RG Steel LLC won preliminary approval of a bankruptcy financing plan on Friday as the troubled steelmaker works to find a buyer in the next two months for production facilities in three states, including its 1,200-worker Warren mill.
A bankruptcy judge in Wilmington, Del., also granted the company's motions to continue paying employees and vendors whose goods and services are critical to ongoing operations.
Shaunna Jones, an attorney for RG Steel, told Judge Kevin Carey that rumors that the company was going out of business and won't make steel after next week are not true.
"Absolutely the debtors are trying to pursue a sale process expeditiously," she said. "However, the debtors are not going out of business in a week."
But RG Steel's proposed financing deal with secured lenders who are owed some $450 million and have liens on virtually all of the company's assets leaves little room for missteps or delay, requiring a sale of the company's steel mill in Sparrows Point, Md., to be completed by July 27.
It also calls for RG Steel to use its best efforts to complete a sale of its Wheeling Corrugated division by the same date.
"The lenders have agreed to provide a lifeline, albeit short, to allow the debtor to pursue a sale process," Jones said. "The lenders believe there is a discreet period of time in which the company can make it happen."
Under the financing arrangement, which will be subject of a final approval hearing on June 21, as cash comes in and receivables are paid, RG Steel would use the money to pay down outstanding pre-bankruptcy debt, freeing up room to draw on supplemental financing to maintain operations during the bankruptcy.
Jonathan Helfat, an attorney for the secured lenders, said they hold collateral in the form of receivables and inventory valued at close to $500 million, more than the $450 million they are owed. The extra $50 million in borrowing capacity would be available to RG Steel as working capital. The lenders also have agreed to remove a $21 million reserve requirement previously imposed on RG Steel.
Helfat said that while the financing arrangement benefits the lenders by requiring the paydown of existing debt, it also provides the resources for RG Steel to complete a successful sales process over the next nine weeks.
"We are trying to cooperate to see if the company can get from here to there," he said, noting that RG Steel has identified potential bidders for its and has signed nondisclosure agreements with third parties.
Helfat also pointed out that the proposed bankruptcy budget honors RG Steel's obligations under a collective bargaining agreement with the United Steelworkers that covers roughly 3,500 of the company's 4,000 employees.
"No one's taking a haircut," he said.
RG Steel, the nation's fourth-largest flat-rolled steel manufacturer with an annual production capacity of more than 8 million tons, was formed in March 2011 as a wholly owned subsidiary of the privately held Renco Group.
The company sought bankruptcy protection a week after announcing it would idle factories in Maryland, West Virginia and Ohio and lay off thousands of employees.
RG Steel said it began having substantial liquidity problems last year as steel prices sank while raw material prices remained at peak levels, and that it also faced significant setbacks in restarting its Sparrows Point factory. A blast furnace there was idle when Renco acquired the former Bethlehem Steel facility from Russian-owned Severstal North America in a $1.2 billion deal that also included plants in Wheeling, W.Va., and Warren.