If Steven J. Demetriou could go back and do things
differently during Aleris International Inc.'s 15-month stint
under bankruptcy protection, he wouldn't change very much.
"I probably would have slept better," he quipped in an
interview at the company's headquarters in Beachwood, Ohio. But
restless nights aside, the rest of the process-from filing for
Chapter 11 in February 2009 to emerging as a restructured
entity in June 2010-proved in the end to be the right move for
the downstream aluminum company, he said, leaving Aleris'
management team with few regrets.
"As much as it was painful to go through the process-and our
process is obviously more painful because of the stigma of
Chapter 11-it turned out to be a success for us," said
Demetriou, the company's chairman and chief executive officer.
"We emerged essentially with the same set of assets, which
showed that all we really needed was two things a short-term
cash infusion coupled with what everyone's done-to really make
sure we reduced costs and restructured where we needed to
Aleris certainly wasn't the only player in the aluminum
sector to require a strategy change in the aftermath of the
global financial crisis. Alcoa Inc., for example, turned to the
equity markets, while Novelis Inc. and Rio Tinto Alcan received
support from parent companies Hindalco Industries Ltd. and Rio
Tinto, respectively, allowing them to weather the storm of
collapsing aluminum prices and stagnant demand. Privately owned
Aleris, however, was barred from the equity markets and its
then-parent company, Texas Pacific Group, opted against a cash
injection, leaving it with one clear survival strategy in its
search for liquidity bankruptcy.
"This restructuring was really no different than anyone
else's. It's just the way we did it. What we actually ended up
doing was raising cash and financing for the company. We did it
in the way that was best for us, whereas most of our
competition had to do the same thing (but) they did it in
different ways," Demetriou said.
"The company wasn't broken," he said. "It was really the
only way we could react to the sudden downturn."
When Aleris' U.S. operations filed for bankruptcy
protection, it secured $1.075 billion in debtor-in-possession
financing to support operations and keep metal flowing
throughout the restructuring period. The company's creditors
approved its proposed exit strategy in May 2010, and Aleris
emerged under the wing of private equity funds Oaktree Capital
Management LP, Apollo Management LP and Sankaty Advisors LLC as
a leaner and more profitable version of its former self.
Despite the stigma that bankruptcy brings, Aleris'
leadership team contends that customers steadfastly stood by
the company throughout the process, providing the ongoing
support it needed for a quick turnaround.
"I don't think we have customer trust issues related to the
bankruptcy. Our customers were phenomenal in the early stages
and all the way through bankruptcy, and the best way to
validate that is that they voted with their orders," said K.
Alan Dick, executive vice president of Aleris and president of
its North American rolled products business. "We had many
customers in the early days of Chapter 11 who we had meetings
with at the senior levels who expressed their desire to see us
be successful and survive, and realized that for us to do that
they needed to continue to support us-and they did."
Sean M. Stack, the company's executive vice president and
chief financial officer, agreed that customers appeared
relatively unfazed by the process. "In the field, where the
rubber hits the road, our sales force .?.?. did a lot of hand
holding in the process. From the top down, we did a great job
of keeping everyone educated in terms of the process and how
the process was unfolding, and making sure that communication
got out to the field," he said. "A couple of weeks into the
bankruptcy, once the cash showed up and once the metal started
coming back and deliveries went out, (it became clear) this was
really almost more of a contained process and everyone else got
back to their day jobs, focusing on delivering value to the
Suppliers weren't as forgiving, however. According to market
sources, a number of Aleris' suppliers found themselves paid
just pennies on the dollar for their at-times
multimillion-dollar claims, creating resentment and distrust
among some players.
"Aside from the bankers and the financiers, those who
supplied them material lost a lot of money," one market source
said. "The scrap community lost a lot of money and I don't
think those memories are fading so fast."
Among Aleris' 30 largest unsecured creditors were Rusal
America Corp. ($7.8 million), Glencore International AG ($7
million), United Scrap Metal Inc. ($2.2 million) and Schnitzer
Steel Industries Inc. ($2.1 million), with more than a dozen
other trading houses and scrap suppliers-from Sims Metal
Management Inc. to OmniSource Corp.-rounding out the list.
The company's top management concedes that ties with some of
its suppliers have been strained due to the bankruptcy.
"Certainly that's a healing process that's been under way for
quite some time. It's been under way since the day of the
filing," Terrance J. Hogan, vice president and general manager
of Aleris' aluminum recycling unit, said.
Demetriou agreed. "I'm sure there is a handful that will
always have some frustration. I lost money in Aleris during the
restructuring period, but I think the key now is going
forward," he said, noting that the inability to pay creditors
in full is unfortunately often part of the bankruptcy
"We'll always regret the fact that some of our suppliers had
to go through that and we tried everything humanly possible to
avoid that," Demetriou said. "(But) once we got into it, it was
a legal process. We had to follow the rules and it was 100
percent specified what you can do and what you can't do as far
as dealing with your suppliers. It was a pretty unprecedented
downturn and I think we handled it well."
