Ormet creditors committee objects to final DIP, bid procedures

By Jim Witters

Wilmington, Del., March 15 - Ormet Corp.'s motion for final approval of $30 million in debtor-in-possession financing and its proposed bid procedures drew objections from the official committee of unsecured creditors in March 15 filings with the U.S. Bankruptcy Court for the District of Delaware.

The committee says some provisions in the proposed DIP agreement are "unreasonable and overreaching."

The committee also is seeking to postpone a hearing on the bid procedures while it continues to negotiate changes to proposed provisions that "improperly benefit the stalking horse to the disadvantage of the debtors' estates as a whole."

As previously reported, Ormet has proposed the sale of substantially all of its assets to stalking-horse bidder Smelter Acquisition, LLC.

Smelter Acquisition is an affiliate of the debtors' prepetition term loan lenders, Wayzata Investment Partners, LLC, and certain Wayzata-controlled funds.

The proposed sale involves a credit bid and the assumption of certain liabilities.

A hearing on the bid procedures and final DIP approval is scheduled for March 20.

DIP order objections

The committee says it seeks to modify the terms of the proposed final DIP order "to strike a reasonable balance among the competing interests of the debtors, the DIP lenders, the prepetition lenders and the debtors' unsecured creditors."

Among the issues raised are:

• Avoidance action rights and the proceeds of avoidance actions should not be encumbered or subject to superpriority claims. The DIP motion seeks to shift the value of the avoidance actions into the hands of the DIP lenders at the expense of unsecured creditors and the debtors' estates;

• The mechanism for challenging liens and asserting claims against the pre-petition lenders is unreasonable and inhibits the committee from fulfilling its fiduciary duties.

The proposed final DIP order gives the committee 60 days to assert any challenge to pre-petition liens and to assert all claims against the pre-petition lenders. And the proposal does not grant the committee legal standing to pursue any challenge or assert claims.

The committee seeks automatic standing and an extension of the challenge deadline;

• The DIP order should not predetermine the right of the lender to credit bid; and

• The committee's investigation cap of $100,000 is "unreasonably small." The committee is seeking $175,000.

Bid procedures objections

The creditors committee's objections to the bid procedures include:

• The stalking horse bidder is not required to serve as a backup bidder if another bidder's offer is deemed higher and better. Other bidders are required to serve as backups if their bid qualifies; and

• The stalking horse should not be eligible for an expense reimbursement because it is not needed to induce a bid. The fees and expenses for preparing its bid are already covered by the expense reimbursement procedures of the DIP agreement.

The committee argues that the bid procedures should not be approved unless changes to those provisions are made.

Ormet, a Hannibal, Ohio-based producer of aluminum, filed for bankruptcy on Feb. 26. The Chapter 11 case number is 13-10334.

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