Within our Adhesives segment, we anticipate improvement in Segment EBITDA within our North American forest products resins business in 2021 based on the latest expectations in U.S. and Canadian housing starts, remodeling and ongoing macroeconomic recovery from the COVID-19 pandemic. We also expect that continued economic recovery and strong market demand will positively impact our North American formaldehyde business in 2021.
We also anticipate that our businesses will continue to benefit from the savings associated with our restructuring and cost reduction initiatives. Further, we are in the process of implementing various efficiency initiatives, which include process improvement and other productivity projects.
Lastly, we completed the sale of our Phenolic Specialty Resin, Hexamine and European-based Forest Products Resins businesses, on April 30, 2021, which will further streamline our portfolio and improve our specialty product mix. We expect to use a portion of the net proceeds to invest in our business, and in May 2021, we used a portion of the net proceeds to pay down the aggregate principal of the euro denominated tranche of the Term Loan Facility for $150 million, in accordance with the credit agreement governing the Term Loan Facility.
56

Confidential Treatment Requested by Hexion Holdings Corporation
Matters Impacting Comparability of Results
Raw Material Prices
Raw materials comprise approximately 75% of our cost of sales (excluding depreciation expense). The three largest raw materials used in our production processes are phenol, methanol and urea. These materials represent about half of our total raw material costs. Fluctuations in energy costs, such as volatility in the price of crude oil and related petrochemical products, as well as the cost of natural gas have historically caused volatility in our raw material and utility costs. In the first three months of 2021 compared to the first three months of 2020, the average price of phenol, methanol and urea increased by approximately 3%, 30% and 45%, respectively. The impact of passing through raw material price changes to customers can result in significant variances in sales comparisons from year to year.
We expect long-term raw material cost volatility to continue because of price movements of key feedstocks. To help mitigate raw material volatility, we have purchase and sale contracts and commercial arrangements with many of our vendors and customers that contain periodic price adjustment mechanisms. Due to differences in timing of the pricing trigger points between our sales and purchase contracts, there is often a “lead-lag” impact. In many cases this “lead-lag” impact can negatively impact our margins in the short term in periods of rising raw material prices and positively impact them in the short term in periods of falling raw material prices.
Foreign Currency Exchange
The impact of foreign currency translation is driven by the translation of assets and liabilities of our foreign subsidiaries which are denominated in functional currencies other than the U.S. dollar. Our non-U.S. operations accounted for approximately 56% of our sales in the first three months of 2021. The primary assets and liabilities driving the adjustments are cash and cash equivalents; accounts receivable; inventory; property, plant and equipment; accounts payable; pension and other postretirement benefit obligations and certain intercompany loans payable and receivable. The primary currencies in which these assets and liabilities are denominated are the euro, Brazilian real, Chinese yuan, Canadian dollar and Australian dollar.
2020 Overview
Following are highlights from our results of operations for the years ended December 31, 2020 and 2019:
 SuccessorPredecessorNon-GAAP Combined  
 Year Ended December 31, 2020July 2, 2019 through
December 31, 2019
January 1, 2019 through
July 1, 2019
Year Ended December 31, 2019  
(In millions)$ Change% Change
Statements of Operations:   
Net sales$2,510 $1,323 $1,481 $2,804 $(294)(10)%
Operating (loss) income(64)(49)68 19 (83)(437)%
(Loss) income before income tax(149)(104)2,960 2,856 (3,005)(105)%
Net (loss) income from continuing operations(161)(92)2,760 2,668 (2,829)(106)%
Segment EBITDA:  
Adhesives$214 $116 $135 $251 $(37)(15)%
Coatings and Composites151 60 96 156 (5)(3)%
Corporate and Other(71)(37)(30)(67)(4)(6)%
Total
$294 $139 $201 $340 $(46)(14)%
57

Confidential Treatment Requested by Hexion Holdings Corporation
Net Sales—Net sales in 2020 were $2,510 million, a decrease of 10% compared with $2,804 million in 2019. Overall, COVID-19’s global impact on demand across various industries and markets in 2020 was the main driver of the decrease in net sales. Pricing negatively impacted sales by $182 million largely due to raw material decreases contractually passed through to customers across many of our businesses, as well as unfavorable product mix and continued competitive market conditions in our base epoxy resins and specialty epoxy resins businesses. Volume negatively impacted sales by $70 million primarily related to volume decreases in our North American and Latin America forest products resins businesses and our North American formaldehyde business driven by COVID-19’s negative impact on global demand. These decreases were partially offset by volume increases in our specialty epoxy business driven by strong global demand in wind energy. Foreign exchange translation negatively impacted net sales by $42 million due to the weakening of the Brazilian real and the Chinese Yuan against the U.S. dollar in 2020 compared to 2019, partially offset by the overall strengthening of the euro against the U.S. dollar in 2020 compared to 2019.
