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 AMM
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.