Ormet committee settlement, reduced operations, name change approved

By Jim Witters

Wilmington, Del., July 23 - Ormet Corp. received approval for a settlement with its official committee of unsecured creditors and permission to cut operations at plants in Ohio and Louisiana during a July 23 hearing in the U.S. Bankruptcy Court for the District of Delaware.

The company also received approval to change its name and the case name to OC Liquidation, Inc. as part of its asset purchase agreement with Smelter Acquisition LLC, an affiliate of Wayzata Investment Partners LLC.

Committee agreement

The settlement brings general unsecured creditors an additional $1 million in recoveries and settles other issues surrounding the sale.

The agreement resolves the official committee of unsecured creditors' original objections to the $130 million sale of substantially all of Ormet's assets.

The court approved that sale on June 3, with the understanding that the debtors, buyer and the creditors committee had negotiated a term sheet that would be formalized and filed later.

The agreement calls for:

• A trust for general unsecured creditors that would receive a $2 million unsecured note due in 2019. Previously, the note was to be for $1 million.

Wayzata maintains its right to participate in the proportional share distribution of recoveries to general unsecured creditors;

• A warrant authorizing the general unsecured creditors to receive 2.5% of the equity of the buyer.

The warrant, called Warrant A, carries a "strike price equal to a par plus accrued recovery with respect to the pre-petition term loan obligations owing as of the petition date and debtor-in-possession obligations, plus any additional loans made by the Wayzata entities or their affiliates into Smelter Acquisition LLC post-closing to fund the existing operations of the business, including any exit financing;"

• A warrant equal to 2% of the equity of the buyer at a strike price equal to 200% of the Warrant A strike price.

The Wayzata entities waive their right to participate in the warrant recoveries;

• The buyer will become the sponsor of the so-called IUKA pension plan for Ormet Aluminun Mill Products Corp.;

• Unless the buyer assumes the remaining pension plans, "the committee agrees that they shall support, and shall not object to or solicit others to object to, the termination of the remaining pension plans;"

• The buyer agrees not to bring business-related avoidance actions;

• The parties will exchange mutual releases; and

• The buyer will fund the costs and expenses to administer the trust, not to exceed $100,000.

Operations curtailed

The closing of the sale has been delayed while Ormet awaits approval of a utilities rate change from the Public Utilities Commission of Ohio.

The high cost of electricity and the refusal of electricity provider AEP Ohio to consider alternatives that would allow Ormet to reduce its electricity costs created a financial burden for Ormet, the company said.

A recent entry by the attorney examiner of the Ohio utilities commission denying the company's request to modify its electricity purchase arrangement also dealt it a blow.

Ormet attorney Kim Martin Lewis said the company is losing money on every product at its aluminum smelter in Hannibal, Ohio, and its alumina refinery in Burnside, La.

Judge Mary F. Walrath approved the closing of two of the four lines Ormet is operating.

The move will help preserve the company's liquidity "for the next few weeks," Lewis told the court.

The next meeting of the Ohio regulatory agency is July 31, but Lewis said she will not know until July 25 whether Ormet is even on the agenda for that meeting.

"We still plan to close on the sale with Wayzata," she said.

The motion approved by judge Walrath allows the company to shut down two lines on Aug. 1. It also allows the company to further curtail operations as needed to preserve the value of the estate.

An attorney for the United Steel Workers Union told the court that the union understands the need to cut operations and supports the debtor's efforts to "preserve its assets in a way that will make restarting as easy as possible."

Ormet, a Hannibal, Ohio-based producer of aluminum, filed for bankruptcy on Feb. 26. The Chapter 11 case number is 13-10334.

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