Glencore’s U.S. unit Sherwin Alumina files for bankruptcy

Sherwin Alumina Co., the troubled U.S. unit of commodities company Glencore Plc, filed for chapter 11 bankruptcy Monday as a protracted slump in the price of aluminum and a labor lockout strained the alumina plant operator’s finances.

Sherwin entered bankruptcy with a plan to sell its assets to another Glencore unit called Corpus Christi Alumina, in exchange for forgiveness of $95 million in debt plus $250,000 in cash. Commodity Funding LLC, another Glencore unit affiliated with Corpus Christi, has also agreed to provide $40 million to Sherwin to fund its operations during the bankruptcy case.

The company hopes to gain court approval of a plan to test that offer at auction on March 23 and ultimately exit bankruptcy by March 31, according to court documents.

“Glencore is supportive of the restructuring process undertaken by Sherwin and is hopeful of an outcome that will allow for the continued operation of the Sherwin facility,” a Glencore spokesman said via email.

Texas-based Sherwin was acquired by Glencore in 2007 and is capable of producing 1.65 million tons of alumina annually, although it only produced 1.38 million tons last year. The company has been struggling with its liquidity as low demand and oversupply from China hurt aluminum prices. In 2015, Sherwin’s projected gross revenue was $348 million, 98% of which came from sales of its product to Glencore, and projected net operating losses were $42.1 million.

Adding fuel to its troubles, the company’s 455 union employees have been off the job since October 2014, when its labor contract expired. In court documents, Sherwin said this “has substantially disrupted Sherwin’s operations and viability.” The company is also having trouble with two of its supplier contracts.

Sherwin, founded in 1953, marks the second business that Glencore has put into administration in less than a year. Glencore put its South African Optimum Coal Holdings Ltd. into the South African equivalent of bankruptcy protection in August after a fall in coal prices meant it was selling coal to South Africa’s power utility Eskom Holdings Ltd. at below cost due to a long-term contract it was unable to renegotiate.

In September, Glencore announced a $10 billion dollar plan to cut its net debt by a third, a move aimed at quelling investor fears that it might lose its investment grade credit rating if the commodities price rout deepened further or continued for longer.

In December, the business administrators responsible for Optimum Coal struck a deal to sell Optimum’s coal assets to fellow miner Tegeta Exploration and Resources for ZAR2.15 billion ($185 million). When the deal closes, administrators plan to use the proceeds to help pay down Optimum’s ZAR2.55 billion in debt. Glencore agreed to provide an extra ZAR400 million to pay down Optimum’s remaining debt and expedite the deal.

Glencore is also considering restructuring other businesses, including its loss-making Murrin Murrin nickel operations in Australia.