July 5, 2007

NW Specialties celebrates independence
Financing deal gets local firm away from hedge fund

By RODGER NICHOLS
of The Chronicle

     Just in time for Independence Day, Northwest Aluminum Specialties bought its freedom.
     Last year, the employees bought the Specialties business from the debtholders who took over the larger Golden Northwest Aluminum Holding Company following its 2004 bankruptcy. Specialties financed the buyout with an employee stock ownership plan (ESOP), and Golden Northwest and its lead investors held the debt.
     This year, to celebrate the first anniversary of employee ownership, Specialties bought freedom from controls set up by the initial agreement. At least, that’s the way company officials talk about a May 30 transaction, under which Bank of the West loaned funds to cash out the debtholders.
     “Now we’re no longer subject to the whims of hedge fund managers in New York City,” said Bill Reid, who serves as the company’s CEO.
     Reid said the terms of the original deal left a razor-thin margin for operating capital, which allowed Specialties to only get supplies at the last second. “We were literally taking them off the truck directly into the induction furnaces,” Reid said.
     Unlike the primary aluminum smelters in The Dalles and Goldendale, Specialties does not smelt aluminum from bauxite ore. It was built in 1991 “to produce aluminum billet for the direct forge and extrusion industries from the remelt of purchased aluminum raw materials.”
     With limited cash flow from the interim financing, Reid said that some potential sales in the last year were not pursued for fear that cash flow was not sufficient to purchase the required raw materials.
     Reid was not bashful about ascribing motive to the lead investors, who are hedge fund companies. “They wanted us to go away,” he said. “They put a deadline on refinancing that they didn’t think any bank would meet. They expected us to not be able to do it, then they could take the property back and sell it.”
     Specialties had purchased a 28-acre section inside the larger aluminum company holdings with a permanent easement for access. Most of the former Golden Northwest Aluminum Company property is for sale, and debtholders announced recently that the former smelter facility would be demolished. Some of the property might be easier to sell, if it also included Specialties’ 28 acres.
     Reid said Specialties started last October to work with several banks on a refinancing package, but were unable to put it together. So he turned to Scott Bell, senior vice president and regional manager for Bank of the West. “I’ve known Scott for a long time,” Reid said, “and I asked him what he could do for us.”
     Bell, along with Brett German, vice president and senior relationship manager, worked on the proposal. “We reviewed the company’s past performances, did appraisals, evaluated equipment, checked the accounts receivables and evaluated all parts of the business,” Bell said. “It’s a great operation that was constrained by lack of financing. It was really clear to us that all this company needed was the ability to fund their operation adequately.”
     The process was unusually speedy for a business this size, Reid said.
     “We started with Bank of the West April 18,” Reid said. We got approval by the middle of May and the deal closed May 30. Bell said the new financing would be of immediate and direct help to the company. “Now they can be opportunistic,” he said. “They can buy when the price is down and have supplies on hand. That opens up opportunity for more business.”
     Reid said that the financing package not only paid off the hedge fund obligations, but also provided a comfortable line of credit that would allow the company to expand its operation, buy new equipment, and hire more people.      That could include expanded foreign trade. Reid said the company already does some business with firms in Canada, Taiwan, New Zealand and Germany.
     “We just got our website translated into eight foreign languages,” Reid said. Half of that cost was paid for with Federal Trade Act funds, which offered Specialties some marketing money, and was obtained through the joint effort of the company and the United Steelworkers. That’s welcome, Reid said, because Specialties has been hesitant to market internationally because the company didn’t have the resources to take on any additional business.
     “Now we can focus on longer term objectives and run the business in a more efficient manner.” Reid said, looking forward to hiring more workers and expanding the company. “All of us live and work here in Mid-Columbia area,” Reid added “We’re proud of our company and proud to be part of the community.      Everybody at Specialties is part of the company, and now it has a really bright future.”