Six months after ERP Iron Ore (ERPI) moved to restructure its scram mining and pellet-making business, the U.S. Bankruptcy Court in Minneapolis has converted the company’s Chapter 11 restructuring back to a Chapter 7 liquidation at the behest of a United States Trustee. Judge William J. Fisher granted a motion by the Trustee, who had argued the debtor’s Chapter 11 asset liquidation had become “extraordinarily expensive” and would not generate any added money to benefit the creditors, including firms holding mechanic’s liens.
The move, approved on Dec. 1, brings the ERPI bankruptcy full circle. It began as an involuntary Chapter 7 filing before debtors convinced the court they could restructure their operation, which they bought at auction in 2016 when the original developer, Magnetation, became insolvent.
The involuntary Chapter 7 petition was filed against ERPI last May. At the time, ERPI had owned the former Magnetation assets for about two years. The creditors – Minnesota Power Co., Glacier Park Iron Ore Properties, Chester Co. and HT Surface and Mineral – sought to recover about $4.5 million they were collectively owed. Despite news stories that suggested ERPI production would soon resume, the operation remained idled and unable to pay its bills – even to the State of Minnesota – despite being granted extensions.
Nonetheless, the bankruptcy court changed the petition to Chapter 11 on July 17 when ERPI sought a second chance to restructure its operations. Thomas M. Clarke, who at the time was CEO, and his wife Ana M. Clark were sponsors of the reorganization plan. A separate firm they control, Merida Natural Resources, was named the debtor-in-possession (DIP) lender.
Although the corporation was in arrears on some of its bills, it’s worth noting that the couple personally made significant but perfectly legal political contributions to two area politicians and their party. On Feb. 26 and March 28, Tom and Ana Clarke each gave $2,700 (four donations totaling $10,800) to the campaign of Jason Metsa, who was running for the 8th District congressional DFL nomination. Then on July 10, they each donated $1,000 to DFL State Sen. David Tomassoni. And on July 24, Tom Clarke donated $100,000 to the DFL State Central Committee. The donations stopped after Thomas Clark was removed as CEO by his board of directors.
Tomassoni did not return a call from BusinessNorth asking whether he kept the contribution. Metsa, who recently was named deputy commissioner of Iron Range Resources, issued a written response: “Throughout my career as an elected official, I accepted donations from many different donors with the idea that they supported my beliefs and positions. My record has always been one of working tirelessly on issues critical to the people and workers of northeastern Minnesota and the entire state. I bring this same commitment to my new position as (Iron Range Resources) deputy commissioner.”
Although Thomas Clarke was removed as CEO on July 25, he and Ana Clarke retained their status as sponsors of the reorganization plan, and Merida continued as the DIP lender.
The debtors retained Jeffries Financial Group, an investment banking firm, to seek buyer(s) for ERPI’s operations in Minnesota and Indiana – operations in which Magnetation had invested more than $1 billion to develop. Although a buyer was found for ERPI’s $350 million pellet processing plant in Reynolds, Ind., the sale to Altos Hornos de Mexico was not for a going concern, nor did it include the land on which the equipment was located. Instead of reviving the operation and the 150 jobs it once supported, ERPI’s assets remain idle, and some White County Indiana officials have said they fear the equipment will be moved out of the United States.
Back in Minnesota, PPL Acquisition Group LLC bid $6.81 million for ERPI’s assets, but PPL did not close on the deal.
“The results of the auction of the Minnesota and Indiana assets resulted in bids that are substantially less than the aggregate secured claims on the debtor’s assets,” the Trustee wrote in a Nov. 1 motion. “As a result, there remains a complex mix of competing liens against assets that are insufficient to satisfy all claims. The costs of resolving these competing under-secured claims should not be borne by the bankruptcy estate since there is
no benefit to the estate by doing so.”
Among those under a magnifying glass by the Trustee is Jeffries Financial Group, which was being paid a $50,000 per month fee and $2 million guaranteed minimum. The hiring of Jeffries, wrote the Trustee, “appears to have been ill advised on the part of the debtor.”
“Given that the sale results were about $21 million, the Jefferies fees were about ten percent of the deal. Again, these fees unnecessarily deplete the estate at the expense of creditors,” the Trustee wrote.
Minnesota Power remains hopeful it can collect some of the $4.4 million that is owed to the utility by the debtor.
“We’re looking very hard to find a buyer,” said Senior Vice President of External Affairs Pat Mullen – a buyer that would re-open the Grand Rapids plant and rehire its employees. “Hopefully somebody will come forward,” he added.