Net Loss—Net loss from continuing operations in 2020 was $161 million, a decrease of $2,829 million as compared with a net income of $2,668 million in 2019. This decrease was driven by a $2,970 million reorganization gain in 2019 as a result of the restructuring of our debt through our Chapter 11 proceedings. The decrease was also driven by a reduction in operating income of $83 million, primarily related to an increase of $55 million in depreciation and amortization expense related to the step up of our fixed and intangible assets as a result of the application of fresh-start accounting, $16 million of asset impairments in our oilfield and phenolic specialty resins businesses in the first quarter 2020, a $33 million increase in business realignment costs driven by higher severance expenses related to current cost reduction actions and a decrease in gross profit due primarily to the impacts of COVID-19 on volumes in our businesses. These were partially offset by a reduction in interest expense of $44 million as a result of the restructuring of our debt through our Chapter 11 proceedings and lower selling, general and administrative expense of $21 million mainly driven by $29 million of costs related to our Chapter 11 proceedings incurred in 2019 both prior to filing for bankruptcy and post-emergence and lower variable compensation expense in 2020.
Segment EBITDA—In 2020, Segment EBITDA from continuing operations was $294 million, a decrease of 14% compared with $340 million in 2019. This decrease was primarily due to the impacts of COVID-19 on our businesses, most notably in our forest products resins and formaldehyde businesses, and continued competitive market conditions in our base epoxy resins business. The decrease was also impacted by $18 million of previously recorded deferred contract revenue that was accelerated as a result of the application of fresh start accounting in 2019, and temporary manufacturing disruptions at our Pernis site, which negatively impacted our 2020 Segment EBITDA by approximately $15 million. These Segment EBITDA decreases were partially offset by favorability in our specialty epoxy business driven by strong global demand in wind energy and strong market conditions in our versatic acids business.
Restructuring and Cost Reduction Programs—During 2020, we achieved $23 million in cost savings related to our cost reduction programs. These activities include certain in-process facility rationalizations and the creation of a business service group within the Company to provide certain administrative functions for us going forward. Overall, we have $6 million of in-process cost savings related to these activities, which we expect to realize over the next 12 months.
Growth Initiatives and New Product Development—We continue to focus on new product development to further strengthen our industry-leading research and development, technical services capabilities, and to strategically invest in our R&D footprint to increase opportunities for innovation and stimulate growth. These growth activities include the following:
Our new Adhesives product Armorbuilt™, which is designed to protect the critical utility pole infrastructure against wildfires. We expect incremental growth in 2021 from this product.
Extensive conversions were initiated at several major customers in 2020 for next generation OSB PF technology for board surface applications and additional applications are scheduled for 2021 as
58

Confidential Treatment Requested by Hexion Holdings Corporation
productivity gains and further reduction in resin usage, positions our products favorably compared to pMDI.
As an alternative technology, we have also developed BPA-free alternative coating technologies to address changing consumer preferences.
Matters Impacting Comparability of Results
Our consolidated financial statements include our accounts and our majority-owned subsidiaries in which minority shareholders hold no substantive participating rights. Intercompany accounts and transactions are eliminated in consolidation.
