Republic Engineered Products receives offer from Perry

By Carlise Newman

Chicago, Oct. 24 - Republic Engineered Products LLC said it has received an offer worth more than $225 million from Perry Strategic Capital Inc. to buy the company's assets.

The $225 million value of the sale includes cash and assumed liabilities. It comes from a newly formed entity, PAV Republic, Inc.

Republic filed a motion with the U.S. Bankruptcy Court for the Northern District of Ohio in Akron requesting stalking horse status for the bid and also requested quick treatment, saying it is a warranted emergency and would avoid the loss of 2,300 jobs.

Under Republic's purchase agreement, Perry will pay $40 million in cash, a further amount of up to $45 million to repay borrowings outstanding under Republic's debtor-in-possession credit facility less the amount refunded and assume Republic's $80 million of senior secured notes.

The Fairlawn, Ohio-based producer of bar steel has asked the bankruptcy court to assign a near-term deadline for the submission of other bids, as well as dates for an auction and a hearing at which the successful bid would be approved, as it indicates its situation requires swift attention.

Republic cited three "acts of God," two shutdowns and a fire and explosion, as part of what necessitates the sale. Then on Oct. 1, Republic's lenders said they would not honor company checks presented for settlement, beginning immediately.

Republic idled its blast furnace and began shut-down procedures of operations "to prevent safety hazards arising from their lack of funds."

Subsequently, some customers canceled or changed orders, and the company was required to reschedule business to compensate. This reduced the projected EBITDA for the next 15 months to less than $25 million from $70 million.

Republic said it tried to protect its bank lenders and loans and to maximize the opportunity for recovery. The company rolled up bank debt, kept it current, paid significant fees and allowed the banks' accountants to "roam throughout its offices."

As Republic tried to continue this course of conduct into the formulation of postpetition lending, it received notice the afternoon prior to the postpetition financing hearing that some banks holding 51% of the prepetition bank debt would not support the postpetition loan absent major changes and a significant reduction in the negotiated overadvance.

Not only did this new uncertainty disable the company from making important business decisions but the banks also recognized the damage and exposure it was facing, Republic said. At least one bank representative copied Republic on his reply to the purported "51%" representative advising him that the bank holds him "responsible for the consequences of this action."

The offer from Perry is subject to higher and better offers, which will be reviewed by Lehman Brothers, Republic's newly appointed financial advisor. Republic is working toward a December target date to obtain court approval of the sale and complete the transaction.

In accordance with bankruptcy rules, other companies will have an opportunity to submit bids through a court-supervised bidding process.

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