RG Steel Wins Approval of Asset Auction, Bankruptcy Loan

RG Steel LLC, the fourth-biggest U.S. maker of flat-rolled steel, won court approval to hold an auction to sell virtually all its assets.

U.S. Bankruptcy Judge Kevin Carey in Wilmington, Delaware, today approved guidelines that will govern the asset sale. Carey also gave RG Steel permission to borrow $50 million to help fund operations while it pursues a sale.

RG Steel resolved objections from the official unsecured creditors committee, which claimed in court papers that the financing and sale procedures would lead to a “fire sale.” The company and committee negotiated extensions to deadlines required by the bankruptcy loan, allowing more time for RG Steel to seek buyers for the assets and for creditors to investigate lenders’ claims. The financing, which was to have terminated on July 27, will end on Aug. 10.

“We’ve gained two to four weeks to auction the assets,” Matthew A. Feldman, an RG Steel lawyer, told Carey. “Sixty days felt quite tight and this gives us the additional time that the committee sought.”

The auction process will proceed on a “dual track” and there is an “absolute drop-dead date” of Aug. 24 to complete a sale, said another RG Steel attorney, Shaunna D. Jones. The key dates in the auction process fluctuate depending on whether the company can find a so-called stalking-horse bidder to set a benchmark for the auction.

Bid Deadline

All offers to compete in the auction must be received by July 25, and the company has until July 30 to negotiate a stalking-horse agreement, Jones said. If there is no agreement with an initial bidder, the company will hold an auction July 31, with a hearing to approve the sale on Aug. 7 or Aug. 8. Otherwise, the auction will be held Aug. 21, with the sale-approval hearing set for Aug. 23.

“If we have a stalking-horse bidder, we can take advantage of the longer time period,” Jones told Carey.

The bankruptcy loan, which received interim court approval June 1, gives the company as much as $30 million in available funds through June 15, and as much as $20 million more from June 16 to July 27, according to court documents.

Secured lenders, owed about $440 million, are providing the bankruptcy loan. Their debt will be paid down as proceeds from inventory and accounts receivables come in, Jonathan Helfat, a lawyer for the lenders, said at the June 1 hearing.

Steel Prices

RG Steel, based in Sparrows Point, Maryland, listed assets and debts of more than $1 billion each in Chapter 11 documents filed May 31. “Substantial liquidity problems” began in mid-2011, “driven by a rapid decline in steel prices, while raw material prices remained at peak levels,” according to a filing by Chief Financial Officer Richard Caruso.

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’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 lead case is In re WP Steel Venture LLC, 12-11661, U.S. Bankruptcy Court, District of Delaware (Wilmington).

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