Magnetation noteholders claim wind-down agreement circumvents plan

By Caroline Salls

Pittsburgh, Sept. 20 – An informal committee of Magnetation LLC’s senior secured noteholders objected to the company’s global settlement agreement, which calls for a wind-down of Magnetation’s business and a sale of assets, according to a Tuesday filing with the U.S. Bankruptcy Court for the District of Minnesota.

“Although it is not a liquidation plan,” the committee said the wind-down agreement calls for liquidation of the Magnetation debtors and cessation of operations by as early as Sept. 30.

This outcome would be “only to the benefit of insiders and the revolving lender, while having a devastating effect on the debtors’ employees, creditors and other stakeholders,” the noteholders said.

The committee said the company is “ignoring the confirmation requirements of Chapter 11 designed to protect the interests of all stakeholders” and have “chosen a path that is extraordinarily favorable to insiders AK Steel and [Magnetation Inc.] and the revolving lender, while ignoring entirely the absolute priority rule by providing no recovery for non-settling creditors.”

The noteholders said the wind-down agreement impermissibly fixes creditors’ recoveries outside of the protections of the Chapter 11 plan, eliminates the non-settling creditors’ right to vote and releases all claims against the settling parties without any analysis of their value or other justification.

“Each of these factors is a touchstone of a sub rosa plan,” the objection said.

Magnetation, a joint venture between Magnetation, Inc. and AK Steel Corp., recovers high-quality iron ore concentrate from previously abandoned iron ore waste stockpiles and tailings basins. The Grand Rapids, Minn.-based company filed for bankruptcy on May 5, 2015 under Chapter 11 case number 15-50307.

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