Apex files bankruptcy; Sumitomo to buy San Cristobal mine, provide $35 million DIP loan

By Caroline Salls

Pittsburgh, Jan. 13 - Apex Silver Mines Ltd. and wholly owned subsidiary Apex Silver Mines Corp. filed for Chapter 11 bankruptcy Monday in the U.S. Bankruptcy Court for the Southern District of New York.

According to a company news release, Apex and the subsidiary have entered into a plan support agreement with Sumitomo Corp., 11 of the 12 lenders under Apex's San Cristobal project finance facility and the holders of roughly 65% of the outstanding principal amount of the company's 2.875% and 4% convertible senior subordinated notes due 2024.

Under Apex's proposed plan of reorganization, if the class of convertible subordinated noteholders votes to accept the plan, senior creditors under Apex's guarantees of the San Cristobal mine's project financing facility will waive and release their senior claims and convertible subordinated noteholders will receive a share of roughly $45 million in cash, plus common stock of the reorganized company.

However, if the class of convertible subordinated noteholders votes to reject the proposed plan, the class would receive an allocation of cash only after payment in full of the senior creditors.

In that scenario, the convertible subordinated noteholders would receive common stock of the reorganized company but might not receive any cash distributions.

San Cristobal mine sale

In addition, Apex said it has entered into a purchase agreement with Sumitomo and one of its wholly owned subsidiaries under which Sumitomo will buy all of the company's direct and indirect interests in the San Cristobal mine for $27.5 million in cash.

Under the purchase agreement, Apex will be released from liabilities associated with the San Cristobal mine, including its guarantee of San Cristobal debt, and will be reimbursed for $2.5 million in previously paid expenses.

Sale proceeds will be used, in part, to provide cash distributions to creditors of the Apex and Apex Silver Mines Corp.

The company said the purchase agreement also includes a no-shop provision that keeps the company from soliciting alternative transactions for the sale of San Cristobal to a third party.

If Apex decides to go with an alternative transaction, it will be required to pay a $16 million break-up fee and up to $2 million of Sumitomo's expenses.

Sumitomo can terminate the purchase agreement if the court does not approve the break-up fee provision by Jan. 22, if Apex's plan of reorganization is not confirmed by March 16 and if the sale does not close by March 31.

In connection with the purchase agreement, Apex Silver Mines Corp. will enter into a management services agreement with Sumitomo to provide management services to the San Cristobal mine following completion of the sale and emergence from Chapter 11 bankruptcy.

Apex said it will receive a $6 million annual fee and a potential annual incentive fee of $1.5 million.

The services to be covered under the agreement will include management of technical and operating activities, administrative support, information technology and local community relations.

The company said the management agreement will have an initial term of 12 months and can be terminated by either party thereafter.

If Sumitomo terminates the agreement, Apex will receive a $1 million termination fee.

DIP financing terms

Also, Sumitomo has agreed to provide up to $35 million of debtor-in-possession financing to fund Apex's portion of San Cristobal's operating costs, according to the release.

The DIP facility will bear interest at 15% and is secured by all of the company's assets.

The DIP financing will mature on the earliest of March 31, on Feb. 11 if a final order has not been entered, upon court approval of a plan of reorganization and upon Apex's decision to enter into an alternative sale transaction.

Apex said Sumitomo has also agreed not to exercise its remedies as lender under a San Cristobal project finance facility or MSC loan agreement until the DIP loan matures.

Sumitomo has also agreed to waive repayment of the DIP facility upon closing of the sale. However, if Apex chooses an alternative transaction, it has agreed to repay the DIP loan in full at the sale closing, as well as Sumitomo's $131.625 million claim as a lender to the San Cristobal mine.

Wells notice

Additionally, Apex said it has received a "Wells notice" from the Securities and Exchange Commission that states that the commission's staff intends to recommend that the SEC bring an enforcement action against the company in connection with an investigation launched in 2006.

As previously reported, the commission was investigating potential payments to government officials made by senior employees of one of Apex's South American subsidiaries in 2003 and 2004 in connection with an inactive, early stage exploration property.

On Monday, Apex said it was informed orally that the NYSE Alternext US LLC halted trading of the company's ordinary shares and planned to issue a notice of delisting in light of the company's decision to file for bankruptcy.

As a result, the last day that Apex's ordinary shares traded on the exchange was Jan. 9.

The company said it does not intend to appeal the decision, so the ordinary shares are expected to be delisted.

Debt details

According to court documents, Apex had $721.34 million in assets and $930.91 million in debt as of Sept. 30.

The company's largest unsecured creditors include senior lenders project finance facility posting agent Natixis, New York branch, with a project financing facility claim in an amount to be determined and indenture trustee the Bank of New York Trust Co., NA, Los Angeles, with a $180 million claim for the company's 2.875% senior subordinated notes due 2024 and a $109.87 million claim for the 4% senior subordinated notes due 2024.

Apex Silver Mines is a Caymans Islands-based mining company developing silver properties in Latin America. Its Chapter 11 case number is 09-10182.

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