Hussey Copper Corp. Files For Chapter 11 Protection

Hussey Copper Corp. and five affiliated companies - Hussey Copper Ltd.; OAP Real Estate, LLC; Cougar Metals, Inc.; Orbie Trading, L.P.; and Hussey Exports Ltd. - voluntarily filed for chapter 11 bankruptcy protection on Tuesday in Delaware.  The companies, based in Leetsdale, Pennsylvania (located outside of Pittsburgh, describe themselves in court filings as "one of the leading manufacturers of copper products in the United States.

More details on the companies, their DIP financing, and their plans for the bankruptcy cases after the jump.

Company Background

Hussey Copper was founded in Pittsburgh in 1848.  The companies, which operate one manufacturing facility in Leetsdale and two facilities in Eminence, Kentucky, manufacture "a wide range of value-added copper products and copper-nickel products including":

• sheet, strip, plate and bar,
• certain alloys,
• architectural products, 
• tape/fin (used in power cable and heat exchanger products),
• fabricated products, and
• gaskets.

Collectively, the companies have over 500 full-time employees.  Approximately 370 of the employees are covered by one of three collective bargaining agreements with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (United Steelworkers, AFL-CIO).  Those collective bargaining agreements expire between November 2011 and November 2013.  The companies are also the sponsors of two defined benefits plans for employees.  One of the defined benefits plans was frozen as of January 1, 2004 and the other was frozen as to certain employees effective as of January 10, 2011.  Collectively, the pension plans are underfunded by less than $200,000.

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According to court filings, Hussey has experienced financial difficulties over the last three years "as a result of the economic downturn and due to related fluctuations in the price of copper."  Operating results for the last three full calendar years:

• Consolidated annual revenue:
• 2008: $453.6 million
• 2009: $308.4 million
• 2010: $381.9 million
• Net income:
• 2008: $3.1 million
• 2009: $1.1 million
• 2010: ($3.0 million) (loss)

Top 20 Largest Unsecured Creditors (Consolidated)

These are the creditors which Hussey Copper Corp. and its affiliates identified as holding the twenty largest unsecured claims on a consolidated basis (with amount and nature of the claim):

1. Metal Management Pitt, Inc.: $9.1 million (trade debt)
2. CMC Recycling: $2.7 million (trade debt)
3. H K P Metals Inc.: $2.6 million (trade debt)
4. Tri State Metal Company Inc.: $1.6 million (trade debt)
5. Wimco Metals Inc.: $1.5 million (trade debt)
6. United Scrap Metal Inc.: $1.3 million (trade debt)
7. Cronimet Trading Corp.: $1.0 million (trade debt)
8. Metal Green Recycling Ind.: $700,000 (trade debt)
9. Emil A. Schroth Metals Inc.: $530,000 (trade debt)
10. Cambridge Lee Industries: $530,000 (trade debt, subject to set-off)
11. Triple M Metal Inc.: $490,000 (trade debt)
12. Jefferies Bache Financial Ltd.: $410,000 (contractual liability)
13. Crown Trading Services Ltd.: $340,000 (trade debt)
14. Attar Metals Inc.: $320,000 (trade debt)
15. Sam Dong Ohio Inc.: $320,000 (trade debt)
16. Claridge Products & Equipment: $280,000 (trade debt)
17. Gindre Copper Inc.: $260,000 (trade debt)
18. Beaver Valley Slag Inc.: $170,000 (trade debt)
19. Hickman Williams and Company: $170,000 (trade debt)
20. Diamond Hurwitz Scrap LLC: $160,000 (trade debt)

Terms of Proposed Debtor-In-Possession (DIP) Financing

Hussey Copper intends to use the chapter 11 process to sell its assets (discussed below).  In order to allow them time to complete a sale and undertake a competitive bidding process, the companies have secured a commitment for a DIP financing facility from certain of their pre-bankruptcy lenders and they are also seeking authority to use existing cash collateral.  The lenders - PNC Bank, N.A. (also acting as the DIP agent), Wells Fargo Capital Finance, LLC, and Bank of America, N.A. - have agreed to provide a secured revolving loan of up to $50 million.  

Summary of key terms:

• Interest
• Alternate Base Rate (defined below) plus 5.0%
• Alternate Base Rate: for any day, the highest of (i) the base commercial lending rate of PNC, (ii) the sum of the Federal Funds Open Rate plus one-half of one percent (0.5%), and (iii) the sum of the Daily LIBOR Rate plus one percent (1.0%).  
• Fees
• Letter of Credit Fee: average daily face amount of each outstanding letter of credit multiplied by 5.0% per annum
• Commitment Fee: $1 million (payable $500,000 upon entry of an interim order and $500,000 upon maturity)
• Facility Fee: For any month where the average daily unpaid balance of the DIP loan and undrawn amount of any outstanding letters of credit is less than the maximum revolving advance amount, one-half of one percent (0.50%) per annum multiplied by the difference between the maximum revolving advance amount and the average daily balance.
• Collateral Monitoring: $2,000 per month
• Appraisal Fees: Reimbursement of fees and out-of-pocket expenses and costs of any independent appraisal firms engaged by PNC
• Collateral Evaluation Fee: $850 per person per day for each person employed by PNC to perform any collateral evaluation by PNC or for its benefit
• Costs & Expenses: Reimbursement of all costs and expenses, including reasonable attorneys' fees and disbursements, incurred by PNC on its behalf or on behalf of the lenders
• Maturity
• Earliest to occur of:
• November 28, 2011
• effective date or substantial consummation of a plan of reorganization
• closing of a sale of substantially all of the debtors' assets
• date of conversion of the cases to chapter 7
• date of dismissal of the bankruptcy cases
• 21 days after entry of the interim DIP order if a final order has not been entered
• such earlier date upon which the DIP obligations come due pursuant to the DIP agreements

