TK Aluminum faces defaults on credit facilities, 11 3/8% senior notes

By Caroline Salls

Pittsburgh, Jan. 16 - TK Aluminum Ltd., the indirect parent of Teksid Aluminum Luxembourg Sarl, SCA, will not be in compliance with some financial covenants under its senior credit facility and second-lien credit facility for the period ended Dec. 31, and it will not make the €14.9 million interest payment due Jan. 15 on its 11 3/8% senior notes due 2011, according to a company news release.

As a result of the credit facility defaults, borrowings will not be permitted under the senior facility without lender agreement.

According to the release, the senior and second-lien lenders can declare the amounts outstanding under the facilities due and payable.

The company said it is in discussions with the lenders' agents to obtain waivers of the defaults with a view to allowing it to complete the divestiture process.

To improve its near-term liquidity, TK Aluminum said it is exploring a variety of options, and management has obtained favorable terms from key customers that include accelerated payment terms and letters of credit to secure its aluminum requirements.

In addition, the company said it has made progress in securing a bridge loan and has executed a commitment letter for bridge financing with one source.

TK said it has also approached the agent for its existing lenders to discuss the possibility of a bridge loan.

The company said both its senior and second-lien lenders have expressed their support for a waiver of previous defaults under the facilities.

The company said its efforts to secure a bridge loan are continuing and it has executed a commitment letter with one source.

In addition, negotiations for the sale of the assets located in France, Germany and Italy are progressing.

Note default

Under the notes indenture, the company has 30 days to make the interest payment until non-payment constitutes an event of default, the release said.

The company said it is examining its options on the terms of a tender offer for the senior notes and intends to re-launch the offer on terms and conditions to be determined.

A variety of factors, including the deterioration of the automotive market, unfavorable foreign exchange movements, longer lead time to closure of the Nemak transaction and working capital and other funding requirements for remaining European operations have adversely affected the amount of funds available for the repurchase of the senior notes, which was originally expected to coincide with the Nemak transaction, the release said.

Accordingly, the company said it expects that the amount available for any notes repurchase will represent a significant discount from par.

On Nov. 2, the company entered into a definitive agreement to sell some assets to Tenedora Nemak, SA de CV for $495.9 million in cash, along with a synthetic equity interest in the Nemak business post-closing.

The assets to be sold include TK's operations in North America, except for its lost-foam operations in Alabama, which will be retained by the company, and its operations and interests in South America, China and Poland.

The transaction, which is expected to close during the first quarter of 2007, has been approved by both the board of directors of TK Aluminum Ltd. and by Nemak.

Also, on Dec. 13, the company executed a non-binding letter of intent to sell all of its equity interests in its subsidiaries located in France, Italy and Germany to one or more affiliates of Bavaria Industriekapital AG.

TK is the Carmagnola, Italy, parent of Teksid Aluminum Luxembourg, a maker of aluminum engine castings for the automotive industry.

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