RG Steel LLC, the fourth-biggest U.S. maker of flat-rolled steel, won court approval to borrow as much as $50 million to help fund operations while it works toward a sale of its assets.
U.S. Bankruptcy Judge Kevin Carey in Wilmington, Delaware, today approved the interim loan from existing lenders led by agent Wells Fargo Capital Finance LLC. Carey called milestones within the loan “aggressive,” which the company must meet as part of the financing requirements.
RG Steel, based in Sparrows Point, Maryland, listed assets and debts of more than $1 billion each in Chapter 11 documents filed yesterday when it sought court protection.
The steelmaker needed the loan to keep the mills operational while it pursues a sale of virtually all its assets. Deadlines include a sale by July 27.
“The lenders have agreed to provide a lifeline, however short,” so RG Steel “can pursue a sale,” Shaunna D. Jones, a lawyer representing the company, told Carey. “Conversations have been happening with potential purchasers.”
The bankruptcy loan gives the company as much as $30 million in available funds through June 15 and then as much as an additional $20 million from June 16 to July 27, court documents show.
Secured lenders, owed about $440 million, who are providing the bankruptcy loan and whose debt is secured in part by inventory and accounts receivable, will be paid down as proceeds from the inventory and receivables come in, according to Jonathan Helfat, a lawyer for the lenders.
The value of the inventory and receivables is “in the high $400 million- close to $500 million-” range, leaving $50 million for the company, Helfat said.
“We’re getting paid down, and the company is getting the ability to sell the assets,” Helfat told Carey. He said a sale could bring in “hundreds of millions of dollars.”
Renco Group Inc. bought the three-plant steelmaker from Russia’s OAO Severstal last year for about $1.2 billion, less than three years after Severstal acquired it for $2.2 billion. Renco created RG Steel to buy the mills, which can produce 8.2 million tons of steel a year.
The company and its affiliates are 75 percent-owned by Renco, with the remaining equity owned by Cerberus RG Investor LLC, according to court papers.
RG Steel was forced to seek bankruptcy protection because of “substantial liquidity problems” it began to face during mid-2011, “driven by a rapid decline in steel prices, while raw material prices remained at peak levels,” according to Chief Financial Officer Richard Caruso’s filing.
Last week, the company notified employees and the United Steelworkers union, which represents 88 percent of RG Steel’s 4,000 employees, that it would start firing workers on June 4.
“There are some rumors out there that I’d like to clarify” purporting RG Steel is “going out of business and will stop producing steel,” Jones said during the hearing. The company is “not going out of business in a week.”
The company’s operations include three main steel-producing plants in Sparrows Point; Warren, Ohio; and Wheeling, West Virginia. The company also has facilities in Mingo Junction, Martins Ferry and Yorkville, Ohio.
The Sparrows Point mill in Baltimore County is one of the largest single-site steelmaking facilities in the U.S., with an annual capacity of 3.9 million tons, according to court papers.
The Warren plant can make 1.4 million tons of crude steel a year and specializes in high-strength, alloy and heavy-gauge galvanized steel, court papers show. The facility in Wheeling produces 2.9 million tons of hot and cold flat-rolled steel and operates primarily as a steel-finishing plant, the company said.
The lead case is In re WP Steel Venture LLC, 12-11661, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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