Hedge Funds in Face-Off Over Debt of European Chemicals Catastrophe
The debt of one of Europe’s largest chemicals companies has become a battleground for some of the world’s most aggressive credit hedge funds. On one side, investors who scooped up bonds at deep discounts and piled in fresh financing, betting that a turnaround was coming. On the other, funds that shorted the debt early and have watched their bets pay off spectacularly as the company’s bonds collapsed to almost nothing.
The company at the centre of this fight is Kem One, a heavily indebted French producer of PVC and caustic soda owned by the US private capital group Apollo Global Management. Its €450 million in publicly traded bonds, which were changing hands at around 70 cents on the euro just over a year ago, have since cratered to roughly 2 cents. Investors holding those bonds are now pricing in near-total losses, making Kem One one of the worst-performing credits in Europe’s ailing chemicals sector.
For the hedge funds involved, the financial stakes run into hundreds of millions of euros — and the fight is far from over.
The Backers and the Shorts
Among Kem One’s largest financial backers are two of the most prominent names in distressed credit: London-based Arini Capital, one of Europe’s most active distressed investors, and New York-based Monarch Alternative Capital.
Early last year, Arini and Monarch teamed up to provide Kem One with €200 million in fresh super senior financing. The loan was structured as a five-year delayed-draw facility, with proceeds used to fund the company’s business plan, pay down €100 million of revolving debt, and keep operations running. At the time, the deal looked like a calculated bet — Kem One was under pressure, but the company was still operational and the bonds were still trading at levels that implied a meaningful recovery was possible.
That bet has not played out. Since the financing was extended, Kem One’s fortunes have deteriorated sharply. The company posted negative €12 million of EBITDA for the twelve months to June 2025. Cash continued to burn. In January 2026, the same lenders provided a further €30 million in emergency debt as the company approached what analysts estimated could be a liquidity cliff by mid-2026.
On the other side of the trade, funds that shorted Kem One’s bonds — betting that their value would fall — have reaped enormous windfalls. A bond that drops from 70 cents to 2 cents on the euro generates catastrophic losses for holders and extraordinary profits for shorts. The speed of the decline has made Kem One one of the most profitable distressed short positions in European credit markets in recent memory.
The Bondholder Scramble
The collapse in bond prices has triggered a scramble among creditors to protect what value remains. A group of bondholders reportedly holding around two-thirds of Kem One’s €450 million in 2028 senior secured notes has been working with law firm Gibson Dunn to explore its options.
The group, which includes Arini and BlackRock among others, has considered several moves. One option involves providing new super senior financing using remaining debt capacity in the bond documents — roughly €47.5 million. Another involves attempting to uptier the group’s existing bond holdings into higher-ranking 1.5 lien notes, which would improve their recovery position at the expense of bondholders outside the group.
Such manoeuvres are common in US distressed credit markets but remain more contentious in Europe, where creditor-on-creditor aggression is less normalised. The intercreditor agreement governing Kem One’s debt includes protections that require 90% bondholder consent for any amendment that would expressly subordinate the existing notes. That threshold makes a non-consensual uptiering difficult, though not impossible depending on how the documentation is interpreted.
For bondholders who bought at 70, 50, or even 30 cents and now find themselves holding paper worth 2 cents, the options are grim. Either participate in whatever rescue financing emerges — committing more money to a deteriorating situation — or accept steep losses and walk away.
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