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Ormet melts into bankruptcy again

by Roger Dent  |  Published February 26, 2013 at 12:44 PM
Falling prices and rising expenses have led aluminum producer Ormet Corp. to file for bankruptcy a second time, with plans to sell its assets to an affiliate of prepetition lender Wayzata Investment Partners LLC.

The Hannibal, Ohio-based company and four affiliates on Monday submitted Chapter 11 petitions in the U.S. Bankruptcy Court for the District of Delaware in Wilmington. The debtors seek joint administration of the cases.

Along with the petition, Ormet filed a motion to access $90 million in debtor-in-possession financing as well as bidding procedures centered on a sale to Wayzata vehicle Smelter Acquisition LLC.

No hearings had been scheduled as of Tuesday morning before Judge Mary F. Walrath.

"This is a positive and necessary step for Ormet and is in the best interest of the company, our employees, suppliers, customers and other key stakeholders," CEO and president Mike Tanchuk said in a Monday statement. "The Chapter 11 filing will allow Ormet to accomplish two important goals. First, to sell the company in a controlled process that is designed to ensure that the highest and best offer is received. Second, to restructure the debt and legacy costs while operations continue. We will come out of this process stronger and better positioned for the future."

Wayzata is providing a $30 million new-money term loan DIP, while Wells Fargo Capital Finance LLC is providing a $60 million DIP that rolls up a prepetition revolver.

The Wells Fargo DIP accrues interest at prime plus 50 basis points or a Eurodollar rate plus 275 basis points, with a floor of 2%. The DIP matures nine months from the commencement of the bankruptcy.

The Wayzata DIP accrues interest at 10% and also matures in nine months.

Under the sale, Smelter would assume the DIP debt, credit-bid $130 million from a prepetition term loan and deliver $1 million of buyer securities. Smelter would also pay administrative fees during the bankruptcy.

Under the proposed bidding procedures, competing bids at least $2.65 million more than the value of the stalking-horse bid would be due May 3.

If Ormet received at least one rival offer, it would hold a May 13 auction, at which bids would have to increase in increments of at least $1 million.

The sale hearing would take place two days thereafter.

Smelter would receive up to $1 million in expense reimbursement should it lose the auction.

Ormet is based at its smelting operations along the Ohio River in Hannibal. The smelting operations produces 270,000 tons of aluminum per year when operating at full capacity, according to a declaration by CFO James Burns Riley.

Ormet also has a refinery in Burnside, La., that can produce 540,000 tons of smelter-grade alumina per year. The facility is operating at only 73%, Riley said.

Ormet was founded in 1956 as Olin Corp. and Revere Copper and Brass Inc. Its two facilities opened two years later. The company was later bought by Consolidated Aluminum Corp. in 1974 and continued to expand. By 2004, Ormet had eight facilities in six states, but the dropping price of aluminum, rising cost of energy, increased competition and the fallout from the Enron Corp. bankruptcy led Ormet to file for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Ohio in Columbus on Jan. 30, 2004.

In that case, Ormet reorganized through a debt-for-equity swap, giving its equity to MatlinPatterson Asset Management LLC. The plan was confirmed and took effect on Dec. 15, 2004, and April 1, 2005, respectively.

Ormet still had financial difficulties and stopped production at its two remaining plants in 2006 and 2007.

MatlinPatterson sold Ormet's equity in May 2007.

Ormet then restarted operations in 2011 when prices of aluminum and alumina -- a key raw material in aluminum -- were increasing. Aluminum, priced on the London Metal Exchange, peaked in April 2011 at $2,775 per ton. The company obtained financing and improved its facilities.

Over the next 16 months, however, the price dropped to a low of $1,800 in August. As of Feb. 22, the price was $2,014.

Ormet also must deal with legacy pension and voluntary employee beneficiary association trust costs as well as rising electricity costs.

The result was a liquidity crunch that led Ormet to begin a marketing process with investment banker Evercore Partners Inc.

As of the petition date, Ormet owed about $180.3 million in debt financing, including a $139.5 million term loan, a $39.3 million revolving facility and a $1.5 million loan from the state of Louisiana.

The term loan and revolver stem from a March 1, 2010 refinancing. The term loan was originally $110 million but was amended on May 6, 2011, to add a new $30 million term loan. The loans bear interest at 14% and mature March 2, 2014.

Bank of New York Mellon Corp. is the agent on the loan. Wayzata is the lender and will credit-bid the amount toward its acquisition of the debtor.

The revolver is led by administrative agent Wachovia Capital Finance Corp. and was to expire March 1, 2013. The loan accrues interest at Libor plus 275 basis points or prime plus 50 basis points. It also has a 0.625% commitment fee.

Ormet obtained the Louisiana state loan in 2011 to restart operations at the Burnside facility. The first payment on the loan is due March 15, but the payment will be forgiven due to the company's 2012 payroll, Riley said.

Kim Martin Lewis and Patrick D. Burns of Dinsmore & Shohl LLP and Robert J. Dehney, Daniel B. Butz and Erin R. Fay of Morris, Nichols, Arsht & Tunnell LLP are debtor counsel.

Tags: Chapter 11 | Enron Corp. | James Burns Riley | Judge Mary F. Walrath | Mike Tanchuk | Ormet Corp. | Smelter Acquisition LLC | Wachovia Capital Finance Corp. | Wayzata Investment Partners LLC | Wells Fargo Capital Finance LLC

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