Court File and Parties

COURT FILE NO.: CV-24-00729147 DATE: 20241011

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF ACCURIDE CANADA INC. APPLICANT

BEFORE: W.D. BLACK J.

COUNSEL: M. Wasserman, S. Irving, M. Calvaruso, A. Rintoul, Counsel for the Applicant C. Moore, Chief Restructuring Officer of the Applicant T. Ray, Proposed Monitor J. Ernst and M. Shakra, Counsel for the Proposed Monitor J. Linde and R Chadwick, Counsel to Ad Hoc Committee of Term Loan Lenders

HEARD: October 10, 2024

Endorsement

[1] Accuride Canada Inc. (the “Applicant”), seeks an initial order (the “Initial Order”) and related relief under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (the “CCAA”, and the within proceedings the “CCAA Proceedings”).

[2] The evidence to support the requested relief is set out in the Affidavit of Charles Moore, sworn October 9, 2024 (the “Moore Affidavit”).

[3] The Applicant is part of the Accuride group of companies (the “Accuride Group”), a global leader in wheels and wheel end products which is headquartered in Livonia, Michigan. The Applicant is the Canadian subsidiary of Accuride Corporation (“Accuride Corp”), which comprises the domestic U.S. operations of the Accuride Group. The Applicant operates a large manufacturing facility in London, Ontario (the “London Plant”), which provides manufacturing and distribution services for the Accuride Group’s Wheels North America business segment (“AWNA”). The London Plant produces and sells single and dual steel wheels and blanks.

[4] The entire Accuride Group business, including the Applicant, is facing significant economic challenges. In addition to the problems facing the Accuride Group as a whole, the Applicant has experienced a number of unique challenges that have negatively impacted profitability and cash flows, including increased costs, decreased demand for the products manufactured at the London Plant and low utilization. The Applicant’s financial challenges have been exacerbated by the unwillingness of General Motors Company (together, with its subsidiaries and affiliates, including General Motors of Canada, “GM”), its largest third-party customer, to renegotiate the pricing of its contracts with the Applicant. As a result of these issues, the London Plant has failed to operate at a profit for over a decade, and is heavily reliant on operational and financial support from Accuride Corp.

[5] The Accuride Group has pursued a series of operational initiatives directed at eliminating drags on profitability and extending runway to allow demand for the Accuride Group’s products to improve. Accuride Corp retained Perella Weinberg Partners (“PWP”) as investment banker and launched a comprehensive marketing process in early August 2024 for some or all of its business. While the marketing process remains ongoing, the existing bids received have not generated sufficient value to present an attractive opportunity to transact and, to date, has not generated any bids for the Applicant. Accuride Corp has determined to pursue a standalone restructuring transaction, and has entered into a restructuring support agreement term sheet (the “Accuride Corp RSA Term Sheet”) with an ad hoc group (the “Ad Hoc Group”) representing lenders under Accuride Corp’s existing term loan credit agreement. Under the terms of the Accuride Corp RSA Term Sheet, Accuride Corp and certain of its affiliates (collectively, the “Chapter 11 Debtors”) have commenced proceedings under chapter 11 of the United States Bankruptcy Code (the “Chapter 11 Proceedings”), with the intention that the term lenders will ultimately become the new owners of the Chapter 11 Debtors by equitizing the term loan obligations.

[6] The Applicant is not a Chapter 11 Debtor nor party to the Accuride Corp RSA Term Sheet, and Accuride Corp is unwilling to continue supporting the Applicant, which is not profitable on a standalone basis and, given the Applicant’s high production costs, intends to out-source the production of blanks to third parties. Without continued operational and financial support, the Applicant is insolvent. The Applicant submits that it requires CCAA protection in order to obtain the breathing space necessary to allow the marketing process currently being conducted by Accuride Corp, with the assistance of PWP, to continue for a brief period to determine whether there is a potential for a going concern transaction involving Applicant’s business, failing which the Applicant will pivot to an orderly wind-down of its operations.

[7] The Applicant therefore seeks a stay of proceedings (the “Stay of Proceedings”) for the initial ten-day period (the “Initial Stay Period”) under s. 11.02(2) of the CCAA, together with related relief necessary to preserve the Applicant’s business and stakeholder value during the Initial Stay Period, including the appointment of PricewaterhouseCoopers Inc. as monitor in these proceedings (the “Proposed Monitor”). This application is being made in coordination with the parallel main proceeding commenced by Accuride Corp and the other Chapter 11 Debtors in the United States Bankruptcy Court for the District of Delaware.

