RG Steel reaches global settlement, eyes dismissal of Chapter 11 cases

By Caroline Salls

Pittsburgh, Sept. 8 – RG Steel, LLC requested court approval of a global settlement agreement and asked the U.S. Bankruptcy Court for the District of Delaware to dismiss its Chapter 11 cases, according to a motion filed Tuesday.

RG Steel said it liquidated substantially all of its operating assets almost three years ago. Since then, the company said it has been trying to monetize its assets, including proceeding with hundreds of preference actions.

However, RG Steel said in the motion that “it is (and has been) patently clear that such efforts will not yield sufficient funds to pay the prepetition secured parties in full – let alone return any meaningful distribution to other creditors.”

The company said the committee has filed or sought standing to file some actions against the secured parties and managers for the benefit of unsecured creditors, but the ensuing litigation is expected to be lengthy and uncertain. In addition, RG Steel said there is no source of funding for that litigation.

“Given the debtors’ dwindling assets and the lack of continuing operations, the unlikelihood that further litigation could bring funds into the estates in the near term (if at all), and the debtors’ inability to fund a plan of reorganization, the parties realized that absent resolution on a global basis of the committee’s claims, the debtors’ efforts to exit these cases would be unavailing,” the motion said.

“If the settlement agreement is not approved and implemented, it is almost certain that creditors other than the prepetition secured parties will receive no recovery at all.”

Under the proposed settlement:

• The Cerberus pre-bankruptcy secured parties and Renco Group, Inc. agree to allow RG Steel to use $14 million of cash collateral to fund a distribution pool.

An additional $7.8 million of cash collateral will be used to pay budgeted expenses, and the company can use any funds in a non-professional fee carve out account to make distributions on account of administrative expense claims and fund post-bankruptcy operating expenses;

• Westchester Fire Insurance Co. agrees to contribute $3.4 million to the estate;

• RG Steel will cause $15.6 million to be deposited into a segregated account for the distribution pool; and

• A total of $600,000 of the distribution pool will be allocated to holders of administrative expense claims, $3 million to holders of other claims and $12 million on account of United Steel, Paper and Forestry, Rubber Manufacturing, Energy, Allied Industries and Service Workers Union, AFL-CIO-CLC parties’ claims.

A hearing is scheduled for Oct. 15.

RG Steel, a Sparrows Point, Md.-based flat-rolled steel processor, filed for bankruptcy on May 31, 2012. Its Chapter 11 case number is 12-11661.

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