TK Aluminum to make required tender for 11 3/8% notes

By Jennifer Chiou

New York, April 18 - TK Aluminum Ltd., the indirect parent of Teksid Aluminum Luxembourg Sarl, SCA, announced that it is required to start a tender offer for its 11 3/8% senior notes due 2011 using some proceeds from asset and operations sales.

On March 19, the company said it completed the sale of some of its North and South American assets and operations to Alfa, SAB de CV subsidiary Tenedora Nemak, SA de CV and received required consents for note indenture changes.

TK said it must tender for the notes within 30 days of the closing.

The company said it received cash proceeds linked to the sale of Teksid Poland of $29.9 million plus $3 million as the result of the issuance of a loan by Alfa.

Under the revised terms of the Nemak transaction, the aggregate purchase price allocated to the sale of Teksid Poland was $56.1 million in cash plus the issuance of an additional 0.83% synthetic equity interest in the Nemak business.

As already announced, TK Aluminum was obligated to sell its assets and operations in Poland and a 70% equity interest in its Chinese joint venture.

TK is entitled to receive a total of $485 million in cash, subject to adjustments, together with a synthetic equity interest in the Nemak business post-closing, which, after giving effect to the completion of Nemak's acquisition of Norsk Hydro, is expected to be no more than 6.68%, according to a company news release.

The synthetic equity interest is subject to downward revision for various indemnities, guarantees and repayment of the $25 million loan issued in connection with the transaction, and it is subject to adjustment for dilutive events, changes in capitalization and the occurrence of some major transactions. In addition, Nemak must provide TK Aluminum with limited assistance, including the assumption of up to $2 million in liabilities in connection with the reorganization of TK's remaining operations.

Alfa has also agreed to provide credit enhancement to support up to $25 million of letters of credit in favor of commercial counterparties to replace arrangements under TK's senior credit facility.

TK Aluminum previously said consents for 82% of the €240 million principal amount of its outstanding 11 3/8% notes were validly delivered in its solicitation, which expired on March 8.

As a result, TK and the indenture trustee executed a supplemental indenture, effective March 15.

The company said the supplemental indenture allows for the Nemak transaction and implements the other terms that were agreed to by an informal committee of noteholders.

As consideration for the initial sale of assets and operations in North and South America being purchased, TK said it received $414 million in cash along with a 5.64% synthetic equity interest in the Nemak business.

Under the revised terms of the Nemak transaction, the company would be entitled to additional cash consideration and additional synthetic equity interest in connection with subsequent sales of some of its remaining operations and interests.

According to the release, the proceeds from the initial sale were used in part to fund the repayment of some company debt, including the first-lien revolver and second-lien senior secured credit facilities and required repayments under capitalized leases.

Proceeds will also be used to fund the anticipated tax payments as a result of this transaction, and various other payments, including fees and expenses, and to begin the tender offer required by the supplemental indenture.

In connection with the Nemak transaction, Teksid Aluminum has continued to seek alternatives for its remaining operations, principally located in France, Italy and Germany.

As previously reported, the company is in discussions with potential purchasers of these operations.

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

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