CHICAGO Bankrupt aluminum producer Ormet Corp. says it
could be forced to liquidate if its sale to an entity owned by
private investment firm Wayzata (Minn.) Investment Partners LLC
is not approved.
Since Ormet filed for Chapter 11 bankruptcy protection Feb. 25,
energy costs have risen and market conditions have worsened, an
attorney representing the company said in court documents filed
May 17 in U.S. Bankruptcy Court in Delaware.
That means the Hannibal, Ohio-based company could face
significant liquidity issues as early as mid- or late
July 2013, they said.
Ormet lost more than $41.8 million from January to April 2013,
according to court documents filed in Delaware bankruptcy court
May 20. The aluminum producer last generated positive cash flow
from operating activities in the first month of the year. Since
then, the company has seen losses balloon from approximately
$12.6 million in the month of February to nearly $17.4 million
in April, according to the May 20 court documents.
The debtors face a crossroads and must either move
forward with the sale in a timely manner or face the
termination of business operations, elimination of existing
jobs and liquidation of assets, Ormets
attorneys said in the May 17 documents said. Given
the debtors current financial conditions ... and the need
for additional capital going forward, time is of the essence in
moving forward with the sale.
Ormet cited high legacy and power costs and low aluminum prices
in its bankruptcy filing (
amm.com, Feb. 26
The motion in support of a sale to stalking horse bidder and
Wayzata entity Smelter Acquisition LLC comes after Pension
Benefit Guaranty Corp. (PBGC) filed an objection to the sale
last weeka development that saw a sales approval hearing
moved back from May 15 to May 22.
PBGC said it is owed claims in excess of $235
million, estimated 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 (
amm.com, May 15
It is objecting to the sale because it believes the terms do
not provide the best outcome for either the agency or Ormet
pension plan members, a spokesman for the PBGC told
Ormet or a successor company could afford to retain some of the
pension plans included in the firms Chapter 11 filing,
the PBGC spokesman said.
Whoever the successor is, if its affordable and
they keep those plans, that is the best outcome for the people
who are getting benefits and who will get benefits, the
spokesman said. But as it stands right now, thats
not whats happening.
Citing ongoing negotiations, the spokesman declined to say
which plans the PBGC considers affordable for Ormet or a
successor company or to comment on the possibility that Ormet
may be liquidated if a sale to Smelter Acquisition is delayed.
Its not for us to say, You can do A or
B, the spokesman said. There are ongoing
talks ... so hopefully we can get a better outcome.
Ormet did not receive any bids from prospective
going-concern purchasers either before or during the
bankruptcy process, so a sale to Smelter Acquisition represents
the best chance to guide the company to life outside of
bankruptcy, the documents said. Ormets attorney
characterized PBGCs objection to the sale as
without merit and one that should be overruled.
In the event of liquidation, it is likely there will be
no return to parties other than the secured creditors,
the filing said, but Ormet will be well-positioned
to withstand the current market if a sale is concluded and the
company can continue work to reduce electricity costs.
The cash aluminum contract ended the London Metal
Exchanges official session at $1,800 per tonne May 15,
down nearly 10 percent from $2,003 per tonne the day Ormet
filed for bankruptcy protection, according to the Ormet filing.
The cash aluminum contract ended the LMEs official
session at $1,811 per tonne May 20.
In addition to lower aluminum prices, Ormet also faces higher
power costs, the May 17 documents said. Ormets power
provider, Gahanna, Ohio-based Ohio Power Co. Inc., filed for a
second-quarter rate adjustment on March 1, boosting the
companys power costs by $4.81 per megawatt hour
(MWh), an increase of about $1.7 million per month with Ormet
operating at full capacity, the documents said.
These circumstances have reinforced the importance of
finalizing the sale and allowing business operations to move
forward outside of bankruptcy, according to the Ormet
filing. A sale will also maintain jobs, supplier relationships
and provide the greatest available return to
creditors, it said.
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.
Editor's note: This story was updated May 21,2013. Due to a
reporting error, the article incorrectly stated the increase in
Ormet's power costs following the second-quarter rate
adjustment on March 1.