Summary of Facts

[8] The facts are more fully set out in the Affidavit of Charles Moore.

[9] The Applicant is incorporated pursuant to the laws of Ontario and is headquartered in London, Ontario. The Applicant is a direct and wholly owned subsidiary of Accuride Corp, which is in turn a wholly owned subsidiary of Armor Parent Corp.

[10] The Accuride Group is a global leader in wheels and wheel end products, with a focus on the medium to heavy-duty commercial truck and trailer industry, and a North American leader in wheel-end components and assemblies. The Accuride Group has manufacturing operations in the U.S., Canada, Mexico, Germany, France, Russia, Turkey and China, and is divided into three main business segments, including AWNA, which provides high quality steel and aluminum wheels to more than a thousand commercial vehicle manufacturers and aftermarket distributors.

[11] As part of AWNA, the Applicant operates the London Plant, a 570,000 square foot automated manufacturing facility situated on 37 acres in London, Ontario. The Applicant manufactures three products at the London Plant, namely blanks (which are used in the disc manufacturing process), along with single steel and dual steel wheels.

[12] Single and dual steel wheels are sold by the Applicant to Accuride Corp and to a variety of third-party customers, including GM, which alone constitutes approximately 75% of the Applicant’s aggregate third-party sales as of July 2024. On a smaller scale, the Applicant also sells its manufactured products to other third parties including Isuzu Motors Ltd., Navistar International Corporation, Daimler Truck North America LLC, Hino Motors Canada Ltd., Paccar Inc. and Wabash National Corporation. Blanks are manufactured and supplied by the Applicant to Accuride Corp, which are then used in the manufacturing of end-products for third party sales. Intercompany sales to Accuride Corp represent approximately two-thirds of the Applicant’s aggregate sales.

[13] As of August 27, 2024, the Applicant had a total of approximately 38 salaried full-time workers and 180 hourly full-time workers servicing the Applicant’s business in Canada, for a total of 218 active employees. All hourly full-time employees are unionized through a collective bargaining agreement between the Applicant and Unifor, Local 27, Unit 17. None of the Applicant’s salaried employees are unionized.

[14] The Applicant is the sponsor of two defined benefit pension plans (which were wound-up effective December 31, 2022 and are both in a surplus position), maintains several health and welfare plans for certain retired employees and provides various benefits to active employees.

[15] Accuride Corp is a party to contracts with three primary steel suppliers: ArcelorMittal Dofasco Inc. (which represents approximately 35% of the Applicant’s steel supply), Algoma Steel Group Inc. (approximately 43%) and Stelco Holdings Inc (approximately 21%). The Applicant relies on the steel supplied under these contracts for its operations at the London Plant, as steel accounts for approximately 99% of the material cost of a steel wheel.

Intercompany Arrangements (Pre-Filing)

[16] As an integrated group, members of the Accuride Group engage in a variety of intercompany arrangements, including the sale of goods and the sharing of certain operational resources and management services. In particular, the Applicant participates in the following intercompany arrangements with Accuride Corp:

(a) Intercompany (Unsettled) Sales: The majority of the blank production of the Applicant is sold to Accuride Corp and certain of its subsidiaries pursuant to a manufacturing service agreement (the U.S.-Canada Manufacturing Arrangement”), which provides that the wheels and components are sold at a price based on the total manufacturing costs plus a mark-up. Pursuant to the U.S.-Canada Manufacturing Agreement, the Applicant also purchases components from other Accuride Group entities on the same terms, though at a smaller scale.

(b) Cash Transfers: Accuride Corp provides ongoing financial support to the Applicant to fund its operations, including payroll and vendor payments, as cash receipts from third-party sales are not sufficient to cover the Applicant’s operating costs.

