Sherwin Alumina in bankruptcy to complete sale to lender affiliate

By Caroline Salls

Pittsburgh, Jan. 11 – Sherwin Alumina Co., LLC and Sherwin Pipeline, Inc. filed Chapter 11 bankruptcy Monday in the U.S. Bankruptcy Court for the Southern District of Texas to implement a pre-packaged plan of reorganization that calls for a stalking horse asset purchase agreement and marketing process, according to a news release.

Under a stalking horse purchase agreement, senior secured lender Commodity Funding, LLC affiliate Corpus Christi Alumina, LLC will acquire substantially all of Sherwin’s assets, subject to higher bids. Commodity Funding is a subsidiary of Sherwin’s ultimate equity owner, Glencore, Ltd.

If completed, Sherwin said the proposal would allow it to expeditiously complete its Chapter 11 sale process and emerge debt-free.

The company said the stalking horse bidder has agreed to provide consideration of $95.25 million, consisting of a $95 million credit bid on account of the pre-bankruptcy secured lender’s secured claims and, if the holders of general unsecured claims vote to accept the plan, $250,000 in cash to fund distribution to those creditors.

Competing bids are due by 5 p.m. ET on March 18. The auction will be held on March 23, if necessary, and the sale hearing and plan confirmation hearing would be held on March 31, under Sherwin’s proposed timeline.

The minimum overbid amount will be $500,000. If Corpus Christi Alumina is the not the high bidder, Sherwin will reimburse its sale-related expenses.

Creditor treatment

Treatment of creditors under the pre-packaged plan will include the following:

• Priority claims will be paid in full in cash;

• “Other” secured claims will either be paid in full in cash or reinstated;

• If the stalking horse bidder is the successful bidder, holders of pre-bankruptcy secured credit facility claims will receive consideration provided in the purchase agreement. If the stalking horse bidder is not the winning bidder, these creditors will receive the net sale proceeds;

• Holders of assumed liability general unsecured claims will receive a share of a buyer liability amount;

• Holders of excluded liability general unsecured claims will receive a share of the closing cash payment if the class votes to accept the plan and no distribution if it votes to reject the plan; and

• Holders of interests, intercompany claims and subordinated claims will receive no distribution.

Sherwin said it has been significantly impacted by the challenging commodity pricing environment, and these macro-economic conditions have negatively affected the underlying value of its assets.

“The challenging global market conditions for alumina prevent Sherwin from maximizing the significant value of its assets,” president and chief executive officer Thomas Russell said in the release.

“Sherwin’s proposed sale process will best position our plant for long-term success and preserve an important source of jobs and economic activity in our community.”

The company said it remains committed during this process to fulfilling its obligations under the National Labor Relations Act and to bargain in good faith with the United Steel Workers.

DIP financing

In connection with the bankruptcy filing, Sherwin has obtained a commitment for $40 million in debtor-in-possession financing from primary pre-bankruptcy lender Commodity Funding to support its continued operations.

The company said the DIP financing, combined with cash generated from ongoing operations, will provide sufficient liquidity to support the business during the restructuring process.

Interest will be 8%.

The facility will mature on the earliest of May 11, the plan effective date, acceleration of the DIP obligations, acceptance of a bid for the company’s assets that is not approved by the lender unless the proceeds will be used to pay the DIP loan obligations in full in cash and the conversion or dismissal of the Chapter 11 cases.

The company is seeking interim access to $500,000 of the DIP financing.

Sherwin also requested court approval of standard and customary first-day relief to allow it to continue its customer shipments and plant operations during the restructuring process.

Debt details

According to court documents, Sherwin Alumina has $100 million to $500 million in both assets and debt.

The company’s largest unsecured creditors are CCC Group Inc. of San Antonio with a $3.2 million trade claim; Strom Engineering Corp. of Minnetonka, Minn., with a $2.11 million trade claim; and Noranda Bauxite Ltd. of Gramercy, La., with a $1.94 million trade claim.

Kirkland & Ellis LLP is serving as legal counsel to Sherwin, and Huron Consulting Services LLC is serving as financial adviser and investment banker.

Sherwin is a Gregory, Texas-based alumina producer. The Chapter 11 case number is 16-20012.

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