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Republic Metals Corporation (RMC) filed for Chapter 11 bankruptcy - $90M gone, significant inventory discrepancy

[Summary: RMC filed for Chapter 11 bankruptcy November 2, 2018]
[See also: Bullion Dealer Data]

Quick Facts

November 6, 2018 1:35PM EST
Estimated Assets: $174.7MSource: Docket 2
Estimated Liabilities: $265.1M to $290M+Source: Docket 2
# Creditors: 1,000 to 5,000Source: Voluntary Petition
Cause: Significant inventory discrepancy
(no further details)
Source: Docket 2
RMC Owner: 100% owned by Amended and Restated Richard Rubin Revocable TrustSource: Docket 2

Assets (per docket 2):
Cash $  8.5M
Inventory $141.2M
Plant/Equipment $ 25.0M
TOTAL: $174.7M
Liabilities (per docket 2):
Senior Debt $177.3M
Accounts Payable $  1.4M
Metal Obligations $ 86.3M
TOTAL: $265.1M

For assets: Cash should be money in bank accounts, inventory is likely a combination of finished goods owned by the company (e.g. RMC silver bars) and metal being refined for customers, and plant/equipment is the value of everything else (equipment, buildings, etc.).

For liabilities: Senior debt is money owed to lenders, who are secured creditors (they have liens against all assets, essentially meaning the proceeds from the sale of assets goes to them until they are paid off). Accounts payable are companies they owe money to for goods/services provided (e.g. the electric bill). Metal obligations likely includes customers who have sent metal to be refined, but could include other metal (e.g. if they store metal for some customers).

Although Metal Obligations shows as $86.3M, it may be higher: the top 30 unsecured creditors (which does not include the senior debt) are listed as being owed over $110M.

Expected Outcome

November 6, 2018 10:00AM EST
First, I need to make it clear for those of you that do not know me that I am not a lawyer, nor do I have any legal training. That said, I am one of the most knowledgable people regarding bullion bankruptcies and fraud.

If the asset and liability numbers submitted are correct (they aren't, but lets assume they are), RMC has $174M of assets, $177M of senior debt, and $86M of metal obligations (metal owed to refiners and other creditors). The senior lenders assert blanket liens against all RMC assets.

With a Chapter 11 bankruptcy (referred to as "reorganization"), the idea is that the business will continue running. In this case, that seems nearly impossible from the information given (they are some $100M underwater). But a Chapter 11 could allow them to sell the company as a going concern or sell the assets.

In a Chapter 11 bankruptcy, liens are considered secured debts. The assets backing the secured debts are usually sold, with all proceeds going to the creditor (up to the amount they are owed). So in this case, the expected outcome would be that all the assets would be sold (either as a going concern, or in pieces), with that ~$174M going to the secured creditors (senior lenders).

That would leave nothing left for the unsecured creditors (basically anyone that isn't a bank that lent money to them).

There are, as normal in a case like this, many unanswered questions. One is why they list only $86M of metal obligations, but the top 30 unsecured creditors are owed over $110M. Another is what happened to the $100M or so that RMC owes that it does not have. And pehaps the biggest is whether the significant inventory discrepancy was theft, accounting fraud, gross mismanagment of some sort, or something else.

RMC Files for Chapter 11 Bankruptcy

November 5, 2018 12:50PM EST
Republic Metals Corporation (RMC) has filed for Chapter 11 bankruptcy.

They filed under 3 names: Republic Metals Corporation, Republic Metals Refining Corporation, and Republic Carbon Company, LLC.

Trying to merge the 3 bankruptcies filings, it seems that they have assets of $101M-$500M and liabilities of $101M-$500M, with an estimated 1,000-5,000 creditors. Docket 2 estimates $174M of assets ($8M cash, $141M inventory, $25M equipment) and $264M of liabilities ($177M senior debt, $1.4M accounts payable, $86M metals obligations).

More details are available in a letter they sent to their partners.

It sounds like the main cause for the bankruptcy may have been: "In April 2018, [RMC] discovered a significant discrepancy in its inventory accounting as part of its preparation of 2017 year end financials and quarterly financials for the first quarter, 2018 ... a final report that confirmed inventory discrepancies in the Debtors' books and records." (from Docket 2.

The law firm handling the bankruptcy at this point has a webpage with lots of information about the case.

RMC tried selling its business to an unnamed "strategic refiner", but that deal could not go through in time to avoid a bankruptcy filing. The potential buyer is reportly Valcambi.

Have any information not in court documents? I have an anonymous tips page (which also has email contact info).

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