We at Insider Financial last covered Horsehead Holding Corp (OTCMKTS:ZINCQ) back in May. We said at the time that there was still hope for the company and that shares at $.17 a piece were awfully cheap. Many of our subscribers have emailed thanking us for alerting them about ZINCQ and its unique situation. We wanted to do another update as this is a big week for ZINCQ. Today there’s a hearing over its reorganization plan in a Delaware bankruptcy court. This hearing is critical because there are multiple parties involved with a lot at stake over the main issue – what’s Horsehead worth?
Shareholders claim that the creditor group is valuing ZINCQ at less than fair value in order to take control of the company on the cheap. Hedge fund Greywolf Capital Management is valuing the company at just $255m to $305m while shareholders say the company is worth anywhere between $770m and $850m. The decision will be rendered by the courts. For shareholders, the question becomes what’s next?
First, a little background on the company. Horsehead is a company with over $1 billion of assets, recycling plants in six states and Canada and over 750 employees, the vast majority of which are hourly plant workers in the Southeast and Pennsylvania. The company has invested over $500 million in a new green zinc processing plant in Mooresboro, NC.
In February, Horsehead Holding filed for Chapter 11 bankruptcy protection, a day before the expiration of a 30-day grace period for the $1.9M senior convertible note it failed to pay in January. The filing listed liabilities of $544.7M and total assets of $1B. The company was hit hard by the collapse in zinc prices, as well as continued problems with getting its state-of-the-art zinc production plant up and running in Mooresboro, NC. This plant was built at a cost of over $550 million, but was idled back in January.
Bids for all or some of the assets were due by August 26 according to an August 9 letter from Lazard. The amounts received will be discussed at today’s hearing. The official equity committee will be represented at the hearing by the law firm Richards, Layton & Finger after Natasi Partners resigned.
A main issue is that since the bankruptcy filing, zinc prices have risen. Furthermore, according to a recent Bloomberg article, Swedish-Canadian tycoon Lukas Lundin said “zinc could be the best-performing commodity in the next two to five years.” That’s why getting the North Carolina plant up and running again is so important. Horsehead is worth a significant amount of money with this plant operational.
Another issue is that management lied to shareholders regarding the company’s situation. Management surprised investors with a bankruptcy filing that no one thought was coming. Management did not indicate that the company was in distress and that fact resonated with the Judge. U.S. Bankruptcy Judge Christopher Sontchi in Wilmington, Delaware said “Something doesn’t smell right to the court.”
Currently trading with a market cap of $18 million, the problem for shareholders is that an estimated $544 million in claims have priority over equity. These claims could increase if certain administrative expenses, legal fees and other claims are greater than estimated. This is why shares dropped over 25% the day before the hearing. No doubt some shareholders are nervous that low ball bids will come in below that amount and shareholders will wind up with nothing. We will be monitoring the situation and updating subscribers as soon as we know more. For the latest updates on ZINCQ, sign up below!
Disclosure: We have no position in ZINCQ and have not been compensated for this article.