Aleris files plan; lenders to backstop $690 million rights offering

By Caroline Salls

Pittsburgh, Feb. 5 - Aleris International, Inc. filed its plan of reorganization Friday with the U.S. Bankruptcy Court for the District of Delaware.

According to a company news release, the plan filing positions Aleris to emerge from Chapter 11 bankruptcy by mid-year.

The company said the plan has substantial support from its creditors, as demonstrated by an equity commitment from investment funds managed by Oaktree Capital Management, LP, affiliates of Apollo Management, LP and Sankaty Advisors, LLC.

Under the equity commitment agreement, the backstop parties have agreed to backstop a rights offering of equity and debt of up to $690 million. Aleris said the backstop parties hold more than 67% of its U.S. roll-up term loan.

Proceeds of the rights offering will be used to provide working capital to the reorganized company and to fund plan payments, including repayment of Aleris' debtor-in-possession financing, payment of administrative expenses and funding of distributions to pre-bankruptcy creditors.

"The filing of the plan of reorganization with this level of creditor support represents a major milestone in our ongoing efforts to position Aleris to emerge from Chapter 11 with financial stability and an operationally sound and competitive foundation for the long term," Aleris chairman and chief executive officer Steven J. Demetriou said in the release.

"Since our filing last February, we have made significant improvements to our operations worldwide, reducing overhead, manufacturing costs and global headcount, as well as achieving significant productivity and customer service improvements.

"When Aleris emerges from Chapter 11, we will have eliminated all of our term loan and unsecured debt and will have a strong balance sheet, significantly reduced operating costs and greater financial flexibility.

"While we remain cautious in the near term due to continued uncertainty in the global economic environment, our restructured balance sheet, enhanced liquidity, operational improvements, and cost control will position Aleris well for long-term growth."

German unit bankruptcy

In order to facilitate the global restructuring of all of the debt on Aleris' balance sheet, the company said it also filed a voluntary Chapter 11 petition for its German holding company subsidiary Aleris Deutschland Holding GmbH.

Aleris Deutschland and its obligations are included as part of the overall Aleris plan of reorganization.

Creditor treatment

Under the plan:

• Holders of U.S. roll-up term loans, European roll-up loans and European term loans will have the option to receive cash or equity in Aleris and rights to participate in the rights offering for equity and notes;

• The reorganized company will emerge from bankruptcy as a privately held enterprise majority owned by existing creditors led by the backstop parties, which are the largest providers of the company's DIP term loan financing;

• All administrative expenses, including 503(b)(9) trade claims, will be paid in full;

• A convenience class will be created under which holders of unsecured claims other than debt claims of $10,000 or less can recover 25% or 50% of their allowed claims, depending on the amount of the 503(b)(9) administrative expenses paid;

• Holders of other general unsecured claims, including unsecured debt claims, will share in a $4 million cash pool;

• Aleris equity interests will be cancelled on the plan effective date with no distribution to holders; and

• Other U.S. equity interests and Aleris Deutschland equity interests will be reinstated.

The company said it will have a minimum of $233 million of liquidity through cash and an anticipated $500 million asset-backed revolving credit facility upon emergence.

The disclosure statement hearing is scheduled for March 12.

Aleris, a Beachwood, Ohio-based producer of aluminum rolled products and extrusions, aluminum recycling and specification alloy, filed for bankruptcy on Feb. 12, 2009. Its Chapter 11 case number is 09-10478.

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