(c) Corporate SG&A Allocations: The Applicant relies on Accuride Corp for certain administrative and business support services that are integral to the Applicant’s operations. These services include executive, legal, IT, freight, processing, insurance, tax, financial accounting, and treasury, among other things (together, the “Management Services”). Accuride Corp also provides specifications, technology, and the know-how required for Accuride Canada to manufacture its wheels. The Applicant also performs certain intra-group services, such as activities related to sales, customer service, and inventory/distribution for the Accuride Group upon request, at fully burdened cost, allocated on the basis of time spent.

Intercompany Agreement (Post-Filing)

[17] The Applicant and Accuride Corp have formalized those intercompany arrangements which are expected to continue after the filing date into an intercompany agreement (the “Intercompany Agreement”). The Intercompany Agreement confirms, inter alia, intercompany arrangements in respect of:

(i) the continuing sale of blanks by the Applicant to Accuride Corp; (ii) that amounts payable by third party customers to the Applicant will be paid or promptly turned over to the Accuride Canada Account (as defined in the Moore Affidavit); (iii) the creation of a “blank bank” and a “wheels bank” by the Applicant during these CCAA Proceedings for sale to Accuride Corp (as discussed below), and the consideration to be provided by Accuride Corp in respect of the same; (iv) the provision of raw materials needed for the Applicant’s operations during these CCAA Proceedings; and (v) the provision of Intercompany Loans (as defined below) from Accuride Corp to the Applicant during these CCAA Proceedings, and the execution of a promissory note (the “Intercompany Note”) by the Applicant in respect of the same.

Financial Position of the Applicant

[18] As of August 31, 2024, the Applicant had combined total assets of approximately $23.3 million, and total liabilities of approximately $28 million, with negative $4.7 million in equity. From a cash flow perspective, the Applicant incurred a $7.4 million EBIT loss in 2023, and an approximately $6.9 million EBIT loss in the first half of 2024.

[19] As of August 31, 2024, there are approximately $84 million in intercompany obligations owing from Accuride Corp to the Applicant, which are comprised of: (i) an unsecured promissory note issued by Accuride Corp to the Applicant on January 1, 2019, which has an outstanding balance of $63 million; and (ii) the net balance of all other intercompany receivable/payable activity, which total receivables of approximately $22 million.

[20] The Applicant does not have any third-party funded debt obligations and is not a borrower or guarantor under Accuride Corp’s pre-filing loan facilities.

[21] Accuride Corp intends to quickly proceed to the solicitation of votes on and confirmation of a Chapter 11 plan. Accuride Corp has indicated that it is not prepared to continue providing operational and financial support to the Applicant and has confirmed that the Applicant will not be part of a restructured Accuride Group following the Chapter 11 Proceedings. Accuride Corp has also indicated that it intends to out-source production of blanks to third-party suppliers, owing to the Applicant’s high production costs and financial challenges.

[22] Without the support of Accuride Corp and the continued business of the Accuride Group, the Applicant’s cash flows will be significantly diminished, and it will be unable to meet its liabilities and obligations as they become due. The Applicant has determined that commencing these CCAA Proceedings is in the best interests of both the Applicant and its stakeholders. The Applicant submits that the breathing space granted by the CCAA will allow the marketing process currently being conducted by Accuride Corp to continue for several weeks to determine whether there is a potential for a going concern transaction involving the Applicant’s business, failing which the Applicant will pivot to an orderly wind-down of its operations. During this time, the Applicant intends to continue operations in order to build an approximate three-month supply of blanks (a “blank bank”), which will ensure an uninterrupted supply of blanks to Accuride Group pending the formalization of arrangements with third-party blank suppliers.

[23] The CCAA applies to a “debtor company” or affiliated debtor companies where the total claims against the debtor or its affiliates exceeds five million dollars.

[24] I am satisfied that the Applicant is a “company” for the purposes of s. 2 of the CCAA as it does business and has assets in Canada. The Applicant is further a “debtor company,” which means, inter alia, a company that is insolvent.

[25] The Applicant is both balance sheet insolvent and is currently facing an imminent liquidity crisis.

[26] Subsection 9(1) of the CCAA provides that an application for a stay of proceedings under the CCAA may be made to the court that has jurisdiction in the province in which the head office or chief place of business of the company in Canada is situated, or, if the company has no place of business in Canada, in any province within which any assets of the company are situated.

[27] I am satisfied that the Applicant fulfils these requirements. The Applicant is headquartered in London, Ontario and is incorporated pursuant to the laws of Ontario. Further, the chief place of business of the Applicant is Ontario, as the Applicant’s employees and the London Plant are located in Ontario.

