TORONTO Indiana Steel & Tube Inc. has filed for Chapter 11 bankruptcy protection, listing steel distributors as its biggest unsecured creditors.
The Brownstown, Ind.-based steel tube and pipe maker, which had gross revenue of more than $40 million in 2011, estimated its liabilities at between $10 million and $50 million in documents filed in U.S. Bankruptcy Court in Indiana.
The filing will not impact customers and should actually boost customer service, according to Jerald Ancel, an attorney for Taft Stettinius & Hollister LLP, which is representing Indian Steel & Tube.
Indiana Steel & Tube is slated to receive $8.5 million in debtor-in-possession financing from Columbus, Ind.-based Indiana Bank & Trust Co. (IBT), one of several secured creditors in the case, about $500,000 more than was available before the bankruptcy filing, Ancel said.
"Not only is the bank supporting the company, it is actually increasing its line so that we have more availability to meet customer demand," he said. "So the (bankruptcy) will not affect our customers in any way, shape or form. It will improve the position."
IBT has already negotiated and agreed to the interim financing package, although it remains subject to court approval.
Indiana Steel & Tube had been experiencing financial problems since at least January despite what the company characterized as "consistently strong" sales, according to court documents.
Despite the strong sales, the company by early January began to "experience working capital issues and an inventory imbalance." Senior management decided to liquidate some inventory to boost working capital, but by the end of February, it was "evident" that liquidating a portion of its finished goods inventory had not solved the companys cash-flow issues, because "there was a discrepancy between the actual and book inventory," the company said in court documents.
Indiana Steel & Tube hired accounting firm Agresta, Storms & OLeary PC to determine the scope and cause of the discrepancy, which Agresta determined to be "substantial" and is still under investigation, according to court documents.
The inventory discrepancy reduced the cash available to Indiana Steel & Tube from IBT, the company said in court documents. "Although IBT has worked with (Indiana Steel & Tube) in stabilizing operations, (the company) needs additional liquidity to fill customer orders and reach optimal operations efficiency," according to the documents.
The bankruptcy filing should allow Indiana Steel & Tube to find a "better forum" to seek more operating capital, either through a sale or a third-party investor, the company said in court documents. The filing also will allow the company to obtain the raw materials and inventory necessary to operate at full capacity, fill customer needs and return to profitability.
The list of unsecured creditors appears to include many of the companys steel suppliers. The top five unsecured creditors are Mill Steel Co., Grand Rapids, Mich., owed more than $2.67 million; Four Star Steel Sales LLC, West Bloomfield, Mich., owed more than $1.2 million; Alliance Steel LLC, Bedford Park, Ill., owed $948,197; Charter Steel Trading Inc., Chicago, owed $900,259; and Mainline Metals Inc., Bala Cynwyd, Pa., owed $723,311.