A.M. Castle & Co. (CAS) Reports Series of Strategic Actions
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A. M. Castle & Co. (NYSE: CAS) (the “Company” or “Castle”), a global distributor of specialty metal and supply chain solutions, today announced a series of strategic developments that have been designed to position the business for continued transformation.
- W.B. & Co. and affiliates, the Company’s largest and oldest shareholder group, increased ownership in Castle by purchasing Raging Capital’s entire equity ownership of 4,630,795 shares, bringing its equity ownership interest to approximately 35% of the Company’s common stock.
- In conjunction with the sale of its entire equity ownership, Raging Capital and the Company reached a new settlement agreement, which includes the resignation of Raging Capital’s representatives Kenneth Traub and Richard Burger from the Company’s Board, effective as of November 4, 2016, and also includes stand-still provisions limiting Raging Capital’s future actions relating to the Company.
- The Company entered into commitment letters providing for new $100 million secured term credit facilities (the “Credit Facilities”) with a syndicate of lenders, which upon close are intended to improve the Company’s liquidity position and working capital profile.
- The Company issued an irrevocable notice that it will redeem $27.5 million of its 12.75% Senior Secured Notes due in 2018 (the “Notes”) on November 9, 2016 to meet the Special Redemption Condition set forth in the indenture governing the Notes.
President and CEO Steve Scheinkman commented, "We believe the strategic steps announced today will advance our transformation and better position us for the future. We have solidified support from a syndicate of lenders who have entered into commitment letters to provide us with new $100 million secured term loan Credit Facilities. The new Credit Facilities are intended to replace our existing revolving credit facility, and we believe it will provide us with additional working capital and debt management flexibility. I am also very pleased to announce that we have satisfied the Special Redemption Condition set forth in the indenture governing our senior secured notes by issuing an irrevocable notice that we will repay $27.5 million of the outstanding Notes, at par, on November 9, 2016.”
Scheinkman continued, "Further, W.B. & Co., one of our oldest stockholders, showed its continuing commitment to the Company by agreeing to purchase Raging Capital’s entire equity position, increasing W.B.’s equity ownership to approximately 35% of the Company’s outstanding common stock. I want to thank the former Raging Capital members of our Board for their participation over the last two years. We remain highly appreciative of the continued participation of W.B., whose legacy goes back 100 years or more with A. M. Castle.”
Scheinkman also highlighted the strength of the Company’s new first-lien lenders, saying “We are proud to have institutions such as Highbridge Capital, Whitebox Advisors, Corre Partners, and Wolverine Asset Management among our new Credit Facilities providers. Management is excited to work with these lenders, and we believe their collective presence and investment sends a strong message to the market that Castle has the support of world-class institutions. Most importantly, we believe the new Credit Facilities will enhance our liquidity and better position the Company to advance its transformation and capitalize on market opportunities.”
Scheinkman concluded, "Our leadership team and all of our dedicated employees continue to work very hard to reshape the Company and return it to profitability. We look forward to addressing these exciting developments on Wednesday, November 9th during our regularly scheduled quarterly results call."
Raging Capital Settlement Agreement
On November 3, 2016, A. M. Castle & Co. (the “Company”) entered into a Settlement Agreement (the “Agreement”) with Raging Capital Management, LLC (“Raging Capital”) and certain of its affiliates (the “Raging Capital Group”), and Steven W. Scheinkman, Kenneth H. Traub, Allan J. Young, and Richard N. Burger. The Agreement supersedes the two prior settlement agreements (as amended) by and among the Company and the Raging Capital Group dated March 17, 2015, and May 27, 2016, which shall have no further force or effect.
The members of the Raging Capital Group, Kenneth H. Traub, Allan J. Young, and Richard N. Burger have agreed to customary standstill restrictions beginning on the date of execution of the Agreement and ending on the date that is one day after the Company’s 2018 annual meeting of stockholders, including specified prohibitions against solicitation of proxies, submission of stockholder proposals, nomination of director candidates, formation of a group, calling a special meeting, and engaging in extraordinary transactions with or involving the Company. The standstill restrictions are substantially consistent with those set forth in the settlement agreement dated May 27, 2016, entered into with the Raging Capital Group in connection with their nomination of director candidates for the 2016 annual meeting of stockholders.
