Indalex Holdings Finance (“Indalex”), the second largest aluminum extruder in the United States, filed for bankruptcy in Delaware on March 20, 2009. As is common in the aluminum industry, Indalex products are made-to-order for its customers. According to pleadings filed in Indalex’s bankruptcy, its products are used in several different markets including transportation, construction, electric and consumer equipment. Read Indalex’s Declaration in Support of its First Day Motions (the “Declaration”) here.
Indalex lists its prepetition secured debt at $305 million. Two weeks prior to filing for bankruptcy, Indalex entered into a forbearance agreement with its lenders due to various loan defaults. The forbearance agreement was necessary as Indalex was unable to make interest payments on its term loans that came due on February 27, 2009. In exchange for entering into the loan forbearance, Indalex agreed to provide its lenders with weekly cash flows, retain a financial adviser and produce a restructuring plan.
Indalex’s two largest markets are the transportation and residential construction markets. According to its Declaration, the demand for Indalex’s products dropped 35% since 2006. Several economic factors led to the drop in sales, including volatility in fuel prices, the poor performance of the housing market and declining consumer confidence. Combined, these conditions lowered Indalex’s sales volume and profitability. Add to this the 50% drop in the price of aluminum since the second quarter of 2008, and bankruptcy became the only viable option.
Indalex’s relationship with one of its raw material suppliers, Alcoa, also played a significant role in Indalex’s decision to file bankruptcy. Alcoa provided aluminum to Indalex from 2007 to 2008. When Indalex failed to make payments according to agreed upon terms, Alcoa began collection efforts. In February of 2009, the parties entered into a forbearance agreement that included a confession of judgment provision for the benefit of Alcoa. After Indalex defaulted under the forbearance agreement, Alcoa commenced proceeding to confess judgment in excess of $6 million. Wasting no time, Alcoa quickly sought to have the judgment transferred to Georgia and Pennsylvania and had citations issued to discover assets on March 17, 2009. Three days later, Indalex filed for bankruptcy.
First Steps in Bankruptcy
Indalex’s “first day” bankruptcy motions are typical for a chapter 11 bankruptcy. Through its initial motions, Indalex seeks various forms of relief, including (i) retaining a claims agent, (ii) approving a cash management system, (iii) authorizing the payment of wages, (iv) honoring certain pre-bankruptcy obligations to customers, and (v) authorizing the use of cash collateral.
According to Indalex’s bankruptcy petition, its largest trade creditors include:
- Alba Alum. Bahrain … $7.1 million
- Alcoa, Inc. … $6.0 million
- Rito Tinto Alcan … $5.0 million
- Scholz Aluminum … $2.5 million
- Asia Aluminum Mfg … $1.8 million
- Trendset Inc. … $1.2 million
- Press Metal International … $1.1 million
- Conoco Resources Co. … $1.0 million
- Exco Extrusion … $720,591
- Ohio Valley Aluminum … $600,000
Indalex lists its total assets at $356 million and total liabilities at $456 million. This bankruptcy proceeding is before the Honorable Peter J. Walsh, former Chief Judge of the Delaware Bankruptcy Court.