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 said.
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 said.
"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.