CHICAGO Pension Benefit
Guaranty Corp. (PBGC) has objected to the sale of bankrupt
aluminum producer Ormet Corp. to an entity owned by private
investment firm Wayzata (Minn.) Investment Partners LLC.
A hearing on whether to approve
the sale, originally scheduled for May 15, has been pushed back
to May 22, according to court documents filed May 14 in U.S.
Bankruptcy Court in Delaware.
An auction was canceled because
no bids other than that from stalking horse bidder Smelter
Acquisition LLC, a Wayzata entity (
amm.com, May 10), had been received, with no
objections to the proposed sale made before PBGCs
objection, filed May 13.
PBGC, which said it is owed
claims "in excess" of $235 million, estimates that it is
Ormets largest unsecured creditor "by far" and faces "no
chance of meaningful recovery" of money owed to it under the
current sale agreement, according to court documents.
An approval of the sale under
current terms would benefit some groups, including employees
and certain trade creditors, but would leave PBGC and other
unsecured creditors with unaddressed claims, PBGC said.
"Accordingly, the sale motion should be denied," the agency
The current sales agreement
would allow Smelter Acquisition to buy most of Hannibal,
Ohio-based Ormets assets not with cash but through a
credit bid based on Wayzatas secured claim, PBGC
"With no significant assets or
cash left in their estates, the debtors would have no choice
but to abandon or liquidate whatever remains of their
business," the agency said. Without an ongoing business, there
would be no entity capable of generating revenue for making
required pension contributions, it added.
While PGBC generally becomes the
trustee of underfunded and terminated pension plans, the
plans sponsor is not entirely relieved of liability for
promised benefits, the agency said.
If the sale were to be approved,
PBGC would be in the position of "inheriting a
multimillion-dollar underfunding without a chance of meaningful
recovery" and would see its fundamental rights as a creditor
"rendered meaningless," the group said.
PBGC noted that claims for
Ormets power provider, Gahanna, Ohio-based Ohio Power Co.
Inc., have also not been addressed. But PBGC does not have the
leverage of Ohio Power, whose claims must be resolved for Ormet
to operate, the agency added.
Ormet filed for Chapter 11
bankruptcy protection Feb. 25, citing high legacy and power
costs and low aluminum prices. The company reported assets of
$406.8 million and liabilities of $416 million (
amm.com, Feb. 26).
Ormets Hannibal smelter
can produce up to 270,000 tons of primary aluminum per year at
full capacity, and its alumina refinery in Burnside, La., can
produce 540,000 tons of smelter-grade alumina per year,
according to court documents.
Attorneys for Ormet did not
respond to requests for comment.