Chapter 11 Bankruptcy and Fresh Start Accounting Impacts
As a result of the emerging from Chapter 11 and qualifying for the application of fresh-start accounting, at the Effective Date, our assets and liabilities were recorded at their estimated fair values which, in some cases, are significantly different than amounts included in our financial statements prior to the Effective Date. Accordingly, our financial condition and results of operations on and after the Effective Date are not directly comparable to our financial condition and results of operations prior to the Effective Date. The total amount of reorganization and fresh start adjustments, as well as incremental costs incurred related to our Bankruptcy Petitions incurred while we were in bankruptcy resulted in a total gain of $2,970 million for our continuing operations which is classified within “Reorganization items, net” in the Consolidated Statements of Operations.
In addition, we incurred costs related to our Chapter 11 proceedings both prior to filing for bankruptcy and post-emergence, which are not classified within “Reorganization items, net” as these costs were not incurred while in bankruptcy. These costs were $29 million for the year ended December 31, 2019 and are classified within “Selling, general and administrative expense” in the Consolidated Statements of Operations.
Raw Material Prices
Raw materials comprised approximately 75% of our cost of sales (excluding depreciation expense) in 2020. The three largest raw materials used in our production processes are phenol, methanol and urea. These materials represented approximately 50% of our total raw material costs in 2020. Fluctuations in energy costs, such as volatility in the price of crude oil and related petrochemical products, as well as the cost of natural gas, have caused volatility in our raw material costs and utility costs. The impact of passing through raw material price changes to customers can result in significant variances in sales comparisons from year to year. In 2020, the average price of phenol, methanol, and urea decreased by approximately 11%, 15%, and 7%, respectively, as compared to 2019. In 2019, the average price of methanol and urea decreased by approximately 22% and 5%, respectively, and the average price of phenol increased by 2%, as compared to 2018. The impact of passing through raw material price changes to customers can result in significant variances in sales comparisons from year to year.
We expect long-term raw material cost volatility to continue because of price movements of key feedstocks. To help mitigate raw material volatility, we have purchase and sale contracts and commercial arrangements with many of our vendors and customers that contain periodic price adjustment mechanisms. Due to differences in timing of the pricing trigger points between our sales and purchase contracts, there is often a “lead-lag” impact. In many cases this “lead-lag” impact can negatively impact our margins in the short term in periods of rising raw material prices and positively impact them in the short term in periods of falling raw material prices.
Other Comprehensive Income
Our other comprehensive income is primarily impacted by foreign currency translation and our derivative instruments designated as hedges. The impact of foreign currency translation is driven by the translation of assets and liabilities of our foreign subsidiaries which are denominated in functional currencies other than the U.S. dollar. The primary assets and liabilities driving the adjustments are cash and cash equivalents; accounts receivable; inventory; property, plant and equipment; accounts payable; pension and other postretirement benefit obligations
59

Confidential Treatment Requested by Hexion Holdings Corporation
and certain intercompany loans payable and receivable. The primary currencies in which these assets and liabilities are denominated are the euro, Brazilian real, Chinese yuan, Canadian dollar and Australian dollar.
In 2019, we entered into an interest rate swap agreement to hedge interest rate variability caused by quarterly changes in cash flow due to associated changes in LIBOR under our Term Loan Facility. This swap is designed as a cash flow hedge and changes in fair value are recorded in “Accumulated other comprehensive loss.”
The impact of defined benefit pension and postretirement benefit adjustments is primarily driven by unrecognized prior service cost related to our defined benefit and other non-pension postretirement benefit plans (“OPEB”), as well as the subsequent amortization of these amounts from accumulated other comprehensive income in periods following the initial recording of such amounts. Upon the application of fresh start accounting, on the Effective date, all prior unrecognized service cost within accumulated other comprehensive income related to our defined benefit pension and OPEB plans were reset in accordance with ASC 852 (Refer to Note 6 to our audited consolidated financial statements included in this prospectus for more information).
