Ormet Files Bankruptcy
Ormet Corporation’s Chief Executive Officer Mike Tanchuk is emphasizing the goal of the company, along with the United Steelworkers of America, is to minimize the impact on employees of the company’s decision to file Chapter 11 bankruptcy.
On Monday, Ormet announced it had signed a “definitive Asset Purchase Agreement with Smelter Acquisition, LLC, a portfolio company owned by private investment funds managed by Wayzata Investment Partners, LLC, in connection with a proposed financial restructuring of Ormet.”
The Monday-release from Ormet adds that “Wayzata-managed funds are Ormet’s largest pre-petition lender and have agreed to provide Term Debtor-in-Possession financing to ensure a smooth owernship transition to Smelter-Acquisition, LLC.” Furthermore, it is stated that the financial restructuring will be “implemented through a proceeding in the U.S. Bankruptcy Court in the District of Delaware.” The company filed the chapter 11 petition on Monday and, according to information about the case on www.kccllc.net/ormet, the first hearing will be held 10:30 a.m. today before the Honorable Judge Mary F. Walrath in the United States Bankruptcy Court for the District of Delaware.
The Asset Purchase Agreement, filed with the court, allows Smelter Acquisition, LLC to purchase substantially all of Ormet’s assets. This is subject to higher or better offers as well as the approval of bankruptcy court. Ormet has received a total of $90 million of Debtor-in-Possession Financing (DIP). This sum includes $30 million Term DIP financing from Wayzata and $60 million DIP facility from Wells Fargo, “which will replace its $60 million pre-petition revolver with Ormet.” Ormet’s release on Monday states that the DIP financing should provide “sufficient liquidity to meet ongoing obligations and ensure that the company’s operations continue without interruption.”
These DIP loans would appear to become the property of Smelter Acquisition, LLC. The purchase price for Ormet’s assets under the Asset Purchase Agreement with Smelter Acquisition, LLC would consist of the “repayment or assumption of the DIP loans, credit bidding of $130 million of buyer securities, and payment of cash for certain fees and expenses to be incurred in the administration of the bankruptcy proceedings.” The release adds, “In addition, the buyer would assume specified normal course liabilities of the Company, but would not assume any of the Company’s legacy liabilities. It is not anticipated that the purchase price would be sufficient to provide any recovery to the Company’s shareholders.”
Tanchuk stated in the Tuesday phone interview that Wayzata funds is based out of Minnesota and has been a debt holder and an equity holder for a number of years. He describes them as a proposed sponsor, stating, “They believe in the business and they believe in the people and are helping us with additional funding.” He added, “The entity they are dealing with us on is Smelter Acquisition.
“This is part of the process,” he stated. “We are trying to reduce our costs and minimize any impact on the employees going forward.”
The Intelligencer reported Tuesday morning that the word of the bankruptcy filing came down to members of the USW through Director Dave McCall, who is the head of the United Steelworkers District 1. In his communication to the local union members he confirmed the following: “It is expected that Ormet will make the typical arrangements to continue paying wages and benefits to the work force and to pay suppliers and vendors. The USW’s attorneys will enter appearances in the bankruptcy case and will begin to monitor the case . . . our priority must be to remain at work to perform our job duties as safely and effectively always.”
McCall had added that the USW expects that this bankruptcy will be far different than the previous bankruptcy that occurred in 2004. He stated that in the 2004 bankruptcy, the former owners had attempted to implement a contract with huge wage and benefit reductions, and “it resulted in a 20-month-long strike.” McCall added that the current owners have taken a different approach.
McCall further explained that this sale will be subject to bids by other potential parties, adding that the proposed buyer “has agreed to assume our existing CBA, with certain changes. These changes do not include wages, health care, vacation, holidays, or seniority.”
Don Riggenbach, president of the Wetzel County Chamber of Commerce, seemed troubled but hopeful of the news of Ormet’s plan. Of the Chapter 11 filing, Riggenbach stated, “it’s never good for the area, especially with a plant the size of Ormet. It affects perception of the general economy.” However, Riggenbach stated, “I hope that this works out for the company. I hope it is a smooth transition so that our local people who work there will not feel the impact.”
Riggenbach stated that at a previous count, 147 of Ormet’s employees lived in Wetzel County, and he was sympathetic that they might be worried about their jobs. “I feel for those families,” he stated.
Previously, the WCCC had signed a resolution on Sept. 13 which urged “West Virginia political representatives to actively intervene in the potential loss of jobs from Ormet Corporation and the possible closure of this plant located in Monroe County, Ohio.”
This resolution had come after Ormet had encountered some dismal times, which included low market prices for the metal it produces, along with high electricity costs.
According to a previous article from The Intelligencer, The Public Utilities Commission of Ohio approved Ormet’s request to defer paying electric bills that were due for October and November, allowing the company to pay them in 17 monthly installments during 2014 and 2015. The company said these bills total about $27 million. However, the PUCO also stated that “any further Ormet requests for help from the PUCO must include a ‘business plan confirming its long-term ability to exist without rate-payer support.'”
Last week it was reported that Ormet owes at least $1 million for pensions and that it was in danger of being foreclosed upon because of missing a number of required pension payments.
The Intelligencer had reported that Marc Hopkins, a spokesman for the Washington, D.C.-based Pension Benefit Guaranty Group, said that his company is doing all it could to work with Ormet officials to ensure this wouldn’t happen. Furthermore, it was reported that Ormet had until Feb. 27 to resolve the problem, but the deadline could be extended if both parties agreed to such.
A glimmer of hope amongst Ormet’s troubled times was the fact that a layoff notice was allowed to expire in mid-January, according to published reports.
Last summer, Ormet had issued a Worker Adjustment and Retraining Notification Act regarding the possibility of laying off 998 employees. This would’ve included 837 union workers and 161 members. The WARN notice expired Dec. 31, though 237 workers had been laid off shortly after the WARN notice was issued.
Reasons cited for the WARN notice included the American Electric Power bills increasing by about $20 million per year, as well as declining aluminum prices. “I am seeing the cup as being two-thirds of the way full,” Tom Byers, president of USW Local 5724, had stated in a previous interview with The Intelligencer. “The price of aluminum has come up a bit since they issued that notice. We are hopeful that this can all work out in the end.” Byers had also noted that four of the six potlines were also running.
“This is a positive and necessary step for Ormet and is in the best interest of the Company, our employees, suppliers, customers, and other key stakeholder,” Tanchuk had said in Monday’s statement. “We will come out of this process stronger and better positioned for the future.”