Magnetation to reorganize under Chapter 11 bankruptcy

Magnetation is a scram mining and value added iron ore mining and processing company based in Northern Minnesota. (PHOTO: Magnetation)

Magnetation, a scram mining and value added iron ore mining and processing company based in Northern Minnesota, will reorganize through Chapter 11 bankruptcy. (PHOTO: Magnetation)

Last week we reported the financial woes of Magnetation, the scram mining and iron ore processing company based on the western Mesabi Iron Range. Their partner and chief customer AK Steel declined to continue putting money into the company and Magnetation began working with financial advisors to keep the company afloat. Rumors were grim, to say the least.

Today, Magnetation announces that it is reorganizing through Chapter 11 bankruptcy procedings, securing $64 million in new financing that will keep the company operating through the current iron ore pricing downturn. AK Steel will remain the primary customer for Magnetation’s iron pellets, which they developed specifically to meet the technical specifications of AK Steel’s mills.

Matt Lehtinen, Magnetation’s President, told me that they will remain headquartered in Grand Rapids, Minnesota, under the same management structure. They expect to keep plants 2-4 operating with no layoffs or curtailments. Plant 1 had already been idled amid the slump in iron ore prices that began earlier this year.

Chapter 11 reorganization often leads to new ownership, but the details of that are not yet certain.

The company press release offers more detail:

GRAND RAPIDS, MN, May 4, 2015 – Magnetation LLC, an innovative iron ore concentrate and pellet producer, announced today that it has reached an agreement with holders of more than 70% of its 11.0% senior secured notes due 2018 (Senior Secured Notes) to restructure the Company’s balance sheet and provide liquidity to support long-term operations. To implement this restructuring, Magnetation LLC and its direct subsidiaries have filed voluntary petitions for reorganization under chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court for the District of Minnesota. The Company and the noteholders have agreed to the principal terms of a chapter 11 plan of reorganization, which will be subject to approval by the Bankruptcy Court.

In conjunction with its reorganization, Magnetation has obtained a commitment for $135 million in debtor-in-possession financing (DIP Financing) from certain holders of Senior Secured Notes. All holders of Senior Secured Notes are eligible to participate pro rata in the DIP Financing pursuant to procedures filed with the Bankruptcy Court, which will provide Magnetation with $63.7 million of incremental liquidity. Upon approval by the Bankruptcy Court, the DIP Financing and cash generated from Magnetation’s ongoing operations will be used to support the business during the reorganization process.

Magnetation has filed various motions with the Bankruptcy Court in support of its reorganization. The Company intends to continue to pay employee wages and provide healthcare and other benefits without interruption in the ordinary course of business and to pay suppliers and vendors in full under normal terms for goods and services provided after the filing date of May 5, 2015. The Company expects its mining and pelletizing operations and customer shipments to continue in the ordinary course throughout the reorganization.

“We are pleased to have reached an agreement with our noteholders on the terms of a balance sheet restructuring through a chapter 11 reorganization,” said Magnetation Chief Executive Officer Larry Lehtinen. “The significant decrease in global iron ore prices along with our existing capital structure has created a challenging business environment in the short term. The reorganization process will create a more competitive and successful Company. We remain firmly committed to serving our customers and to being a good employer by maintaining safe, productive operations as we undertake this process. We appreciate the ongoing dedication of our employees, whose hard work is critical to the success and future of our Company.”

Magnetation’s business outlook has been impacted by the challenging iron ore industry, which has experienced global supply increases and a reduction in the global demand. The Company has reacted to the decline in pricing by, among other things, taking cost reduction measures, including the recently-announced decision to indefinitely idle its Plant 1 iron ore concentrate operation in Keewatin, MN.

Davis Polk & Wardwell LLP is serving as legal advisor and Blackstone Advisory Partners LP is serving as financial advisor in connection with the reorganization. Additional information about the reorganization can be found at


  1. Am just wondering how low-grade “tailings” are going to compete with Australia’s ores in today’s market.

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