Trustee to take control of smelter
Tuesday, August 5, 2003 8:05 AM PDT
By Pat Forgey
Printable version
E-mail this articleMichael Lynch's troubled two-and-a-half-year tenure at the helm of Longview Aluminum could be coming to an end without his ever having produced aluminum at a smelter that once employed 900 and was a mainstay of the local economy.
Federal Bankruptcy Court Judge Eugene Wedoff last week in Chicago ordered a federal trustee to take control of the plant after months of efforts by Lynch, the chairman of Longview Aluminum, to reorganize and save the company that filed for Chapter 11 bankruptcy protection in March.
Bill Brandt of Developmental Specialists, Inc. said Monday he expects to receive formal appointment as trustee as early as today. His Chicago firm already has begun researching the issue, but he said it was too soon to say whether he'd attempt to restart the plant or liquidate it.
A spokesperson for Lynch's public relations firm did not respond to an interview request.
Brandt said his firm has dealt with the metals industry before, including playing a role in the bankruptcy of the Vanalco smelter in Vancouver a few years ago, and knows how difficult a restart would be at current aluminum and power prices.
"The economics of aluminum smelters are not unknown to me," he said, He and his staff have had briefings already by some of the players in the Longview case.
The knowledge he has, so far, indicates that it would be difficult to restart the smelter, he said. Rising power prices, declining aluminum prices and debts rung up by Lynch during his ownership of the plant, along with disputes with the Bonneville Power Administration and the United Steelworkers of America, will all play a role in the restart decision, he said.
"There is no doubt that those conspire to make it a daunting prospect, but that's not to say it cannot be done," Brandt said.
Longview Aluminum needs a top turnaround expert, and that's Brandt's firm's expertise. Developmental Specialists is based in Chicago with eight regional offices, including London. Its nearest office is in San Francisco. The company's Web site lists more than 30 professionals working for it, and it has been a Chapter 11 bankruptcy trustee more than 50 times.
"Lawyers who know Mr. Brandt describe him as extremely creative at devising out-of-court resolutions to corporate disasters," said the New York Times in a quote provided by Brandt's firm.
To restart, the plant would need to have a reliable supply of inexpensive power, along with a substantial amount of operating capital, he said.
At one point Lynch was attempting to purchase power from a company which had hoped to build a power plant at the Port of Longview. But that company, Enron Corp., went bankrupt itself, and that plant never got built. As Lynch tried to keep Longview Aluminum going and pay huge legal bills, he sold off the plant's stocks of alumina and other materials which will have to be repurchased in order to restart.
For a plant the size of Longview Aluminum, it may take $25 million to $35 million in operating cash to restart, Brandt said, calling that "an enormous amount of capital."
A bankruptcy trustee's mission is to preserve the assets of a company that's filed for bankruptcy protection to the extent possible for creditors. Lynch and his partners remain formal owners of the company, but authority to make decisions will be in the trustee's hands. After any debts are paid, Lynch and the partners would receive anything left over, or, if the company were successfully reorganized, control of the plant would be returned.
In the case of Longview Aluminum, the company hasn't said what it thinks its primary asset, the smelter, is worth. There are claims against the company for tens of millions of dollars, however, including the Bonneville Power Administration and the Pension Benefits Guaranty Corp.
Two other Lynch metals companies, McCook Metals of Chicago and Scottsboro Aluminum of Alabama have filed bankruptcy and been liquidated after the appointment of trustees, but Brandt said he couldn't rule out yet an attempt to restart the Longview smelter. One of Longview Aluminum's creditors is a bankruptcy trustee handling the other cases and who claims Lynch used the assets of those companies to buy Longview Aluminum.
Lynch bought Longview Aluminum in early 2001 from Alcoa for $155 million and immediately accepted a payment of $226 million from Bonneville to shut it down to save power.
Until Development Specialists formally takes over, Lynch remains in day-to-day control, Brandt said, but under bankruptcy law, the company is not allowed to make any big decisions.
"Once a trustee has been appointed, it is incumbent on the debtor to act very conservatively in its affairs," he said.
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