Bidding Procedures and Sale Process

As noted above, Hussey Copper intends to use the bankruptcy cases to sell substantially all of the companies' assets.  To that end, prior to filing for chapter 11 protection, the companies entered into an Asset Purchase Agreement with KHC Acquisition, LLC pursuant to which KHC has agreed to act as a stalking horse bidder for the assets.  Under the terms of the proposed agreement, which is subject to higher or otherwise better offers, KHC would pay $84.7 million (subject to adjustments) to acquire substantially all of the companies' assets free and clear of liens and encumbrances.  If KHC is not ultimately the winning bidder, the proposed agreement would entitle KHC to a combined break-up fee/expense reimbursement equal to the greater of $3 million or 3.0% of the ultimate purchase price.  If, however, Hussey Copper would decide to abandon the sale completely and proceed with a stand-alone plan of reorganization, KHC would instead be entitled to an expense reimbursement not to exceed $2 million.

As a result of the two-month maturity of Hussey Copper's DIP facility (see above), the sale is being sought to be completed on a relatively brief timeframe, which is laid out below.  In support of the timeline, Hussey notes that it retained SSG Capital Advisors, LLC as an investment banker in April of this year and that SSG began reaching out to potential acquirers in mid-May.  In total, SSG contacted 134 parties.  Of those, 43 received a confidential informational memorandum prepared by SSG and five submitted letters of intent.  That process resulted in the proposed sale to KHG.

Hussey Copper has proposed the following sale timeline:

• November 11, 2011 at noon (Eastern): Deadline for competing bidders to submit a "bid package" (including, among other things, (1) a binding offer to acquire the assets which exceeds KHC's bid by at least $4.25 million and (2) a significant good faith deposit) 
• November 14, 2011: Auction (if competing bids received)
• November 15, 2011 at 4:00 p.m. (Eastern): Deadline to object to the sale, assumption and assignment of a contract to the purchaser, or the debtors' proposed cure amount
• November 16, 2011: Sale Hearing

Copies of all significant court filings in the Hussey Copper bankruptcy cases can be accessed by visiting our website: http://www.chapter11cases.com/Hussey-Copper-Corp_c_28965.html

Among the key court filings currently available, you will find:

• Affidavit in Support Declaration of Dalton T. Edgecomb in Support of First Day Motions for Relief Filed By Hussey Copper Corp.
• Motion for Entry of an Order (A) Authorizing the Sale of Substantially All of the Debtors' Assets, Free and Clear of Liens, Claims, Encumbrances and Interests, (B) Approving Asset Purchase Agreement and (C) Granting Related Relief
• Motion for Entry of an Order (A) Approving Bid Procedures Relating to the Sale of Substantially All of Debtors' Assets; (B) Scheduling Hearing to Consider Sale and Approving the Form and Matter of Notices; (C) Approving Expense Reimbursement Provision and Break-Up Fee, If Applicable; and (D) Granting Related Relief
• Motion of the Debtors for Interim and Final Orders (I) Authorizing the Debtors to (A) Obtain Post Petition Financing on an Interim Basis and (B) Utilize Cash Collateral of Pre-Petition Secured Parties on an Interim Basis, (II) Granting Adequate Protection, (III) Modifying the Automatic Stay, (IV) Granting Related Relief, Pursuant to 11 U.S.C. Sections 105, 361, 362, 363(c), (d) and (e), 364(c), 364(d)(1), 364(e) and 507(b), and(V) Scheduling A Final Hearing Authorizing Financing on a Final Basis Pursuant to Bankruptcy Rule 4001
• Motion of the Debtors for an Order (A) Authorizing Debtors to Pay Certain Prepetition (I) Wages, Salaries, Bonuses and Other Compensation, (II) Reimbursable Employee Expenses and (III) Employee Medical and Similar Benefits; (B) Confirming that the Debtors May Continue Prepetition Employee Programs in the Ordinary Course of Business; and (C) Directing Banks and Other Financial Institutions to Honor All Related Checks and Electronic Payment Requests
• Motion of the Debtors for Entry of an Order Authorizing the Debtors to Pay, in the Ordinary Course of Business, (A) Prepetition Claims of Shippers and Warehousemen and (B) Prepetition Claims for Goods Delivered Postpetition
• Motion of the Debtors for Entry of Interim and Final Orders Pursuant to Sections 105 and 366 of the Bankruptcy Code (I) Determining that Utility Providers are Adequately Assured of Future Performance, (II) Enjoining Utility Providers From Altering, Refusing, Discontinuing or Interfering With Utility Service, and (III) Establishing Procedures for Determining Requests for Additional Adequate Assurance

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