Noranda Aluminium files for Chapter 11 bankruptcy

April 2016 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Following a protracted effort to revive the company’s fortunes, on 8 February Noranda Aluminium Holding Corporation, and a number of subsidiary businesses, filed for Chapter 11 bankruptcy protection in the US.

According to the company’s bankruptcy filing, Noranda’s financial difficulties stemmed from a number of considerable market challenges, including problems with the company’s primary production facility, pension liabilities and unfavourable contracts for bauxite, one of the raw materials the company mines that is necessary for aluminium production.

However, it was a “sustained downward pressure” on aluminium prices that had the most damaging effect on Noranda’s business, according to the company’s chief financial officer, Dale Boyles. “The debtors’ businesses have reached a point of unsustainability without assistance from this court and use of the restructuring tools provided by the Bankruptcy Code. This is due to a number of factors, principal among them is the sustained and dramatic decline in the price of primary aluminium.”

As a result of this downward pressure, the company’s net losses for 2015 reached approximately $258m. The company has also buckled under the weight of considerable labour costs, including a $159m pension liability.

In a statement announcing the filing, Noranda’s president and chief executive Kip Smith said, “In light of the challenging market conditions for the aluminium industry and the recent disruptions in our primary business operations, the board and management team, with the support of our principal lenders, determined that undertaking this court-supervised process is in the best interests of Noranda and its stakeholders.”

Noranda’s bankruptcy documentation listed assets and liabilities in the range of $1bn to $10bn. The company, based in Franklin, Tennessee, filed for Chapter 11 protection in the US Bankruptcy Court for the Eastern District of Missouri. The company also entered into an agreement with a number of its asset based lenders to secure up to $130m in debtor in possession (DIP) financing. Noranda has also secured a commitment of up to $35m in incremental DIP financing which has been provided by some of its existing term lenders.

The company has a laundry list of creditors. According to Noranda’s court filings, there are between 1000 and 5000 creditors in total. A list of the top 30 largest unsecured creditors noted that the US Bank National Association US Bank Global Trust Services is Noranda’s largest creditor with a claim of $175m, followed by Surelia Investments with a claim of $16.88m.

The company endured financial difficulty for some time before the filing. In January, Noranda announced that it would curtail production at its 253,000 tonne a year facility in New Madrid, Missouri if it was unable to reach a deal to help lower the plant’s electricity charges. Electricity costs have continued to plague Noranda’s smelting operations. Despite power rate relief being approved by the Missouri Public Service Commission in 2015, the company has continued to struggle with its electricity costs. Though all activity at the New Madrid plant will cease in March 2016, the company will be able to restart operations at the facility in the future, if conditions allow.

Noranda’s board of directors has appointed Robert M. Caruso as chief restructuring officer. Mr Caruso is a noted financial restructuring expert and a managing director at Alvarez & Marsal. Mr Smith noted, “We are fortunate to have the benefit of Bob’s experience and expertise in this crucial role. With resources he brings from Alvarez & Marsal, Bob’s involvement will serve the company and its stakeholders well as we proceed through the court-supervised process.”

Richard Summerfield