RathGibson files Chapter 11; senior noteholders to get most new equity

By Caroline Salls

Pittsburgh, July 13 - RathGibson, Inc. and its domestic affiliates made a pre-packaged Chapter 11 bankruptcy filing Monday in the U.S. Bankruptcy Court for the District of Delaware.

According to a company news release, RathGibson's proposed plan of reorganization has the support of its pre-bankruptcy secured lender and key senior noteholders.

The company said the plan will significantly reduce its debt burden.

"The current management team inherited a significant debt load that cannot be sustained, particularly in these challenging financial markets," president and chief executive officer Mike Schwartz said in the release.

"As a result, we must take action to position the company for the future.

"Following a record year of performance in 2008 for RathGibson and the industry, we are experiencing demand levels reduced by 50%. This reduction in demand combined with our leveraged position necessitates this action.

"We will emerge from this process stronger than ever."

Plan terms

Under the company's proposed plan of reorganization, general unsecured creditors will be paid in full on undisputed amounts owed before the bankruptcy filing.

RathGibson's senior notes will be converted into a majority of the reorganized company's post-bankruptcy equity, subject to dilution to new common stock to be issued to the debtor-in-possession facility lenders and new common stock to be issued under a rights offering and to rights offering backstop parties, according to a statement filed by chief financial officer Jon M. Smith.

Smith said the company hopes to file the plan and move toward confirmation quickly.

DIP loan details

In conjunction with the bankruptcy filing, the company secured a commitment for an $80 million multiple-draw secured term debtor-in-possession facility from members of an informal noteholders committee. Wilmington Trust FSB is the administrative agent.

The DIP facility will mature on the earliest of Feb. 10, 2010, the effective date of a plan of reorganization, upon the sale of substantially all of the company's assets and 45 days after the filing date if a final order has not been entered.

Interest will be either Base rate plus 750 basis points or Eurodollar plus 850 bps, at the borrower's option.

Proceeds will be used to fund operating, working capital and capital expenditure needs during the company's bankruptcy.

RathGibson is seeking interim access to $65 million of the DIP financing.

Company debt

RathGibson had $305.1 million in total assets and $319.2 million in total debt at April 30.

The company's largest unsecured creditors are indenture trustee The Bank of New York, with a $209.2 million debt securities claim and Huntington Alloys Corp. of Huntington, W.V., with a $1.21 million trade claim.

RathGibson is a Lincolnshire, Ill.-based manufacturer of highly engineered stainless steel, nickel, and titanium tubing. Its Chapter 11 case number is 09-12452.

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