Citation files pre-packaged Chapter 11 in light of auto industry production volume cuts

By Caroline Salls

Pittsburgh, March 14 - Citation Corp. made a pre-packaged Chapter 11 filing in the U.S. Bankruptcy Court for the Northern District of Alabama.

According to a company news release, Citation's recapitalization plan is intended to delever its balance sheet as part of a major step in the company's aggressive strategy to refocus operations, continue to win new business, build a strong financial base and invest in its core business segments.

"This plan, which is supported overwhelmingly by more than 95% of those affected, is the best possible outcome for the company," president and chief executive officer Ed Buker said in the release.

"The overwhelming support of our investors demonstrates the confidence they have in the future of Citation and their continued commitment to the long-term success of the company."

Buker emphasized in the release that the plan "reflects far different circumstances than those leading to the company's Chapter 11 filing of September 2004."

"We are in a much better position today than we were three years ago," Buker said in the release.

"We have managed our costs and won record levels of new business. However, the bank agreements signed when we exited Chapter 11 in 2005 did not contemplate the unprecedented production volume cuts within the automotive industry. Our recapitalization alleviates those requirements and gives us one of the strongest financial positions in our industry."

Citation said it plans to complete the bankruptcy process in 30 to 60 days.

Under the pre-packaged plan, Citation will convert $160 million of its roughly $190 million term debt to 100% of the common equity, with the remaining $30 million of debt converted into payable-in-kind debt that does not mature until 2013.

Citation said its existing asset-based revolving line of credit will continue under the same terms that currently exist.

Existing preferred and common equity holders will receive warrants in the reorganized company.

Plan creditor treatment

Treatment of creditors under the plan will include:

• Holders of $3.5 million in debtor-in-possession claims will recover 100% in cash;

• Holders of $1 million in administrative expense claims will recover 100% in cash;

• Holders of $2.4 million in priority tax claims will recover 100% in cash;

• Holders of $40.4 million in pre-bankruptcy revolving credit facility secured claims will recover 100% under a restructured credit agreement;

• Holders of $191 million in pre-bankruptcy secured term loan claims will recover 63% through their share of $30 million new payment-in-kind debt and 100% of the new common stock of reorganized Citation;

• Holders of $600,000 in other secured claims will recover 100% in reinstatement of the claim or surrender of the collateral securing the claim;

• Holders of $4.2 million in other priority claims will recover 100% in cash without interest;

• Holders of $33 million in general unsecured claims will recover 100% in reinstatement of the claim, to be paid in cash, or through having the claim offset against the company's claims against the general unsecured claimant;

• Holders of $8.5 million in preferred equity interests will recover 3% through a share of 100% of new class A warrants and 66 2/3% of new class B warrants;

• Holders of common equity interests will receive 33 1/3% of the new class B warrants; and

• Holders of equity interests in Citation's subsidiaries will retain their interests.

Under the plan, the company will obtain a new $65 million revolver, which will mature on May 23, 2009.

The revolver will include a $20 million sublimit for letters of credit and a $5 million sublimit for swingline loans.

Proceeds of the new revolver will be used to repay Citation's DIP facility, to fund some claim payments and for general corporate purposes.

The company will also issue $30 million in new six-year PIK debt, 1.5 million shares of new common stock, class A warrants for 10% of the new common stock and class B warrants for 15% of the new common stock.

DIP facility terms

In connection with the bankruptcy filing, Citation requested court approval of a $25 million debtor-in-possession facility from JPMorgan.

The DIP facility will terminate on the earlier of six months after the bankruptcy filing date, upon consummation of the company's plan of reorganization, upon termination of the company's use of cash collateral or upon occurrence of an event of default.

Interest will be either Prime rate plus 125 basis points or Libor plus 225 bps, at Citation's option.

Citation will pay a commitment fee of 50 bps on the average daily unused amount of the DIP commitment, a $25,000 agency fee, a 225 bps letter-of-credit fee and a 1% upfront fee.

The company obtained court approval to use up to $20 million of the DIP facility on an interim basis.

The final DIP hearing is scheduled for April 5.

The company's largest unsecured creditors include the Citation Corp. general unsecured trust, Birmingham, Ala., with a $10 million claim; David Joseph Co., Cincinnati, with a $1.66 million claim; DXP, Dallas, with a $1.37 million claim; and Beck Aluminum Alloys, Philadelphia, with a $1.06 million claim.

Citation is a Birmingham, Ala.-based steel company. Its Chapter 11 case number is 07-01153.

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