Ormet Corporation (a US aluminum producer) recently filed for Chapter 11 bankruptcy protection. The company’s sales decreased substantially due to low aluminum prices and high costs of electricity. In addition to the electric bills that were expected to increase by $20 million a year, company executives confirmed that declining aluminum prices on the London Metal Exchange led to the decline in profitability. In September 2012, the company laid off over 100 employees. It also issued a Worker Adjustment and Retraining Notification Act notice because it foresaw having to lay off a total of 998 employees. Earlier this year, the company reported it didn’t have to lay off any more employees.
According to court documents on the company’s website, it plans to sell the business to Smelter Acquisition, LLC, a portfolio company owned by private investment funds which are managed by Wayzata Investment Partners, LLC. The company said on Monday that it’s received approximately $90 million of debtor-in-possession (DIP) financing, $60 million from Wells Fargo and $30 million from Wayzata. Mike Tanchuk (Ormet Chief Executive) said in a statement, “Ormet has done everything possible during very difficult financial times to pay its debt and legacy obligations. However, with a low metal price and higher power costs, we no longer have the financial liquidity to continue to do this.”
According to the court filing, Ormet listed total liabilities of $416 million and assets of $406.8 million. The filing will help the company restructure its debt and cut costs while continuing its operations. In accordance with the sale process, the company will solicit competing bids from other potential buyers. Tanchuk also said, “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. We will come out of this process stronger and better positioned for the future.”
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 the company’s operations continue. Under the asset purchase agreement with Smelter, the purchase price for the company’s assets consists of repayment or assumption of the DIP loans, credit bidding of $130 million of Ormet term loans held by Wayzata managed funds, cash payment for fees and expenses incurred in the bankruptcy proceedings, and providing $1 million in buyer’s securities. Normal course liabilities will be assumed by the buyer, but legacy liabilities will not be assumed. Conditions of the asset purchase agreement include satisfactory amendments to the company’s electricity agreement, collective bargaining agreements, and bankruptcy court approval.
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