Ormet files for Chapter 11 bankruptcy status
HANNIBAL, Ohio – Mike Tanchuk said the 860 union and management employees on the job at the Ormet Corp. plant have a brighter future now that the company hopes to be purchased by Wayzata Investment Partners.
One day after filing for restructuring in U.S. Bankruptcy Court in Delaware, Ormet officials believe they have a buyer in Minnesota-based Wayzata. Although the aluminum producer has found ways to deal with much of its debt, the major reason for the bankruptcy involves pension costs.
“It simply is not feasible for us to continue funding pensions like this,” Tanchuk, chief executive officer and president of Ormet, said Tuesday. “We have addressed most of the major cost issues we are facing, but we need to deal with this pension liability.”
Last week, officials with the Washington, D.C.-based Pension Benefit Guaranty Corp. confirmed Ormet owed at least $1 million worth of required pension payments. The agency has the authority to foreclose on some of the Ormet property to collect the amount owed.
“We will come out of this process stronger and better positioned for the future,” said Tanchuk, emphasizing Ormet believes day-to-day operations will continue during the Chapter 11 proceedings and sales process.
“We do not anticipate that any customers or suppliers will experience any change in the way we do business with them. We have secured adequate financing so that we will be able to pay our vendors in the ordinary course of business for all goods and services – and customers continue to receive the same quality products to which they are accustomed,” he added, noting he believes the court will allow the company to continue paying employee wages and benefits.
“Our goal is to strengthen our company with minimal impact on our employees,” Tanchuk said.
The aluminum plant now has four of its six potlines running, resulting in the 860 workers on the job. Tanchuk said the number when operating at full capacity is normally around 1,020.
Although Tanchuk said he could not confirm the total amount Wayzata is offering to pay for Ormet, published reports indicate the number could be in the neighborhood of $221 million. The bankruptcy court must approve the deal, which Tanchuk said he expects.
Tanchuk acknowledged the company’s high level of debt and legacy costs have been obstacles to achieving profitability. He said relatively low aluminum prices on the London Metal Exchange, combined with increased electricity rates, have made it impossible for Ormet to continue on its current course.
Last summer Ormet issued a Worker Adjustment and Retraining Notification Act notice regarding the possibility of laying off 998 employees, including 837 union workers and 161 management workers. The W.A.R.N. notice expired Dec. 31. At the time, Tanchuk said Ormet’s American Electric Power bills were going to increase by about $20 million per year.
The Public Utilities Commission of Ohio previously approved Ormet’s request to defer paying electric bills that would be due for October and November in 17 monthly installments during 2014 and 2015. The company said these bills total approximately $27 million.
“We got big support from the state of Ohio on that issue,” Tanchuk said regarding the electricity costs.
As Ormet’s electricity rate debate continues with the PUCO and AEP, the Ohio Consumers’ Counsel questioned the rate discount plan Ormet got from AEP in July 2009 for a period of 10 years. The organization believes other AEP customers ultimately will have to pay more than $305 million in higher rates over the 10-year period in order for Ormet to receive lower power rates.
“This is a positive and necessary step for Ormet and is in the best interest of the company, our employees, suppliers, customers and other key stakeholders,” Tanchuk added.