Apollo, Oaktree, Bain to take over TPG’s Aleris

Apollo Global Management, Oaktree Capital Management and Bain Capital's Sankaty Advisors are joining forces to backstop a $690 million rights offering of debt and equity to pull former TPG-backed Aleris International out of bankruptcy.

The backstop agreement is part of a broader plan of reorganisation that will take Aleris out of bankruptcy as a privately owned company. Apollo, Oaktree and Sankaty, as leaders of the backstop group, will own a majority stake in the company, Aleris said in a statement.

The full plan must be approved by a bankruptcy judge, and a hearing is scheduled for March.

“The strong financial support and equity ownership commitment from the backstop parties demonstrate confidence in Aleris’ future,” Steven Demetriou, the company’s chairman and chief executive officer, said in a statement.

Aleris, a producer of aluminium products, stumbled into bankruptcy last February blaming the global financial downturn and “a swift drop in aluminium prices”.

The firms provided a $500 million term loan that was part of a $1 billion facility to fund the company’s stay in bankruptcy, known as a debtor-in-possession (DIP) loan. Lenders that took part in the $500 million term loan were given greater priority for recovery than other creditors, ensuring they would be repaid before other parties. The structure prompted protests by first lien lenders as well as TPG.

TPG, which lost $830 million in the bankruptcy, also considered taking part in the DIP financing, but it’s unclear if the firm actually joined the DIP lenders. TPG acquired Aleris in 2006 in a $3.3 billion deal, broken up into a purchase price of $1.7 billion and the assumption of $1.6 billion of debt.

Aleris was the second large bankruptcy TPG experienced since the onset of the financial crisis. The firm also lost about $1.3 billion of its investment in Washington Mutual when in 2008 federal regulators seized the bank, selling its deposits and loan portfolio assets to JPMorgan.