Stack agreed. "Ideally, you'd love to figure out a way to
put a fence around the supplier base because that is the one
area where we still have a lot of recovery to go. But given the
set of circumstances, our hands were relatively tied on that,"
Losses aside, the vast majority of suppliers have maintained
ties with the company, management said, leaving a handful that
have been more difficult to win back. "On the metal side of the
suppliers, I would say you might be able to count those who are
no longer supplying to us on two hands," Dick said. "At the end
of it, what our suppliers want is a place that they can deliver
where they've got some confidence that they'll get a return for
delivering to us, and the fact is we probably have one of the
best balance sheets in the industry now, given our capital
structure, our debt structure, our availability and our
But even as the majority of suppliers continue to do
business with Aleris, few have yet to offer normal payment
terms for the new Aleris. "We need to re-earn the trust of our
suppliers when it comes to payments and we are doing that, but
our expectation is that we will return to what we would
consider the standard industry payment terms at some point in
the future," Dick said.
Even outside the United States, some suppliers continue to
restrict payment terms, even though only the U.S. assets filed
for bankruptcy. "Suppliers have been using the U.S. bankruptcy
as an excuse to try to move to shorter payment terms," said
Roeland Baan, executive vice president of Aleris and chief
executive officer of Aleris Europe. "We are now in the process
of getting back those terms. Where suppliers are not prepared
to put the terms back to normal terms, as is common and custom
in the industry, we basically have no other choice but to
change suppliers. I can fully sympathize with them. Once you
get paid after seven days instead of after 35, it's hard to
Hogan is optimistic that Aleris will see a return to
standard terms in the coming year, but he acknowledged that
each decision is case by case. "We've seen terms extend and we
would expect to see that continue as we get some history under
our belt from an earnings standpoint and a quarterly
performance standpoint. And we've certainly seen a dramatic
improvement from cash on delivery, but it doesn't take much to
see improvement from there-there's only one way to go," he
said. "We would expect to see that continue as the results
continue to improve. I would expect, as we move though 2011, we
should get back to those levels. It would be nice if it were
Jan. 1, but I think more realistically it's some time after
that. In some cases we're already there."
With the bankruptcy a recent-but fading-memory, Aleris once
again has its eyes set on growth. A company itself comprising
two former industry giants-Commonwealth Industries Inc. and
Imco Recycling Inc.-Aleris has a history of mergers and
acquisitions, from its 2006 purchase of Corus Group Plc's
aluminum rolling and extrusion businesses to its 2007 buy of
Wabash Alloys LLC.
"We're much more passionate about growth than ever before,"
Demetriou said. "We've had a successful M&A run since 2004,
and when the right acquisitions present themselves we'll
clearly implement some."
Most of Aleris' expansion plans will be centered around
emerging economies, with the company having already announced
plans to form a joint venture with a Chinese company to build a
greenfield aluminum rolling mill in Zhenjiang and more than
triple extrusion capacity at its Tianjin facility by 2015.
China's booming urbanization makes the decision to expand there
a no brainer, Demetriou said. "In the past, they built a lot of
automobiles but they were just looking for low-quality
materials. Now they're looking for the most sophisticated
capabilities and products, looking to get into much more
premium vehicles, and that-whether its automotive or aerospace
or other key markets of ours-is sort of right in our sweet
But other developing nations also could be on the radar.
"I'd say our focus is on China, but at some point we'll look at
other emerging economies," he said.
Baan agreed that other regions also will be key to Aleris'
growth. "If you want to be a global payer and if you want to
move with your global customers and accompany them to those
markets, you have to invest into those markets and be a local
player. I think we would love to be able to join our customer
base where they want to expand," he said. "We are already in
Brazil, of course, with our recycling activities, and we would
definitely be interested in looking at other opportunities
there. The same goes for India or any other big territory where
we see our customers move into."
That's not to say that developed markets are off the table
for expansion. According to Demetriou, the company also is
eyeing any bolt-on acquisitions that make sense in the United
States or European markets to complement current assets. "Scrap
is extremely important to us. Metal supply is extremely
important to us overall," Demetriou said. "As part of our
strategic thinking going forward, we are evaluating different
options to ensure we have the metal when we need it at the
lowest cost and the highest quality. We're working on ideas and
strategies around that."
Expansion will be particularly important if Aleris hopes to
capture a portion of the growing aluminum demand it is
forecasting going forward. Demand across most major end-use
sectors should swing higher in 2011, with even lackluster
building and construction showing welcome signs of bottoming
out, the company said.
"I think despite what you read about the potential of a
double-dip (recession), we are not hearing that from our
customer base. And I would say across all the segments, whether
it be OEM (original equipment manufacturer) or distribution or
construction, all of them at this point are projecting 2011
growth over and above 2010," Dick said.
Demetriou agreed. "We think the worst is behind us," he
said. "We think that it will clearly be better than today, and
today is better than we expected." ANNE