Zochem focusing on better times ahead

PITTSBURGH—The parent of Zochem Inc. has emerged from Chapter 11 bankruptcy protection, and the general manager of the Brampton, Ontario-based producer of zinc oxide said operations for the business ran smoothly throughout the process.

Zochem parent Horsehead Holding L.L.C. exited the Chapter 11 protection in September after the U.S. Bankruptcy Court for the District of Delaware confirmed its reorganization plan.

Horsehead said in a statement that the plan eliminates substantially all of the company's debt; converts about $205 million of senior secured debt into equity in the reorganized firm; provides for the repayment of its debtor-in-possession credit facility; provides for repayment in full for creditors at Zochem; and provides for distribution of cash, equity and warrants for its other prepetition creditors.

The company's new owners also have committed to fund additional equity to support the repair and restart of Horsehead's zinc production facility in Mooresboro, N.C., according to statement. Horsehead also converted from a Delaware-held corporation to a limited liability company. The names and structures of its major operating subsidiaries, including Zochem, remain unchanged.

“With the bankruptcy process behind us, we can now turn our full attention to our operations and strategic plans,” Horsehead CEO James Hensler said in the statement.

Zochem General Manager Joshua Belczyk said the process took a bit longer than expected, but his firm performed at a high rate during the time. This included a 12 percent rise in overall sales for the first half of 2016, nearly doubling international sales through September and maintaining high quality and service rate.

Horsehead and three of its subsidiaries—including Zochem—filed for Chapter 11 in February, and he said the original plan was to emerge within a few months. But Belczyk said the delay was caused in part because the rapid rise in zinc prices this year increased the potential valuation of the company.

“The courts wanted to make sure that all parties were being treated fairly, and that the increased valuation was taken into consideration,” he said. Belczyk discussed the company during the ACS Rubber Division's International Elastomer Conference and Expo, held Oct. 11-13 in Pittsburgh.

Rather than being a public company, Horsehead and Zochem as a subsidiary now operate as a privately held company, controlled by a consortium of private investors, he said. The secured owners now are equity owners.

Hensler remained as Horsehead CEO, and Belczyk said management for the most part remains unchanged at Zochem. He added that there was positive support from customers and vendors.

“We were fortunate that the courts moved so swiftly and decisively to protect Zochem's interest and effectively carve us out of the restructuring process,” Belczyk said. “So we were able to proactively communicate that very quickly to customers and vendors, assuring them that first of all there would be no gaps in deliveries or production interruption, and also that all of our vendors would be paid in full. Those two things go a long way to reassuring these stakeholders.”

International sales helped boost Zochem's first-half volume, with sales of about 32,000 metric tons representing more than 98 percent capacity utilization, according to Belczyk. Traditionally, the maker of zinc oxide—used in the rubber industry as an activator in the vulcanization process—saw about 90 percent of its sales in North America.

But he said the company has been looking to change that, with moves including the opening of a distribution facility in the Netherlands earlier in the year and a recent trade visit to China.

In the latter, Belczyk said the company has several longstanding direct relationships along with other sales through distribution. Some of the customers are specific to China while others are Chinese operations of multinationals that Zochem serves in other regions, and there was a need to keep formulations the same.

Besides meeting its distributors in Shanghai and Qingdao, representatives attended a rubber and plastics trade show in Qingdao.

“China is important as a zinc oxide demand center as well as a special zinc metal production market,” Belczyk said. “With the potential fluctuations and forecasts in prices of zinc metal and the evolving needs of the zinc oxide market, it's one that we want to make sure we keep our finger on the pulse of.”

Like other industries, there is expected to be a consolidation of zinc oxide production in China, and the Zochem GM said few Chinese producers of the material can duplicate his firm's quality and systems.

Keeping up with the added sales was a credit to the operations staff at Zochem's operations in Brampton. Belczyk said they set a record monthly production of 5,340 tons in May and a record for the second quarter of 15,700 tons. Quality ratings were maintained at Six Sigma levels of just under 100 percent, while on time and in full performance delivery improved to 95 percent.

But while Zochem is running at close to capacity, that doesn't mean plans for an expansion necessarily is in the near future. Rather than try to add top line growth, he said Zochem wants to target the top 5-10 percent of high-purity zinc oxide users in the world.

“By doing so we can achieve bottom line net income growth without really adding a ton of top line revenue or production capacity,” Belczyk said.

Sales to tire and rubber goods producers account for slightly less than a third of Zochem's sales, he said, with specialty chemicals the largest end market segment.

New tire plants could be a source of future growth as they ramp up to production. “We're in discussions with all of them as they start to get into making some sourcing decisions for materials,” Belczyk said.