Kaiser Aluminum $300 Million DIP Loan Under Fire From Creditors
WASHINGTON -(Dow Jones)- Kaiser Aluminum Corp.'s (KLU) $300 million debtor-in- possession loan has come under fire by the company's unsecured creditors' committee and a trustee for $397 million in senior notes.
Among the items at issue are the amount of fees related to the loan with Bank of America N.A., along with guarantees that would be provided by two Kaiser affiliates that aren't in bankruptcy.
The U.S. Bankruptcy Court in Wilmington , Del., is scheduled to consider approving the loan at a final hearing Tuesday. The court had given Kaiser interim approval on Feb. 13 to use $100 million of the loan pending the final hearing.
Limited objections to some of the loan terms were filed by the committee representing Kaiser's unsecured creditors and U.S. Bank National Association, which serves as trustee for three series of senior notes issued by Kaiser unit Kaiser Aluminum & Chemical Corp. Both objections question guarantees that would be provided to the DIP lenders by Kaiser affiliates Alpart Jamaica Inc. and Kaiser Jamaica Corp., which aren't in Chapter 11.
When Kaiser filed for Chapter 11 on Feb. 12 , it asked the court to prohibit its noteholders from enforcing their guarantees against the Jamaican subsidiaries. Kaiser said moves against the Jamaican units, including a possible involuntary bankruptcy filing, could prevent the company from getting materials it needed to meet customer needs.
A final hearing on that request is scheduled for April 11 , according to court papers. A temporary restraining order remains in effect until the hearing.
In addition to questions about the guarantees, the committee believes that since Kaiser probably won't need to borrow under the DIP loan funds for over a year, "the fees being charged for what is in essence a stand-by facility pursuant to which letters of credit will be issue are excessive." The committee also said the term of the two-year loan is too short.
In a response to the objections, Kaiser said it solicited proposals from four "sophisticated" financial institutions active in the market for debtor-in- possession financing facilities. Bank of America (NYSE: BAC) offered the best deal, including lower fees and spreads, Kaiser said.
Kaiser said that all fees were described in court papers and that the loan, arranger and standby fees are typical.
Kaiser also said that the Bankruptcy Code doesn't prohibit non-bankrupt affiliates from providing guarantees. To address some of the objecting creditors' concerns, Kaiser said that if the DIP lenders seek to enforce the guarantees, the restraining order prohibiting such actions by other creditors would become voided.
In addition to the DIP loan, the court on Tuesday will consider Kaiser's request to retain Lazard Freres & Co . LLC as financial advisers and investment bankers. Objections to the request, which question the proposed fees and indemnification provisions, were filed by the committee and the U.S. Trustee overseeing the administration of the Chapter 11 case.
Kaiser's Chapter 11 filing listed assets of $3.3 billion and debts of $3.1 billion.
The company had said it faced significant near-term debt maturities during an unusually weak aluminum market and that it had become increasingly burdened by asbestos litigation and its growing obligations for retiree medical and pension costs.