The Stay of Proceedings Should be Granted

[28] Section 11.02(1) of the CCAA permits the Court to grant an initial stay of up to 10 days on an application for an initial order, provided such a stay is appropriate and the Applicant has acted with due diligence and in good faith.

[29] In Lydian, one of the first cases to interpret this provision, Morawetz C.J. stated that the Initial Stay Period preserves the status quo and allows for operations to be stabilized and negotiations to occur, followed by requests for expanded relief on proper notice to affected parties at the full comeback hearing. Whether particular relief is necessary to stabilize a debtor company’s operations during the Initial Stay Period is an inherently factual determination, based on all of the circumstances of the particular debtor.

[30] The Applicants submits that each aspect of the relief sought in the Initial Stay Period is interdependent, and collectively the relief is critical to allow the Applicant to properly respond to the circumstances in which it finds itself. All of the requested relief consists of exactly the type of essential measures contemplated by s. 11.001 of the CCAA.

[31] In particular, the Applicant submits that the courts have held that ss. 11 and 11.02 of the CCAA authorize the court to stay rights held by creditors to effect pre-filing versus post-filing set‑off (Pride Group Holdings Inc. et al. (Re), 2024 ONSC 2026 at paras 561-52 [Pride Group]). The Supreme Court has held that set-off rights of this type are, aside from “rare exceptions,” subject to the CCAA stay of proceedings (Montréal (City) v. Deloitte Restructuring Inc., 2023 SCC 53 at para. 4), and orders which permit set-off rights of this type to be exercised only with the consent of the Monitor and the court are routinely granted in CCAA proceedings (Pride Group, at paras. 51-52). The Applicant submits that an order both accords with the law as stated by the Supreme Court, is appropriate in the circumstances, as any attempts by creditors to exercise set‑off rights of this type would both restrict the Applicant’s liquidity and distract the Applicant’s management from the ongoing marketing process at a crucial time in the Applicant’s restructuring.

[32] In connection with the Chapter 11 Proceedings, Accuride Corp, as borrower (in such capacity, the “DIP Borrower”), has entered into a debtor-in-possession credit facility (the “Accuride Corp DIP Credit Agreement”) with Armor Parent Corp., Accuride Intermediate Co., Inc., Accuride Group Holdings, Inc., Alter Domus (US) LLC, as administrative agent and collateral agent, and the lenders party thereto from time to time (the “DIP Lenders”), pursuant to which the DIP Borrower is authorized to obtain senior secured post-petition financing on a super‑priority basis in the aggregate principal amount of up to $103 million. The Applicant is not a borrower or guarantor under the Accuride Corp DIP Credit Agreement.

[33] As a condition of the Accuride Corp DIP Credit Agreement, the Applicant and Accuride Corp have entered into the Intercompany Agreement, which among things provides that Accuride Corp shall provide intercompany loans (the “Intercompany Loans”) to the Applicant. The Intercompany Loans shall accrue interest at a rate of the applicable SOFR + 8%. On the Filing Date.

[34] In order to secure the Intercompany Loans, the Applicant has agreed to grant a priority charge (the “Intercompany Charge”) in favour of Accuride Corp. The Intercompany Charge is proposed to be secured by all of the assets of the Applicant (the “Property”), and to rank behind the Administration Charge and the Directors’ Charge and ahead of all other security interests, charges and liens. The quantum of the Intercompany Charge will not exceed the amount of the Intercompany Loans made to the Applicant, if any, plus interest and fees accrued thereon and the reasonable fees and disbursements of Canadian counsel to the DIP Lenders at their standard rates and charges.

[35] Importantly, the quantum of the Intercompany Charge is limited to amounts attributable to post-filing advances, and therefore only secures amounts which will directly benefit the Applicant over the course of these CCAA Proceedings.

[36] Post-filing intercompany loans secured by intercompany charges have previously been approved by the court. The approval of such loans and charges is authorized by s. 11 of the CCAA, which authorizes the courts to make such orders as are considered appropriate.

