Item 1.01
Entry into a Material Definitive Agreement.
The information set forth below in Item 1.03 of this Current Report on Form 8-K (this “Form 8-K”) regarding the DIP Financing Agreement and the conversion of the Debtors’ Existing ABL Facility is incorporated herein by reference. All capitalized terms not otherwise defined in this Item 1.01 shall have the meaning provided in Item 1.03.
On November 15, 2017, Real Alloy Germany GmbH entered into an amendment (the “Factoring Amendment”) to the Factoring Agreement dated as of February 27, 2015 with TARGO Commercial Finance AG, as successor in interest to GE Capital Bank AG (the “Factoring Agreement”). Pursuant to the Factoring Amendment, the parties agreed that it would no longer be a “cross-default” under the Factoring Agreement if Real Alloy becomes a debtor-in-possession under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”), provided that Real Alloy enters into a debtor-in-possession credit agreement approved by a bankruptcy court.
The foregoing description of the Factoring Amendment does not purport to be complete and is qualified in its entirety by reference to the Factoring Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K, and is incorporated herein by reference.
Item 1.03
Bankruptcy or Receivership.
On November 17, 2017 (the “Petition Date”), Real Industry, Inc. (the “Company”) and Real Alloy Intermediate Holding, LLC, Real Alloy Holding, Inc. and its U.S. wholly owned subsidiaries (collectively, “Real Alloy” and, together with the Company, the “Debtors”) filed voluntary petitions in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) seeking relief under Chapter 11 of the Bankruptcy Code. Real Alloy’s Germany, United Kingdom, Norway, Canada and Mexico operations and its Goodyear, Arizona joint venture are not included in these filings. These cases (the “Chapter 11 Cases”) are being jointly administered. The Debtors will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
In connection with the Chapter 11 Cases, the Debtors filed various “first day” motions seeking Bankruptcy Court approval, including, without limitation, approval of debtor-in-possession financing on the terms set forth in (i) that certain term sheet for a Senior Secured Super-Priority Debtor-in-Possession Note Purchase Agreement (the “Note Purchase Agreement”), by and among Real Alloy Holding, Inc. as issuer and certain holders of Real Alloy Holding’s outstanding senior secured 10.0% notes (the “Existing Notes”) as purchasers (the “Purchasers”), and (ii) that certain Debtor-in-Possession ABL Credit Agreement (the “ABL Credit Agreement”, and together with the Note Purchase Agreement, the “DIP Financing Agreements”) by and among Real Alloy as borrowers and Bank of America N.A. as lender (the “Lender” or “Bank of America”). The DIP Financing Agreements will provide for approximately $365 million in debtor-in-possession financing (the “DIP Financing”), which includes the conversion of Real Alloy’s existing ABL facility with the Lender (as set forth in the Revolving Credit Agreement, dated as of March 14, 2017, by and among Real Alloy and the other borrowers thereunder and Bank of America; such facility, the “Existing ABL Facility”), up to $85 million in new notes and the “roll-up” of $170 million in Existing Notes into new notes (“Roll-Up Notes”). Up to $50 million of the DIP Financing will become available upon the satisfaction of customary conditions precedent thereto, including the entry of an order of the Bankruptcy Court approving the DIP Financing on an interim basis, which such interim approval was sought on the Petition Date and is expected to be heard by the Bankruptcy Court on November 20, 2017, with the balance of the DIP Facility due upon entry of a final order. For the avoidance of doubt, the Company is not a borrower, guarantor or credit party under the DIP Financing.
The proceeds of the DIP Financing will be used by Real Alloy for (i) general working capital and operational expenses; (ii) administration of the Chapter 11 Cases (other than the Chapter 11 case of the Company); (iii) refinancing certain existing prepetition debt; and (iv) costs, expenses, and all other payment amounts contemplated in the DIP Financing Agreement, in any such case, in accordance with a 13-week cash flow and operating forecast in form and substance approved by the Lender and Purchasers (subject to any variances permitted by the DIP Financing Agreement).
The maturity date of the loans and notes made under the DIP Financing is the earlier of six months from the Petition Date and the closing date of a sale of the Real Alloy business. The outstanding principal on the notes under the Note Purchase Agreement will bear interest at a rate of 11.5% per annum payable monthly in cash in arrears. The Roll-Up Notes will bear interest at a rate of 10.0% per annum accrued monthly and payable at maturity. The outstanding principal on the loans under the ABL Credit Agreement will bear interest at a rate of either (1) the Base Rate (as defined below) plus 2.25% or (2) the LIBOR plus 3.25%.