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Aleris deal concerns scrap suppliers

Keywords: Tags  Aleris International, Nichols Aluminum, credit insurance, aluminum scrap, scrap dealers, Nathan Laliberte


NEW YORK — A series of aluminum scrap suppliers have voiced concerns about the potential for restricted access to credit insurance for loads shipped to Aleris International Inc.’s facilities following the company’s $110-million acquisition of Nichols Aluminum LLC.

Dealers reached by AMM April 2 said they had previously secured separate credit insurance for Nichols and Aleris. But since the close of the acquisition, some dealers believe they might have to obtain insurance packages based only on Aleris’ credit strength, which could result in a drastic reduction on "insurable volumes" of shipped material, they said.

"Let’s say I send 100,000 pounds per month to Aleris and 250,000 pound per month to Nichols. If you add those two shipments together, there is no way I am getting insurance for 350,000 pounds of scrap to Aleris alone," one major Midwest dealer said. "We insure all of our receivables and we are not going to be able get an increase on our (credit) limit."

Despite those concerns, the dealer said he continued to regard Aleris as a reliable consumer of nonferrous scrap.

"Sure, I can sell to them without credit, but our company policy is to insure every load. I’m not worried about them as a company or whether I will get paid," he said. "These (credit) companies don’t think Aleris is a huge risk, they just can’t cover them for more metal."

A second dealer noted that issues related to credit were "par for the course" in most merger and acquisition deals.

"This is always the unfortunate part of any merger," he said. "The smaller guys may have trouble getting attractive payment terms. The bigger guys, who deal in larger quantities, will always have better terms just because the dollar amounts are so high."

Cleveland-based Aleris doesn’t expect the issue to affect its ability to cover its scrap needs, a company spokesman told AMM.

"Aleris maintains ample liquidity to service the procurement needs of the combined Aleris and Nichols businesses. We also maintain excellent relationships with our vendors and do not believe that credit will prevent us from sourcing what we need to service our customers," he said via e-mail.

The Nichols acquisition included two production facilities in Davenport, Iowa, as well as operations in Decatur, Ala., and Lincolnshire, Ill. (amm.com, April 1).


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