The standstill will also restrict the parties from acquiring beneficial ownership of shares of the Company’s common stock (excluding (i) 18,888 shares of common stock held by Mr. Traub as of the date of the Agreement; (ii) 18,668 shares of common stock held by Mr. Young as of the date of the Agreement; and (iii) shares of common stock underlying the Company’s 5.25% Convertible Senior Notes due 2019 owned by the Raging Capital Group as of the date of the Agreement) or beneficial ownership of any of the Company’s 12.75% Senior Secured Notes due 2018, 7% Convertible Notes due 2017, 5.25% Convertible Senior Notes due 2019 or any other interests in the Company’s indebtedness (excluding $27,500,000 principal amount of the Company’s 12.75% Senior Secured Notes due 2018 and $2,940,000 principal amount of the Company’s 5.25% Convertible Senior Notes due 2019 currently owned by the Raging Capital Group).
In connection with the Agreement, effective November 4, 2016 Kenneth H. Traub and Richard N. Burger each resigned from their respective positions as members of the Board of the Directors of the Company and all committees of the Board on which they served. Neither Mr. Traub’s nor Mr. Burger’s resignations were because of a disagreement with the Company on any matters relating to the Company’s operations, policies, or practices.
W.B. & Co. Purchase
On November 3, 2016, W.B. & Co. purchased all 4,630,795 shares of common stock in the Company owned by Raging Capital Master Fund, Ltd. Jonathan B. Mellin, a director of the Company, is one of the general partners of W.B. & Co. and shares voting power with respect to the shares of the Company’s common stock owned by W.B. & Co. Upon completion of the stock sale transaction, W.B. & Co. and its affiliated parties will own approximately 11.4 million shares of the Company’s stock, or approximately 35%.
Commitment for New $100 million Senior Secured Credit Facilities
On November 1, 2016, and November 2, 2016, the Company entered into commitment letters (each, a “Commitment Letter”) with certain financial institutions (the “Financial Institutions”) in order to replace, and repay any amounts (and cash collateralization of any undrawn letters of credit) outstanding under, the Company’s existing revolving loan and security agreement with Wells Fargo Bank, National Association as lender and administrative agent (the “Existing Credit Agreement”). Pursuant to the terms of the Commitment Letters, the Company’s new Credit Facilities from the Financial Institutions will take the form of senior-secured, first-lien, term loan credit facilities in an aggregate principal amount of up to $100.0 million. In connection therewith, commitments pursuant the Existing Credit Agreement will be terminated and liens granted to the collateral agent pursuant thereto will be released in full.
Upon initial funding of the Credit Facilities, the Financial Institutions will be issued warrants (the “Warrants”) to purchase an aggregate of 5,000,000 shares of the common stock of the Company, pro rata based on the principal amount of each Financial Institution’s commitment. The Warrants will have exercise prices as follows: (a) 50% of the Warrants will have an exercise price of $0.50 per share and will expire 18 months from the date of grant and (ii) the remaining 50% of the Warrants will have an exercise price of $0.65 per share and will expire 18 months from the date of the grant.
The funding of the Credit Facilities is subject to original issue discount in an amount equal to 3.00% of the full principal amount of the Credit Facilities. The Credit Facilities will bear interest at a rate per annum equal to 11.00%, payable monthly in arrears. The outstanding principal amount of the Credit Facilities provided for in the Commitment Letters and all accrued and unpaid interest thereon will be due and be payable on September 14, 2018.
A definitive agreement with respect to the Credit Facilities, as required by the Commitment Letter, has not been executed and there can be no assurances that such agreement will be executed or as to the terms of such Credit Facilities, or that certain other conditions required by the Commitment Letter will be satisfied.
Special Redemption of Senior Secured Notes
As previously announced, on October 31, 2016, the Company issued an irrevocable notice that it will redeem $27.5 million of its 12.75% Senior Secured Notes due in 2018 (the “Notes”) on November 9, 2016, to meet the Special Redemption Condition set forth in the indenture governing the Notes.
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