Phoenix Services Topco, LLC – Apollo-Controlled “Slag Giant” Files for Bankruptcy with Over $500mn in Liabilities

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September 26, 2022 – Phoenix Services Topco, LLC and eight affiliated debtors (together, "Phoenix Services," or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case No. 22-10906 (Judge TBA). The Debtors, "a premier provider of outsourced slag handling, metal reclamation, and other complementary services to leading steel mill customers around the world," are represented by Daniel J. DeFranceschi of Richards, Layton & Finger, P.A.. Further board-authorized engagements include: (i) Weil Gotshal as general bankruptcy counsel, (ii) AlixPartners, LLP as financial advisor, (iii)  PJT Partners Inc. as investment bankers and (iv) Stretto as claims agent. 

The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $500.0mn and $1.0bn; and estimated liabilities between $500.0mn and $1.0bn ($587.0mn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Boyd Company ($3.5mn trade claim), (ii) C & B Marine ‐ Gallatin, LLC ($3.3mntrade claim) and (iii) J.A. Riggs Tractor Co. ($2.3mn trade claim) .

In December 2017, the Debtors were acquired by Apollo Natural Resources Partners II, L.P. (“ANRP II”), a fund managed by affiliates of Apollo Global Management, LLC (NYSE: APO, and together with its consolidated subsidiaries, “Apollo”), from existing shareholders, including then majority shareholder Olympus Partners. Terms of the transaction were not disclosed.

Events Leading to the Chapter 11 Filing

In a declaration in support of first day filings (the “Richard Declaration),  Robert Richard, the Debtors' CFO, commented: “The Debtors’ most significant revenue driver are their service contracts with steel mill operators. Pursuant to servicing agreements, the Debtors provide services to global steel producers at nineteen (19) sites in the United States. Recent headwinds, however, have rendered the Debtors’ current customer contract portfolio unsustainable. Among other things, inflationary pressures and rising fuel costs, coupled with suboptimal contract terms, have resulted in unprofitable contracts. The Debtors have also faced a variety of discrete operational challenges at customer sites, such as equipment failures and management turnover. The contracts and operational challenges, in turn, have placed a significant strain on the Debtors’ liquidity, which was further weakened by capital lease payments, rising interest rates, and increased capital expenditures.

Goals of the Chapter 11 Filings

The Richard Decalration provides: "Recognizing that the most significant challenges the Debtors face are the customer contracts, the Debtors and the Advisors worked diligently to develop a comprehensive strategy to be implemented before the filing and during these chapter 11 cases to repair the contract portfolio. Following renegotiation or rejection of their unprofitable contracts, the Debtors expect to emerge from chapter 11 as a going concern with a sustainable and profitable contract portfolio."

DIP Financing

The Debtors have arranged a fully-committed debtor-in-possession ("DIP") financing package which includes a new money multiple-draw secured term loan in the aggregate principal amount of $50.0mn. The DIP financing is being provided by an ad hoc group of lenders (collectively, the “Ad Hoc Group”) holding First Lien

Prepetition Debt

As of the Petition Date, the Company’s capital structure includes approximately $587.0mn in funded debt, including approximately $77.0mn in capital lease
liability. The following table provides a summary of the Company’s prepetition funded debt obligations:

Prepetition Shareholders

Non-debtor ANRP II Phoenix Services Holdings (LP) owns approximately 99% of the membership interests of Phoenix Services Topco, LLC. Current and
former employees own approximately 1% of the membership interests of Phoenix Services Topco, LLC. As noted above, Apollo is the Debtors' ultimate owner.

About the Debtors

According to the Debtors: "Phoenix Services provides responsive world-class service to steel producers around the globe. Core services include slag handling utilizing slag pot carriers or the traditional slag pit digging with front-end loaders; the recovery and sizing of scrap metal to its customer’s specification; and processing slag for use by its steel mill customer or marketing processed slag material for aggregate use.  

Founded in 2006, Phoenix Services was started by two industry titans dedicated to improving customer satisfaction by finding a better way.  Through careful investment in state of the art equipment, rapid innovation in metal recovery and operational processes, combined with a commitment to maintaining the highest quality, safety and productivity, Phoenix Services has risen to become the global leader in steel mill services.  Our continuing promise to never settle for the status quo drives our culture and permeates through every facility, team and individual who proudly represents the Phoenix name."

The Richard Declarationa adds: "The Company provides mission-critical services to leading, global steelproducing companies. With approximately 2600 non-unionized and unionized employees, the Company is the second largest service provider to steel mills domestically and the third largest globally, based on market position. As set forth in more detail below, the Company provides a variety of services based on each customer’s unique needs across 39 customer sites. This suite of customer services primarily includes the removal, handling, and processing of molten slag at customer sites, as well as the preparation and transportation of metal scraps, raw materials, and finished products. Notably, the Debtors own and operate substantial fixed and movable machinery and equipment at each of their locations. Further, the Debtors own and operate steel mill servicing operations through non-debtor subsidiaries in Europe, South America, and Africa." 

On Apollo role, the Debtors add: "With equity capital committed by certain funds managed by affiliates of Apollo Global Management, one of the world’s largest private equity firms, Phoenix Services LLC has the ability to implement sustainable solutions and maximize efficiency to leading steel mill customers around the world."

Corporate Structure Chart

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