CHICAGO Ormet Corp. has
filed for Chapter 11 bankruptcy protection, citing high legacy
and power costs and low aluminum prices.
The Hannibal, Ohio-based primary
aluminum producer also said it had entered an agreement to be
acquired by a company owned by private equity firm Wayzata
(Minn.) Investment Partners LLC as it looks to restructure and
re-emerge from bankruptcy with a better cost structure.
"This is an organized step to
reduce our costs ... so it is a good thing for Ormet and a
positive thing for employees, long termbut not easy,"
Ormet president and chief executive officer Michael F. Tanchuk
told AMM Feb. 26.
Ormet has assets of $406.8
million and total liabilities of $416 million, according to
documents filed Feb. 25 in U.S. bankruptcy court in
"Ormet has done everything
possible during very difficult financial times to pay its debt
and legacy obligations," Tanchuk said in a statement Feb. 25.
"However, with a low metal price and higher power costs, we no
longer have the financial liquidity to continue to do
The company has been working
hard at lowering its costs and has been successful in many
cases, Tanchuk told AMM. "But there are some aspects
of our costs, like our legacy liabilities ... that we have to
deal with in court," he added.
The bankruptcy filing, announced
late Feb. 25, comes at the same time that Ormet agreed to enter
a deal to be acquired by Smelter Acquisition LLC, which is
owned by Wayzata.
Affiliates of Wayzata own at
least 5 percent of Ormet, according to court documents.
The deal is subject to court
approval and faces the possibility of a higher bidder emerging
during the bankruptcy process, Ormet said. In addition, the
agreement hinges on other conditions, including amendments to
Ormets electric power and collective bargaining
agreements, the company said.
Ormet has received $90 million
in debtor-in-possession (DIP) financing, including $30 million
in term financing from Wayzata and a $60-million facility from
With that financing, suppliers
should be paid for all goods and services, and customers should
continue to receive product, the company said.
Ormets legacy costs would
not be assumed by a buyer, the company said, noting that the
purchase price it might fetch isnt expected to be enough
"to provide any recovery to the companys
Ormets shares closed at
4.5 cents apiece in over the counter trading Feb. 26, down 90
percent from the previous days close at 45 cents per
The company listed its total
number of credits at between 1,000 and 5,000, according to
court documents. The top three unsecured creditors are the
Ormet Pension Plan, owed $143 million; the Ormet Hannibal
Hourly Voluntary Employees Beneficiary Association plan ($48.4
million); and utility American Electric Power Co.
Inc., Columbus, Ohio ($33.3 million).
Other unsecured creditors
include Chalco Henan International Trading Co. Ltd., Zhengzhou,
China, owed $4.65 million; Jinan Aohai Carbon Products Co.
Ltd., Jinan City, China, owed $1.55 million; and Hydro Aluminum
International SA, Lausanne, Switzerland, owed $560,000,
according to court documents.
The United Steelworkers union
said it had been in contact with Ormet about the Chapter 11
filing beforehand but wasnt able to discuss it earlier
because of confidentiality concerns, according to a Feb. 25
notice to union members signed by USW District 1 director David
McCall. District 1 represents union members in Ohio.
The USW expects the current
bankruptcy process to be different from a previous one in 2004
that saw an attempt to implement a contract with "huge" wage
and benefit reductions and resulted in a 20-month strike,
"The proposed buyer has agreed
to assume our existing CBA (collective bargaining agreement),
with certain changes," he said, noting that the union did not
expect changes to wages, health care, vacation or seniority
Ormet has sought court approval
to continue to pay employees wages, salaries and benefits, it
Rising power costs have been an
ongoing problem for Ormet. "When we see raises in our (power)
rates, our costs go up significantly because (consuming power)
is such a big part of what we do," Tanchuk told
Ormet was granted a deferral on
about $27 million in power bills in October (
amm.com, Oct. 17).
The company hopes to emerge from
the process in a better position to take advantage of what
should be a bright future for aluminum, according to
"I think (aluminum prices) are
at the bottom," he said. "Ive been in the aluminum
business for a long time, and its the best time in my
career for aluminum. The growth side of it, the consumption
side of it, is tremendousespecially in
That means prices will likely
rise going forward, although exactly when that happens will
depend on when sentiment about growth in the sector changes,
Tanchuk said. "It could take time. ... But it can also happen
very quickly because there is some huge volatility in this
market," he said.
But for now prices are down,
with the cash primary aluminum contract on the London Metal
Exchange ending the official session at $1,971 per tonne Feb.
26, down a little more than 5 percent from $2,075.50 per tonne