Apollo Global Management LLC is leading the creditor group seeking to take control of Magnetation LLC after striking a deal with the iron-ore producer that filed for bankruptcy last week, according to two people familiar with the matter.
Apollo increased its share of the company’s bonds after AK Steel Holding Corp. wrote down the value of its stake in the joint venture with Magnetation Inc., one of the people said, asking not to be identified as the information isn’t public. The terms of the deal, revealed in a court filing last week without naming the creditors, showed that the first-lien noteholders will get majority stake in Magnetation’s stock and new second-lien debt.
AK Steel pulled the plug on the joint venture last month, taking a $256.3 million impairment charge on its 49.9 percent stake following a plunge in iron ore prices and citing Magnetation’s inability to access more capital. A slowdown in global demand resulted in a 47 percent drop in the price of the commodity last year.
Stefan Prelog, a spokesman for Apollo at Rubenstein Associates Inc., and Magnetation’s Chief Financial Officer Joe Broking declined to comment.
The secured creditors will get 75 percent of new common stock, 90 percent new convertible preferred stock and $235.5 million in second-lien notes.
Magnetation filed for protection on May 5 to help carry out the debt restructuring with the creditors, which will need the approval of a bankruptcy judge. The company said holders of more than 70 percent of its $425 million of senior secured notes due 2018 agreed to the restructuring, with some of them committing $135 million to help finance it during the bankruptcy.
The price of the 11 percent notes had slumped to as low as 23.25 cents on the dollar the day AK Steel announce the write down, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The securities had jumped to as much as 35 cents on the dollar the day Magnetation filed court papers in Duluth, Minnesota.
The company, which produces iron from processing mine waste, listed assets of as much as $500 million against debt of up to $1 billion, according to court documents.
AK Steel formed the joint venture with Magnetation in 2011 to operate a plant to produce iron-ore pellets to be used by AK Steel. The commodity is a critical raw material necessary for steelmaking.
“It’s a painful thing to impair assets,” Jim Wainscott, the chief executive officer of AK Steel said on an April 28 call with investors and analysts.
“We’ve heard repeatedly, whether it was from debtholders or from shareholders, concerns about overhang and cash” the company might put into the venture, he said. “We do not have an intention of buying the asset.”