Horsehead Holding Corp. was cleared to exit bankruptcy on Friday although a U.S. judge acknowledged that allegations by the zinc producer's shareholders that their investment was being unfairly wiped out came very close to derailing the company's plan, Reuters reported on Friday. Horsehead can now proceed with its plan that will eliminate most of its $427 million in pre-bankruptcy debt, cancel its stock and allow the company to emerge from chapter 11 under the control of its noteholders, led by Greywolf Capital Management. Horsehead had to defend its plan during a three-day trial against allegations by an official equity committee that noteholders were enriching themselves at shareholders' expense. The shareholders attacked a valuation by the Lazard investment bank and argued that Horsehead was a "loan-to-own" play by secured noteholders, who bought the company's debt at a discount and then provided a bankruptcy loan with strict provisions. Bankruptcy Judge Christopher Sontchi said that the noteholders "shot themselves in the foot" by including a "no-shop" provision in the bankruptcy loan. Without it, the company could have tested its value with an auction and avoided this week's trial that largely turned on experts' competing views of valuation. Judge Sontchi said that the evidence showed the company was worth around $650 million, or roughly equal to the claims held by creditors, leaving nothing for stockholders.