Pension and OPEB MTM Adjustments
Under our accounting policy related to the recognition of gains and losses for pension and OPEB plans, upon the annual remeasurement of our pension and OPEB plans in the fourth quarter, or on an interim basis as triggering events warrant, we immediately recognize gains and losses as a mark-to-market (“MTM”) gain or loss through net income. The largest component of our pension and OPEB expense typically relates to these MTM adjustments. We recorded a MTM loss of $4 million in 2020, a MTM loss of $5 million for the Successor period July 2, 2019 to December 31, 2019 and a MTM gain of $13 million in 2018. These MTM adjustments were largely driven by fluctuations in discount rates, which increased in 2018 and decreased in both 2019 and 2020. In addition, a MTM loss of $44 million was recorded upon Emergence, driven by reductions in discount rates, which was included within “Reorganization items, net” on the Consolidated Statement of Operations for the Predecessor period January 1, 2019 through July 1, 2019. These MTM adjustments are recognized in “Other non-operating (income) expense, net” in the Consolidated Statements of Operations.
60

Confidential Treatment Requested by Hexion Holdings Corporation
Results of Operations
Unaudited Three Months Ended March 31, 2021 vs. Three Months Ended March 31, 2020
(In millions)Three Months Ended March 31, 2021Three Months Ended March 31, 2020
$% of Net Sales$% of Net Sales
Net sales$753 100 %$687 100 %
Cost of sales (exclusive of depreciation and amortization shown below)584 78 %565 82 %
Selling, general and administrative expense70 %64 %
Depreciation and amortization49 %49 %
Asset impairments— — %16 %
Business realignment costs%20 %
Other operating (income) expense, net(3)— %%
Operating income (loss)48 %(34)(5)%
Interest expense, net24 %26 %
Other non-operating income, net(4)(1)%— — %
Total non-operating expense20 %26 %
Income (loss) before income tax and earnings from unconsolidated entities28 %(60)(9)%
Income tax expense (benefit)16 %(3)— %
Income (loss) from continuing operations before earnings from unconsolidated entities12 %(57)(8)%
Earnings from unconsolidated entities, net of taxes— — %— %
Income (loss) from continuing operations, net of taxes12 %(56)(8)%
Loss from discontinued operations, net of taxes(1)— %(3)— %
Net income (loss)11 %(59)(9)%
Other comprehensive loss$(4)$(57)
Net Sales
In the first three months of 2021, net sales increased by $66 million, or 10%, compared to the first three months of 2020. Pricing positively impacted sales by $64 million due to raw material increases contractually passed through to customers across many of our businesses, as well as favorable product mix and improved market conditions in our base epoxy resins and specialty epoxy resins businesses. Foreign currency translation positively impacted net sales by $13 million due to the strengthening of various foreign currencies against the U.S. dollar in the first three months of 2021 compared to the first three months of 2020. Volumes negatively impacted net sales by $11 million, primarily due to the impact of Winter Storm Uri in the U.S. Gulf Coast on several of our businesses, offset by volume increases in our specialty epoxy resins and global resins businesses.
Operating Income
In the first three months of 2021, operating income (loss) increased by $82 million from an operating loss of $34 million in the first three months of 2020 to operating income of $48 million in the first three months of 2021. This was primarily due to a $16 million asset impairment charge related to our oilfield and phenolic specialty resins businesses in the first quarter of 2020, a $15 million decrease in business realignment costs driven by lower severance expenses and an increase in gross profit due primarily to improved market across many of our businesses mentioned above.
61

Confidential Treatment Requested by Hexion Holdings Corporation
Non-Operating Expense
In the first three months of 2021, total non-operating expense decreased by $6 million due primarily to a decrease in interest expense of $2 million as a result of the decrease in our debt obligations, and an increase in miscellaneous non-operating income.
Income Tax Expense
The income tax expense (benefit) for the three months ended March 31, 2021 and 2020 was $16 million and $(3) million, respectively. The income tax expense (benefit) is comprised of tax expense on income and tax benefit on losses from certain foreign operations. In 2021 and 2020, losses in the United States and certain foreign jurisdictions had no impact on income tax expense as no tax benefit was recognized due to the maintenance of a full valuation allowance.
The effective tax rate for the three months ended March 31, 2021 and 2020 was 57% and 5%, respectively. The change in the effective tax rate was primarily attributable to the amount and distribution of income and losses among the various jurisdictions in which we operate. The effective tax rates were also impacted by operating gains and losses generated in jurisdictions where no tax expense or benefit was recognized due to the maintenance of a full valuation allowance.