Bankrupt aluminum smelter melts opposition to $90 million DIP

Having smoothed over differences with two key creditors, aluminum smelter Ormet Corp. on Thursday submitted final versions of its Chapter 11 bidding procedures and $90 million debtor-in-possession financing package, which enshrines private equity firm Wayzata Investment Partners LLC as the stalking horse bidder, for a Delaware bankruptcy judge's approval.

Earlier iterations of the $90 DIP facility and the auction procedures had come under fire from the Pension Benefit Guaranty Corp. and Ormet's committee of unsecured creditors. Despite fruitful discussions the parties hadn't been able to hammer out final forms of order ahead of a Wednesday hearing, but said they had reached agreements in principal, according to court documents.

U.S. Bankruptcy Judge Mary F. Walrath signed off on the bid procedures Thursday, while a consensual version of the final DIP order was entered under certification of counsel for her subsequent approval.

Citing a “perfect storm” of dropping aluminum prices and rising costs, Ohio-based Ormet entered bankruptcy Feb. 25 armed with DIP package consisting of a $30 million term loan from Wayzata and a $60 million revolver from Wells Fargo Capital Finance LLC.

PBGC and the creditors committee both blasted the original DIP as far too friendly to lenders, taking special exception to its proposal to grant liens on avoidance actions.

“The purpose behind avoidance powers is to allow a trustee or debtor-in-possession to recover certain payments for the benefit of all creditors,” the PBGC said in its objection. “To grant the DIP providers control over the avoidance actions is to disregard Congress’ intent in creating avoidance powers in the first place.”

While the revised version still allows for paying post-petition lenders with avoidance action proceeds, those funds have been reprioritized as choice of last resort, according to the DIP documents.

The final form of order resolves the committee's other main issue — the unreasonably short 60-day period for it to challenge Wayzata and Wells Fargo’s $180 million of claims from prepetition loans — by allowing the committee to request extensions at will without the need for court approval.

The bidding procedures establish a path for Ormet to proceed toward its stated goal of a Section 363 by cementing Minneapolis-based Wayzata — which is credit-bidding $130 million and other consideration for Ormet’s assets — as the stalking horse ahead of a planned May 13 auction.

To address the concerns of the PBGC — which said it will be on the hook for pension plans it estimated were underfunded by more than $260 million — any qualified bidder must state whether they will assume any of the plans' assets and liabilities. Any bidder that elects to take any pension obligations will be allowed to credit bid that amount, according to the order.

A sales hearing is scheduled for May 15 before Judge Walrath.