Sherwin Alumina receives preliminary loan access

Sherwin Alumina Co., the bankrupt unit of commodities giant Glencore PLC, made its bankruptcy-court debut in Corpus Christi, Texas, Wednesday and got preliminary access to $40 million in financing from another Glencore affiliate.

Judge David R. Jones approved access to $500,000 of the loan and set a hearing for final approval of the loan on Feb. 10 in Houston, Texas, where he also hears cases.

Joshua Sussberg of Kirkland & Ellis LLP said the loan, from Glencore affiliate Commodity Funding LLC, was the only financing available to Sherwin and that any shutdown of the company’s alumina smelting activities would be very costly to restart.

Mr. Sussberg also noted that while the company has “serious labor issues”--having had its 455 unionized employees off the job since October 2014-that was an issue the case would address later.

Sherwin also received a number of other administrative approvals Wednesday, allowing it to pay some critical vendors, taxes and utilities.

Sherwin entered bankruptcy on Monday 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. That cash is intended to be used to pay unsecured creditors, owed roughly $17 million. The company hopes to gain court approval of its bankruptcy-exit plan by March 31, according to court documents.

The Texas-based company 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.

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.