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TK Aluminum Ltd. Announces an Update on Liquidity Situation and Status of Potential Asset Sales Transactions, Including Discussions With Creditors

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2007-02-02 21:08:46     
Teksid Aluminum S.a.r.l., S.C.A.

TK Aluminum Ltd., the indirect parent of Teksid Aluminum Luxembourg S.a r.l., S.C.A., today announced an update on its liquidity situation, as well as the status of potential asset sales transactions, including related discussions with relevant creditor constituents.

The Company's previously announced efforts to secure a bridge loan are continuing, as it is in discussions with existing lenders to provide such financing, subject to certain conditions. In addition to the Nemak transaction, negotiations for the sale of the assets located in France, Germany and Italy are continuing.

If the Company is unable to secure interim financing and/or close the Nemak transaction with the consent of holders of a requisite amount of the Company's EUR240 million of 11 3/8% Senior Notes due 2011 (the "Senior Notes") by the end of February 2007, its ability to fund operations will be impaired. In addition, there can be no assurance that the Company will ultimately be successful in obtaining additional capital resources or that the Nemak transaction will be consummated within the time period necessary to provide the Company with sufficient liquidity to continue to fund operations, or at all. In light of the foregoing, the Company is examining all strategic options, including the commencement of judicially supervised restructuring proceedings.

Liquidity Facility and Covenants Compliance

The Company announced today that it is continuing to work with both its senior and second lien lenders on an interim financing solution to manage its near term liquidity requirements. Any such liquidity facility will require approval by the holders of the Senior Notes of a modified Nemak transaction as discussed below and such liquidity facility, as well as consent of the Company's senior and second lien lenders. There can be no assurance that such consents or any such facility will be obtained. As the Company previously advised, borrowings under the existing senior credit facility will not be permitted without agreement from its lenders, due to non-compliance with certain financial covenants for the period ended December 31, 2006. In addition, the Senior and, subject to certain limitations, Second Lien lenders have the ability to exercise all of their rights thereunder, including requiring the amounts outstanding under the senior credit facility and second lien credit facility to become due and payable. In light of the discussions with its existing lenders, the Company has elected to terminate the previously announced commitment letter for bridge financing from another potential funding source.

Since the Company's December 13, 2006 announcement, the Company's European operations have used significant amounts of its cash and estimates that its cash and cash reserves position at January 31, 2007 is approximately EUR18.0 million, down from EUR55.6 million at December 31, 2006. The Company estimates that it had an adjusted EBITDA loss of EUR11.2 million for the quarter ended December 31, 2006, as compared to an adjusted EBITDA of EUR19.3 million for the quarter ended December 31, 2005. The Company has and continues to pay suppliers, factors and vendors in the ordinary course of business, consistent with past practices.

Divestiture Process

As previously announced, on November 2, 2006, the Company entered into a definitive agreement to sell certain assets to Tenedora Nemak, S.A. de C.V., a subsidiary of ALFA, S.A.B. de C.V. Under the terms of the existing agreement, the Company is to sell its operations in North America (except for its lost-foam operations in Alabama, which will be retained by the Company), and its operations and interests in South America, China and Poland for consideration of $495.9 million in cash, together with a synthetic equity interest in the Nemak business post-closing. However, in light of the Company's liquidity position, the Company is currently engaged in further discussions with Nemak regarding amendments to the transaction in order to accommodate an accelerated closing process. The Company is seeking amendments that would accelerate the receipt of a portion of the Nemak sale proceeds by providing for separate closings for the businesses in respect of which regulatory approvals have been obtained or are expected to be obtained in the near term, with the balance of the transaction being completed, in one or more stages, once the remaining regulatory approvals have been obtained. In addition, the Company is seeking amendments with respect to other aspects of the existing agreement, including the allocation of consideration among the various businesses to be sold and the elimination of a condition requiring the Company to offer at least 95% of par in a tender offer for the Company's Senior Notes. Completion of the Nemak transaction will require the cash settlement of certain loans from our French operating subsidiaries to our Brazilian, Mexican and United States subsidiaries.

In addition, due to the liquidity situation, the Company expects its outstanding factoring at the initial closing to be in excess of the maximum limits allowed under the Nemak agreement without a reduction in the cash purchase price. The Company intends to elect to reduce the amount of the synthetic equity interest in lieu of reducing the cash purchase price for all or a portion of the estimated net debt. As such, the Company would expect to hold no greater than a synthetic 9% equity interest in the Nemak business, subject to downward revision for various indemnities, guarantees and repayment of a $25 million loan issued in connection with the transaction. The synthetic equity interest is also subject to adjustment for certain dilutive events changes in capitalization and the occurrence of certain major transactions. The value of the synthetic equity interest could be affected should Nemak's acquisition of Norsk Hydro ASA occur. There can be no assurance that a transaction with Nemak on acceptable terms will be completed.

As reported on December 13, 2006, the Company executed a non-binding letter of intent to sell to one or more affiliates of BAVARIA Industriekapital AG all of the Company's equity interests in its subsidiaries located in France, Italy and Germany. The consummation of the transaction is subject to a number of conditions, including execution of a definitive agreement, regulatory approvals, completion of satisfactory due diligence, and approval by the board of directors of the Company of the definitive agreement and all transactions contemplated thereby. The subsidiaries subject to the transaction had an estimated adjusted EBITDA loss of approximately EUR20.7 million in the aggregate for the quarter ended December 31, 2006. The transaction contemplates a purchase price of EUR1, that Teksid Aluminum would deliver these companies at closing with at least $35 million of cash, net of any outstanding indebtedness, on hand and that Teksid Aluminum would have limited post closing obligations in respect of the companies sold to Bavaria. Teksid Aluminum believes this transaction represents the most attractive and cost effective means for the disposal of these businesses due to the significant funding requirements and expense associated with continued ownership. There can be no assurance that a transaction with Bavaria will be completed.

