New Deal On Table For Zinc Company

After 18 months in bankruptcy, Horsehead Industries could be sold by Thanksgiving, if the latest plan to sell the zinc-processing company's assets proves more successful than two previous attempts.

A proposal to sell Horsehead's assets to an affiliate of Florida-based venture capital firm Sun Capital Partners was filed in U.S. Bankruptcy Court in New York on Wednesday, and a hearing to rule on the potential sale to Sun Capital or any higher bidder has been scheduled for Nov. 26.

An attempt last spring to sell the company's assets to Sun Capital fell through after creditors objected to some of the terms.

The asset purchase agreement calls for Sun Capital to pay $9.4 million in cash, repay $29 million that was loaned to Horsehead, and issue $45 million in promissory notes to Horsehead and its creditors.

A second proposed sale, to an affiliate of Texas-based U.S. Zinc Corp., was withdrawn in August after negotiations broke down.

Horsehead said in its latest filing that the new asset sale plan has the consent of top creditors.

Sun Capital officers could not be reached for comment Friday, but Horsehead executives and union officers have said Sun Capital plans to continue operations at the company.

Horsehead employs about 1,000 people in five states, and has local operations in Palmerton.

In Pennsylvania, more than 125 people work at the Palmerton plant, which recycles hazardous zinc-bearing steel waste, and more than 450 work at a zinc-refining plant in Monaca, Beaver County.

At both of those plants, most workers are members of the United Steelworkers of America. The union has been negotiating concessionary contracts with Horsehead, which has court permission to discard existing contracts, but risks a strike if it takes that action.

''Everyone is aware that if it comes to abrogation, the vast majority of our guys would stay out, and that would be the end of Horsehead,'' said Albert Smith Jr., president of the Steelworkers union in Monaca.

He said the Steelworkers in Monaca will vote Monday on a contract with steep wage and benefit cuts, a deal just slightly better than one they rejected by a vote of 358-17 in September. The union is recommending approval.

''The package still leaves a bad taste in the mouth, but … where do 425 of us go for jobs?'' Smith said. ''There's no doubt in any of our minds that if we don't approve this agreement, Sun will withdraw its agreement.''

He said Steelworkers in Palmerton also are negotiating. ''My understanding is that Palmerton began talks at 11 a.m. Thursday,'' said Smith.

A union negotiator in Palmerton did not return telephone messages.

Sun Capital is known for investing in distressed companies or purchasing them outright, often leaving employees and management in place as it works to right the companies financially.

''They are intent to do what they have to do to bring the company around as a strong, viable zinc producer,'' said Smith. ''They aren't the knight in shining armor on the white horse, but they are the only party interested in purchasing all the assets.''

The company's Web site says: ''Sun Capital invests in companies typically with the number one or two market position in their industry, long-term competitive advantages and significant barriers to entry.''

Horsehead fits that description well.

It is among the nation's top refiners of zinc and is an international leader in the recycling of zinc-bearing steel waste, using a proprietary technology the U.S. Environmental Protection Agency has endorsed.

Horsehead was driven to bankruptcy by cash-flow problems and a historically low price for zinc, which fell to a 10-year low of 33 cents per pound in 2001 and hovered around that level for much of 2002. The price for zinc has started to recover, and Horsehead has estimated it could hit 45 cents by 2005, the break-even level for the company.

The company has been losing about $2.4 million a month, and has been selling off assets that aren't related to its core business, such as Palmer Water Company, which provides water to most residents of Palmerton. Horsehead also sought Bankruptcy Court permission to eliminate health insurance benefits for retirees, and was allowed to do so in other states, but not in Pennsylvania. The (Pennsylvania) Morning Call