The Precious Metals industry has been rocked by news that Republic Metals has filed for Chapter 11 bankruptcy protection in the Southern District of New York as of Friday, November 2, 2018. The bankruptcy filing will give the company protection from its creditors in the immediate term as the company works on restructuring its business or liquidating its assets under court supervision.
Like many large-scale corporate bankruptcies, we should expect this case to be fast-moving. Pease and Curren has read the publicly available bankruptcy filings, and has been able to learn certain facts:
- According to Republic’s “Chief Restructuring Officer” Scott Avila (an investment banker hired to assist the company to restructure or liquidate its operations), the company has assets of approximately $174.77 million, and liabilities of $265.10 million.
- Of Republic’s liabilities, $177.35 million are to “Senior Creditors”, which dwarfs the company’s $174.77 million in assets. Republic also has $86.34 million in Metals Obligations, which appear to be lower in priority than its Senior Debt. Customers with metals in consignment accounts and other unsecured creditors may therefore take significant losses if the company is liquidated or sold in the bankruptcy process.
- According to Avila’s Declaration (which is a sworn statement) to the Bankruptcy Court, in April 2017 Republic “discovered a significant discrepancy in its inventory accounting” while preparing its 2017 financials. An outside accounting firm confirmed the discrepancies.
- On July 10, 2018 numerous senior creditors of Republic called their loans due and issued demand letters.
- Avila’s declaration narrates that Republic attempted to sell itself to an unnamed “Potential Buyer”. This is believed to be Valcambi SA, which is one of the world’s largest gold refiners. However, the negotiations broke down.
- As of the date of the bankruptcy filing, Avila states that Republic has “limited cash, and .. [an] inability to trade metals or deliver refined goods”.
- Pursuant to the rules of the Bankruptcy Court, Republic was required to list is 30 largest unsecured creditors. Many of these appear to be precious metals businesses with large consignment accounts or metals currently in process worth millions of dollars.
- A number of other refiners were listed in the Bankruptcy Petition as large unsecured creditors. These refiners likely act as middle-men, sending at least some of their materials to Republic for further processing and operating on the margin between the pricing they offer to their customers and the pricing they receive from Republic. It is unclear what if any effect Republic’s bankruptcy will have on the financial stability of these refiners, especially if the unsecured creditors take large losses.
- Republic wishes to find a buyer who can take it over as a going concern, but if this is unsuccessful, Republic “will engage in a process to liquidate their assets and inventory for the ratable benefit of their creditors”. “Ratable benefit” is bankruptcy lingo meaning that creditors will not be paid all that they are owed, but rather according to the funds available and the creditor’s priority. Secured creditors, such as mortgagees and lienholders, get paid first.
Persons sending scrap to Republic, or having consignment accounts can expect to be listed in public filings and to receive notices from the bankruptcy court. The status of their accounts and what they will be able to recoup is unknown to Pease and Curren at this time.
Pease and Curren has been in business for over 100 years and prides ourselves on our financial stability. The company is debt free and has significant cash reserves. We own our facility and land it sits on in Warwick, Rhode Island free and clear. We offer free containers in the United States and free shipping. Shipments are fully insured. We got to where we are today by paying outstanding returns every time, using a true fire assay.
This latest news about Republic is a reminder that customers should consider the financial stability, reputation, and process of any refiner that asks for their business. You need to know just who you are doing business with before sending out your precious metals!