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Wells Fargo, Wayzata to Provide $90MM in DIP Loans in Ormet Bankruptcy

February 26, 2013, 08:03 AM
Filed Under: Bankruptcy

Ormet Corporation, a producer of primary aluminum, announced it has signed a definitive Asset Purchase Agreement with Smelter Acquisition, a portfolio company owned by private investment funds managed by Wayzata Investment Partners, in connection with a proposed financial restructuring of Ormet. Wayzata-managed funds are also Ormet’s largest pre-petition lender and have agreed to provide Term DIP financing to ensure a smooth ownership transition to Smelter Acquisition, LLC. The restructuring will be implemented through a proceeding in the U.S. Bankruptcy Court in the District of Delaware, where the company filed a voluntary chapter 11 petition today. The Asset Purchase Agreement, which has been filed with the Court, provides for Smelter Acquisition, LLC to purchase substantially all the company’s assets, subject to higher or better offers and Bankruptcy Court approval.

The company has received aggregate commitments of $90 million of DIP Financing, consisting of a $30 million Term DIP financing from Wayzata and a $60 million DIP facility from Wells Fargo, which will replace its $60 million pre-petition revolver with Ormet. Upon Court approval, these DIP financings should provide sufficient liquidity to meet ongoing obligations and ensure that the Company’s operations continue without interruption.

“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,” said Mike Tanchuk, chief executive officer and president of Ormet Corporation. “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.” Tanchuk emphasized that Ormet expects its day-to-day operations to continue during the Chapter 11 proceedings and sales process. “We do not anticipate that any customers or suppliers will experience any change in the way we do business with them,” Tanchuk said. “We have secured adequate financing so that we will be able to pay our vendors in the ordinary course of business for all goods and services and customers continue to receive the same quality products to which they are accustomed.”

As a routine matter, Ormet has sought approval to continue the payment of employee wages, salaries and benefits. The company anticipates that the Court will approve this request in the next few days.

“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. Ormet and its employees have made great strides in reducing costs, but this is simply not enough to overcome the headwinds of metal price and energy costs.”

The purchase price for the company’s assets under the Asset Purchase Agreement with Smelter Acquisition, LLC would consist of repayment or assumption of the DIP loans, credit bidding of $130 million of Ormet term loans held by Wayzata-managed funds, delivery of $1 million of buyer securities, and payment of cash for certain fees and expenses to be incurred in the administration of the bankruptcy proceedings. In addition, the buyer would assume specified normal course liabilities of the Company, but would not assume many of the Company’s legacy liabilities. It is not anticipated that the purchase price would be sufficient to provide any recovery to the company’s shareholders.

The Asset Purchase Agreement is subject to certain conditions, including satisfactory amendments to the company’s electric power agreement, collective bargaining agreements and Bankruptcy Court approval. In addition, the Company will solicit competing bids from other potential purchasers in accordance with a sale process to be approved by the Bankruptcy Court. Ormet’s assets would be sold to the bidder submitting the highest or otherwise best offer.

Headquartered in Hannibal, OH, Ormet Corporation is a major U.S. producer of aluminum.


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