Exide Creditors Cite Aluminum Cases in Bid for Price Probe

Jan 29, 2014 2:15 pm ET

(Updates with bond price in sixth paragraph.)

Jan. 29 (Bloomberg) -- Exide Technologies creditors are seeking to hire an antitrust expert to determine whether the bankrupt battery maker was the victim of a lead price-fixing scheme, citing probes of similar claims involving aluminum.

Exide makes lead-acid batteries used in cars, trucks, tractors and boats. The Milton, Georgia-based company filed for bankruptcy in June 2013, blaming higher lead prices and regulatory problems at its California recycling plant. Lead makes up 46 percent of the cost of goods sold by Exide.

The company’s official committee of unsecured creditors on Jan. 27 asked U.S. Bankruptcy Judge Kevin Carey in Wilmington, Delaware, for permission to hire a consultant to see whether “metal warehousing companies may have conspired to create artificial delays for the delivery of lead.” The filing didn’t state which companies might have been involved in such activity.

The Commodity Futures Trading Commission has subpoenaed Goldman Sachs Group Inc., JPMorgan Chase & Co. and Glencore Xstrata Plc, seeking documents relating to their warehouses for aluminum and other metals, people with knowledge of the probe told Bloomberg News in August.

“As a matter of policy, we do not comment on investigations or acknowledge the existence of such,” Dennis Holden, a CFTC spokesman, said in an e-mail yesterday when asked whether the agency was looking specifically at possible manipulation of lead prices. An Exide bankruptcy attorney, Anthony Clark, declined to comment on the creditors’ request.

Bond Price

Exide’s 8.625 percent bonds that mature in 2018 climbed almost 2 percent today to 76 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Shares rose less than one cent at 1:57 p.m. to 29.17 cents in over-the-counter trading.

Global aluminum costs were inflated by $3 billion through unfair rules that allow warehouse owners to slow deliveries, Tim Weiner, a global risk manager at brewer MillerCoors LLC, said in written testimony before his July 23 appearance at a U.S. Senate hearing.

About 25 lawsuits have been filed against the London Metal Exchange Ltd., Goldman Sachs and JPMorgan by plaintiffs including Gwinn, Michigan-based aluminum fabricator Superior Extrusion Inc.

The plaintiffs allege that the banks, exchange and warehouses conspired to drive up aluminum prices in violation of U.S. antitrust law. The banks have said the claims are without merit.

Storage Costs

As a result of delays in aluminum delivery, owners allegedly paid higher storage costs to London Metal Exchange- certified warehouses, a percentage of which was passed along to the exchange, the creditors said in their motion, citing regulatory actions, lawsuits and news reports. Delays also boosted prices, the creditors said.

If lead prices were manipulated, Exide might be able to sue for any damage it suffered, the creditors said. The creditors obscured the name of the consulting firm they seek to hire, saying its disclosure in court filings could reveal “confidential litigation strategy.” Under the U.S. Bankruptcy Code, any consultant would be paid by Exide.

Exide listed debt of $1.14 billion and assets of $1.89 billion in its Chapter 11 filing last year.

In addition to higher lead prices and the closing of a recycling plant, the company also blamed its bankruptcy on Wal- Mart Stores Inc.’s 2010 switch to Johnson Controls Inc. for car batteries, according to court papers. The loss of Wal-Mart, the world’s biggest retailer, reduced Exide’s sales by about $160 million a year, the company said.

The case is In re Exide Technologies, 13-11482, U.S Bankruptcy Court, District of Delaware (Wilmington).

--With assistance from Silla Brush and Cheyenne Hopkins in Washington and Andrew Harris in federal court in Chicago. Editors: Andrew Dunn, Charles Carter