[37] In addition, to the extent that the Intercompany Loans are characterized as interim financing, I am satisfied that they fulfil the requirements found in s. 11.2 of the CCAA. Section 11.2(4) of the CCAA lists the factors to be considered by the court in deciding whether to approve interim financing and grant an interim financing charge. The court in Canwest Publishing additionally emphasized the importance of meeting the criteria listed in s. 12(1) of the CCAA, namely whether: (i) secured creditors likely to be affected by the security or charge have been notified; (ii) whether the amount of the charge is appropriate; and (iii) whether the security or charge secures pre-filing obligations. Finally, when an application for interim financing is made at the same time as an initial application, the applicant must additionally satisfy the court that the terms of the loan are “limited to what is reasonably necessary for the continued operations of the debtor company in the ordinary course of business during that period [i.e. the initial stay period].”

[38] I am satisfied that factors favour the requested relief. Further, under the terms of the proposed Initial Order, the amount of the Intercompany Loans will be limited to USD $3.6 million until the Comeback Hearing, an amount designed to address the Applicant’s needs during the Initial Stay Period.

Authority to Permit Pre-Filing Payments to Critical Third Parties

[39] The Applicant also seeks authorization, with the consent of the Proposed Monitor, to make payments of pre-filing amounts to: (i) logistics or supply chain providers, including transportation and customs brokers; and (ii) and to other third-party suppliers or service providers up to a maximum amount of $350,000 during the Initial Stay Period.

[40] The Applicant contends that the uninterrupted supply of certain products is critical to the ongoing operations at the London Plant, and by extension the preservation of the value of the Applicant’s business. While the proposed Initial Order prevents counterparties from terminating existing supply arrangements, the Applicant fears that suppliers of critical goods may be tempted to cease supplying products and services if they are not fully paid in respect of pre-filing amounts, notwithstanding of the terms of the Initial Order. Any disruptions of these products and services could jeopardize the continued operation of the Applicant’s business during these CCAA Proceedings.

[41] The Court has exercised its jurisdiction on multiple occasions to grant similar relief. The court in Index Energy Mills Road Corporation outlined the factors that courts have considered in determining whether to grant such authorization, including (a) whether the goods and services are integral to the business of the applicant; (b) the applicant’s dependency on the uninterrupted supply of the goods or services; (c) the fact that no payments will be made without the consent of the Monitor (which is a requirement under the proposed Initial Order); and (d) the effect on the debtors' operations and ability to restructure if it could not make such payments. I am satisfied that these factors are fulfilled in this case.

[42] Pursuant to s. 11.52 of the CCAA, the Applicant is requesting an Administration Charge in favour of the Proposed Monitor, its counsel, Canadian counsel to the Applicant, and Alvarez and Marsal Canada ULC, in its capacity as financial advisor to the Applicant, as security for their respective fees and disbursements up to a maximum of $950,000 (the “Administration Charge”), which amount covers the time period until the Comeback Hearing. The quantum of the Administration Charge was developed in consultation with the Proposed Monitor and is proposed to be secured by the Property and to have first priority over all other charges and security interests.

[43] In my view, the requested Charge satisfies the well-accepted factors originally established by Pepall J. in Canwest Publishing. Among other factors, the requested amount is fair and reasonable, and appropriate to the size and complexity of the businesses being restructured (Target, at para. 74, citing Canwest Publishing, at para. 39; Just Energy at paras. 112 to 113). In addition, the initial amount requested is tailored only to the needs within the Initial Stay Period.

[44] In accordance with s. 11.51 of the CCAA, the Applicant also seeks a directors and officers charge in the amount of $610,000 until the Comeback Hearing (the “Directors’ Charge”). The Director’s Charge is proposed to be secured by the Property and to rank behind the Administration Charge and the Intercompany Charge.

[45] The Accuride Group’s directors and officers, including those of the Applicant, are among the potential beneficiaries under liability insurance policies. These policies, which cover the entire Accuride Group enterprise, may not provide sufficient coverage for the potential liability that the director and officers could incur in relation to these CCAA Proceedings.

[46] In light of the potential liabilities and the insufficiency of available insurance, I am satisfied that the Directors’ Charge should be granted.

[47] In summary, the Applicant is granted protection under the CCAA and an order reflecting the foregoing has been signed.

[48] A comeback hearing has been scheduled for October 18, 2024.

W.D. BLACK J. DATE: October 11, 2024