TPG objects to $1bn Aleris bankruptcy financing

Mega-firm TPG has embroiled itself in a bankruptcy fight over a $1 billion financing package extended to its insolvent portfolio company Aleris International. The firm is trying to ensure full recovery on its $26.5 million claim in the case.

The firm, led by David Bonderman, argued in a court filing that its $26.5 million secured claim has been pushed down the ladder of priority by the way the bankruptcy financing is structured.

TPG’s objection comes after Babson Capital and GSC Group, which together hold an about $72 million secured claim in the case, objected to the financing for the same reason.

Babson and GSC said the proposed DIP financing gives priority recovery to lenders who take part in the DIP package, no matter what priority level other lenders held before the bankruptcy filing. An attorney for Babson declined to comment, and GSC’s lawyer did not return calls for comment.

“The DIP facilities … impermissibly impair the rights of the pre-petition term creditors that do not participate in the [DIP financing], and whose liens … would be pushed down the debtor’s capital structure without adequate protection simply because they declined to lend new money to the debtors,” Babson and GSC said in a bankruptcy filing.

The issue will be sorted out by a judge at a bankruptcy court hearing set for 11 March.

TPG filed the objection from its $15.3 billion fifth fund. The loan was extended to Aleris in December 2008 as the company’s financial situation deteriorated and its access to credit became restricted, according to the filing. Aleris collapsed into bankruptcy in February.

TPG, which lost its $830 million equity stake in the bankruptcy, said it does not object to the financing package itself, which includes 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.

“TPG does not argue with the debtor’s proposed debtor-in-possession financing and, in fact, supports the debtor’s efforts to reorganise,” the firm said in the bankruptcy document. TPG’s response is based on the fact that the financing motion, if granted in its current form, will compromise the security underlying TPG’s secured claim of approximately $26 million without TPG’s consent.”

TPG is considering taking part in the DIP financing, but it could not be determined if the firm has joined with the financing group. TPG declined to comment.

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. The company’s 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.