Revised Tender / Consent Solicitation

As previously described in Teksid's press release of January 15th, 2007, due to a variety of factors the amount of cash that will be available for distribution to the bondholders has been adversely affected to a substantial extent relative to the amount contemplated by the original tender offer. Factors contributing to this significant reduction in financial liquidity include, but are not limited to, the following: (i) the deteriorating automotive market and corresponding under-performance of operations, (ii) unfavorable foreign exchange movements, (iii) longer lead time to closure of the Nemak transaction, and (iv) working capital and other funding requirements of the European operations in light of these factors. The Company intends to commence a consent solicitation to, among other things, seek bondholder consent to allow the Nemak transaction to occur, but, in light of the time constraints described above, will not effect a concurrent tender offer.

As previously announced, the Company anticipates that the funds available for distribution will result in a recovery to holders of Senior Notes at a significant discount to par. The Company intends to distribute available cash to the bondholders in a prudent and expeditious manner as possible, taking into account ongoing operating obligations of, and contingencies related to, the remaining European operations, particularly in the event a transaction with Bavaria is not completed. To such end, the Company will seek to modify the existing indenture to permit the Nemak transaction and obligate the Company to, within a short timeframe, launch a tender offer for a portion of the bonds at par using the available net proceeds from certain asset sales as and when they are completed, subject to the requirements for maintaining adequate liquidity in the Company. In addition to funding the Company's ongoing operating obligations, proceeds from the initial sale will be used to fund the redemption of TK Aluminum's current outstanding debt, including the senior secured credit facilities (both the first lien revolver and the second lien facility) and any bridge facility, required repayments under capitalized leases, anticipated tax payments as a result of the transaction, and various other payments, including fees and expenses.

It is presumed that if holders of a significant amount of the Senior Notes tender their Senior Notes in response to this initial offer, only a pro rata portion of such notes will be redeemed. The Company estimates the maximum amount of cash available for distribution to bondholders (including any unpaid interest) would be approximately EUR500 to EUR550 per every EUR1,000 of Senior Notes, assuming completion of the Nemak sale (other than the sale of our operations in China and Poland) by February 28, 2007, completion of the sale of our operations in China and Poland by March 31, 2007 and completion of the Bavaria transaction by March 31, 2007 and excluding any cash that may be subsequently realized from the synthetic equity interest and other remaining assets. The ultimate amount available for distribution to bondholders is uncertain as there are a number of factors that may affect the bondholders' recovery, including whether and when the first stage of the Nemak transaction and the Bavaria transaction are completed and the terms thereof, and whether and when later phases of the Nemak transaction are completed, as well as the value of Teksid's remaining assets, including the value of the synthetic equity interest in Nemak and any related indemnity claims that may be made against such interest, the cost and duration of any orderly wind-down of the remaining Teksid entities, and other factors. The Company does not expect the synthetic equity interest to be monetized earlier than 30 months from the date of the closing of the Nemak transaction. Under the current agreement with Nemak, the synthetic equity interest represents a payment right that may be exercised in whole during the 15 business day period after receipt of certain information from Nemak required to be delivered commencing on the first fiscal quarter ending after 30 months from the closing of the Nemak transaction. If not then exercised, the synthetic equity interest may be exercised in whole during the 15 business day period after receipt of such information for each of the following three quarters. If not exercised, the synthetic equity interest terminates.

To facilitate the orderly realization of these residual assets for bondholders over a longer period of time than originally anticipated, the Company will seek to negotiate with bondholders either an orderly disposition process or the mutually agreeable restructuring of the remaining claims of holders of the Senior Notes. It is not anticipated that current owners of the Company will realize any value through a continuing interest in these assets following such dispositions or restructuring.

Interest Payment on Senior Notes

The Company will not have sufficient cash to make the EUR14.9 million interest payment due on January 15, 2007 on its outstanding Senior Notes unless the Nemak transaction is consummated and proceeds are distributed to bondholders as described above.

Discussions with Bondholders

Teksid and its advisors have commenced and participated in discussions with the appointed legal and financial advisors of the adhoc committee of bondholders and provided them access to the Company for the purpose of due diligence on the Company's businesses and finances.

About Teksid Aluminum

Teksid Aluminum is a leading independent manufacturer of aluminum engine castings for the automotive industry. Our principal products are cylinder heads, engine blocks, transmission housings and suspension components. We operate 15 manufacturing facilities in Europe, North America, South America and Asia. Information about Teksid Aluminum is available on our website at http://www.teksidaluminum.com.

Until September 2002, Teksid Aluminum was a division of Teksid S.p.A., which was owned by Fiat. Through a series of transactions completed between September 30, 2002 and November 22, 2002, Teksid S.p.A. sold its aluminum foundry business to a consortium of investment funds led by equity investors that include affiliates of each of Questor Management Company, LLC, JPMorgan Partners, Private Equity Partners SGR SpA and AIG Global Investment Corp. As a result of the sale, Teksid Aluminum is owned by its equity investors through TK Aluminum Ltd., a Bermuda holding company.

Specialized in: Tk Aluminum - Liquidity Situation - Transactions - Discussions
URL: http://www.teksidaluminum.com
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