Ormet wins OK for Burnside sale, wind-down plan, DIP facility changes

By Jim Witters

Wilmington, Del., Nov. 7 - Ormet Corp. received approval for the $39.4 million sale of its Burnside, La., plant to Almatis, Inc. during a Nov. 7 hearing in the U.S. Bankruptcy Court for the District of Delaware.

Judge Mary F. Walrath also granted preliminary approval of Ormet's wind-down plan and OK'd amendments to Ormet's debtor-in-possession financing facility that adds about $20 million in liquidity to the struggling company's wind-down budget.

Meanwhile, Richard Schepacarter, representing the U.S. Trustee's Office, agreed to postpone his request to convert the case to Chapter 7 for liquidation.

The pending sale to Almatis would be jeopardized by the conversion, reducing the expected recovery for all parties involved, he said.

However, Schepacarter said he plans to press for conversion again after the Burnside sale is completed.

Almatis attorney Stephen Karotkin said he expects the sale to close within 30 days.

Walrath said that, if they were separate debtors, she would have converted Ormet's Hannibal, Ohio, facility's case to Chapter 7 while allowing the Burnside sale to proceed under Chapter 11.

As it is, the company's headquarters, payroll office and administrative staff are housed at the Hannibal facility, which ceased production immediately after an unfavorable ruling by the Public Utilities Commission of Ohio over power rates.

The Burnside facility has been held in "hot idle" status pending the sale.

Unraveling deals

The debtor's wind-down plan nearly fell apart, though.

Sunstone Development Co., Ltd. objected to the proposed wind-down budget that channeled to the DIP lenders any proceeds from the sale of excess inventory at Ormet's Hannibal plant.

Ormet plans to sell the raw materials at the Hannibal plant, including processed alumina, anodes, caustic soda and bauxite and some finished goods.

Sunstone claims an interest in more than $8 million worth of anodes it shipped to Ormet on credit.

Ormet has not paid for the anodes, but DIP lenders Wells Fargo Capital Finance, LLC and Wells Fargo Bank, NA expected to receive the proceeds of the anode sale, saying that the anodes are part of Ormet's collateral base.

Walrath said she found it disturbing that Sunstone was, in effect, being asked to finance part of the wind down.

The judge told the debtors that if they could not pay all their administrative claims, they should pay none and set aside the proceeds from the inventory sales until they sorted out the allocation issues.

Wells Fargo attorney Daniel F. Fiorillo said his client has been extending additional financing since the Oct. 8 collapse of a proposed $130 million sale of the Hannibal plant to Smelter Acquisition LLC.

Without the anodes as part of the collateral base, Wells Fargo may not have agreed to the DIP loan amendments to finance the wind-down plan, he told the court.

Walrath recessed the hearing to give the parties time to consider their options.

Compromise offered

After the break in the hearing, Fiorillo said Wells Fargo would continue to fund the wind-down budget if the proceeds from any anode sale were placed in escrow for later allocation.

Proceeds from the sale of any other excess materials would be used to pay down the DIP facility, he said.

Sunstone attorney Mark E. Freedlander agreed to the compromise, and Judge Walrath approved the arrangement.

Ormet attorney Kim Martin Lewis said she plans to file another interim wind-down budget on Nov. 27.

Judge Walrath scheduled a 9:30 a.m. ET hearing on Dec. 3 to consider that budget and the trustee's motion to convert the case.

Wells Fargo agreed to continue to fund the case through the Dec. 3 hearing, but Fiorillo said he would be working with the debtors to trim administrative expenses.

Burnside sale

As previously reported, the Almatis transaction represents Ormet's only opportunity to preserve more than 200 jobs and recover significant funds to apply to its outstanding DIP loans.

Almatis has agreed to pay

• An option payment of $2 million two business days after the entry of the sale order;

• About $35.33 million upon the closing of the sale; and

• $2.1 million upon the closing of the sale to be held in escrow and applied in whole or part upon the giving of joint instruction.

The option payment will be used to maintain the plant's hot idle status until the sale closes.

DIP amendments

The amendments to the DIP financing agreements approved during the hearing provide funding through Nov. 30.

The amendments provide an additional $10 million under the exiting term loan, bringing the total facility to $35 million, and an additional $10 million of availability under the revolving loan, increasing the total facility to $50 million.

The current outstanding DIP balance is $47 million, Fiorillo said.

Steel Workers

Lewis said Ormet has reached an agreement in principle with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union concerning the collective bargaining agreement associated with the Hannibal plant.

The wind-down budget approved on Nov. 7 contains some allocation for payment of supplemental unemployment benefits and health-care costs for the workers cover by the union contract, she said.

Ormet plans to file a motion seeking approval of the agreement for consideration by the court at a Nov. 15 hearing.

The final details of the agreement, reached early in the day on Nov. 7, had not been put into writing, Lewis said.

Ormet, a Hannibal, Ohio-based producer of aluminum, filed for bankruptcy on Feb. 26, 2013 in the U.S. Bankruptcy Court for the District of Delaware. The Chapter 11 case number is 13-10334.

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