News & Analysis

TPG loses $830m on Aleris bankruptcy

The buyout firm has effectively lost its $830m equity investment in the aluminium products provider, which blamed the deteriorating economy and the falling price of aluminium for its bankruptcy. Lenders led by Apollo and Oaktree are providing Aleris with new debt.

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TPG portfolio company Aleris International, a producer of aluminium products, filed for bankruptcy Thursday, wiping out $830 million in equity the Texas-based mega-firm used to acquire the company in 2006.

Aleris blamed its bankruptcy on “financial constraints related to the deteriorating global economic situation” as well as “declining industrial demand, and a swift drop in aluminium prices”.

TPG acquired Aleris in 2006 in a $3.3 billion deal, or a purchase price of $1.7 billion and the assumption of $1.6 billion of debt.

Aleris has secured roughly $1 billion in debtor-in-possession financing, including a $500 million term loan from Oaktree Capital Management and Apollo Global Management, and a $575 million revolving credit facility from a lending group led by Deutsche Bank and Bank of America. The company had $4.9 billion in assets and about $4.2 billion in liabilities as of 30 September.

TPG also will “likely” take part in the debtor-in-possession financing, according to a person with knowledge of the situation. Extending a portion of the DIP financing would give TPG some say in the reorganisation proceedings.

The firm also intends to keep its seats on Aleris’ board of directors, according to the source. TPG’s director representation includes Kelvin Davis, a senior partner with TPG and head of the firm’s North American buyouts group; Jonathan Garfinkel, a vice president at the firm; and Michael MacDougall, a partner with TPG.

Aleris’ bankruptcy marks the second time in less than a year that a TPG-backed company has fallen into insolvency, wiping out the firm’s equity stake. In September, federal regulators seized Washington Mutual, selling its deposits and loan portfolio assets to JPMorgan. TPG had invested $2 billion in Washington Mutual last April, and lost its remaining $1.3 billion stake after the bank was seized.

TPG declined to comment.