Hit by an extremely tough market for metals, Metals USA, Inc., Houston, TX, has filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court in the Southern District of Texas (Houston Division) on Nov. 14. Despite cost reduction and asset rationalization efforts to improve profitability as well as the company's initiatives to sell non-core assets, the company was not able to overcome the difficulties of a troubled metals market, a recessionary manufacturing economy, and overall uncertainties in the marketplace. The company said the filing is a necessary component of its strategy to create a sustainable capital structure, increase its liquidity position and improve its profitability.
"While the decision to file a Chapter 11 petition was a very difficult one, we believe that it was the best means to obtain the necessary time to stabilize the company's finances and to implement a strategic plan to ensure the long term viability of Metals USA for its constituents,' said J. Michael Kirksey, chairman and CEO.
Metals USA said it has sufficient cash flow and cash reserves to fund ongoing operations. The company says its key supplier relationships remain intact and it will continue its commitment to deliver quality products and just-in-time service to its customer base. The U.S. Bankruptcy Code allows a company that is subject to a Chapter 11 filing to continue to operate its business as usual and provides special protections for vendors, suppliers, employees and others who provide goods and services to that company after the filing.
"Chapter 11 provides us a process and framework where we can continue to conduct business operations while reorganizing our finances to put Metals USA on a sound footing for the future," added Mr. Kirksey. "Our employees have demonstrated their support to get Metals USA through these difficult times. We sincerely appreciate their loyalty and dedication."
Tough debt load
Metals USA intends to continue its business operations without interruption during the Chapter 11 process. The company lists total assets of $1.1 billion, and total liabilities of $724.7 million. Its largest unsecured creditors include US Trust Company, which holds $200 million in company bonds, and its primary suppliers. Nucor is listed as a creditor in the amount of $8.7 million; IPSCO Steel, National Steel Corp. and LTV Steel each are listed with claims exceeding $5 million.
The company in September announced plans to divest its niche specialty metals and aerospace businesses, which combined had annual revenues of $135 million. It also announced it would consolidate operations in a cost-cutting move.
On Mar. 14, 2001, Metals USA and each of its debtor-affiliates entered into two new financing agreements with Bank of America N.A. and PNC Bank N.A. These credit facilities gave Metals USA access to $450 million in the form of a $350 million revolving credit facility and a $100 million receivables securitization facility. Metals USA currently owes $250 million to the bank group. In its petition to the bankruptcy court, Metals USA asked for access to the cash collateral on these loans to fund ongoing working capital needs.
Debt reduction has been a major goal for the company. It reduced its debt load by $60 million this year and planned to use proceeds from its asset sales to further reduce debt, with a goal of a further $50-70 million reduction in debt over the next six months. It also had reduced headcount by 18% this year to lower operating costs.
Metals USA history
A primary consolidator in the metals processing market a few years ago, Metals USA formed as a simultaneous roll-up and initial public offering of eight regional metals distributors in July 1997. The original companies were Affiliated Metals, Interstate Steel Supply, Queensboro Steel,