Aluminum-oxide maker Sherwin Alumina Co. LLC filed for Chapter 11 in Texas bankruptcy court Monday after a precipitous fall in the price of its core product and a yearlong union employee lockout, aiming to sell its assets to an affiliate owned by parent Glencore.
The prepackaged plan with which Sherwin filed for bankruptcy contemplates a sale to senior lender Commodity Funding LLC, which is owned by Glencore Ltd., according to a statement Monday. Glencore also owns Sherwin. The deal would fully fund priority claims and would set aside $250,000 for general unsecured creditors, according to filings.
Commodity Funding has promised $40 million in debtor-in-possession financing, according to filings. Sherwin cited assets of $100 million to $500 million and pegged its liabilities in the same range.
In court papers Monday, Sherwin CEO Thomas Russell cited “challenging global market conditions” for aluminum oxide, also called alumina, which is the core ingredient in aluminum.
Its unionized employees are part of United Steelworkers and have been locked out since the fall of 2014, when bargaining negotiations broke down. The National Labor Relations Board ruled the lockout legal.
But United Steelworkers' Ben Lilienfeld vowed to take an active role in the bankruptcy. Lilienfeld said in a statement that the union and its workers know the aluminum industry is in dire times, but said the group was still disappointed that this was the turn of affairs taken after a year of talks.
“We are particularly concerned that the sale [to] an affiliate of Glencore subsidiary Commodity Funding LLC could be used as a means to sidestep its employee, retiree and pension obligations. If this is Glencore’s intention, this would be a gross misuse of the bankruptcy process,” Lilienfeld said.
The price per metric ton of alumina had fallen from about $350 in October 2014, when the lockout began, to $236 in November 2015, according to a letter the company wrote to United Steelworkers that month, saying the current price was “well below our cost of production.”
The company also said it's locked in disadvantageous contracts with steam and electric provider Gregory Power Partners LP and bauxite provider Noranda Bauxite Ltd. Bauxite is a raw material for alumina.
Commodities manufacturers and extractors have found themselves in challenging positions lately. Also on Monday,
Arch Coal filed for bankruptcy after striking a deal with a group of secured lenders that would eliminate more than $4.5 billion in company debt, reflecting the U.S. coal industry's continued struggle for financial stability amid weak demand and increased competition from other energy sources.
Sherwin is represented by James Sprayregen and Gregory Pesce of Kirkland & Ellis LLP.
Commodity Funding and Corpus Christi Alumina are represented by Curtis Mallet-Prevost Colt & Mosle LLP.
The case is Sherwin Alumina Co. LLC, case number 2:16-bk-20012, in the U.S. Bankruptcy Court for the Southern District of Texas.
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