UPDATE 1-Almatis lender stand-off risks debt deal-sources

* Almatis lenders table competing restructuring proposals

* Stalemate between senior and mezzanine lenders

* No agreement on standstill despite covenant breach

(Adds details, background)

By Tom Freke and Zaida Espana

LONDON, Oct 23 (Reuters) - A battle between lenders to debt-laden German metals processor Almatis has led to a standoff that threatens a $1 billion debt restructuring deal, three sources close to the situation said on Friday.

Without an agreement on the restructuring, the company may face a disorderly work-out of the debt, two of the sources said, which could further harm the value of the company.

Almatis declined to comment.

The company, acquired by Dubai International Capital [DUBAHP.UL] via a leveraged buyout in 2007, has been in restructuring talks for several months as it seeks to cope with debts of almost $1 billion.

With operations in several European countries, as well as the United States, advisers have explored options including a Chapter 11 bankruptcy protection filing, sources said.

"There is a big game of bluff going on but if we can't agree a deal in the next few weeks then a contested Chapter 11 process may be inevitable," said one of the sources.

DIC and a group of junior lenders -- including Alcentra, Babson Capital, North Western Mutual and Permira [PERM.UL] -- tabled an offer that would see $250 million of the mezzanine debt turned into equity.

The proposal competes with a rival offer from senior lenders, including distressed debt investor Oaktree Capital, which are pushing for a deeper balance sheet restructuring.

The rival offers need to win over a wider group of senior lenders, with two-thirds of them needed to agree any debt deal.

STAND-OFF VS STANDSTILL

Almatis has breached terms on its loan covenants but its different groups of lenders have so far been unable to agree a standstill deal, meaning Almatis has little protection from creditors seeking immediate repayment of their debts.

"It is a standoff rather than a standstill," one of the sources said.

The offer from Oaktree Capital -- which has formed a block with two other investors -- would see all of the junior debt and part of the senior debt written off.

Leaving the senior debt "whole" would appeal to many of the senior debt holders, which include Middle East banks, German banks and loan funds, the sources said.

Almatis, which was hit hard by falling worldwide demand for metals, has seen performance improve recently to generate monthly earnings before interest, tax, depreciation and amortisation (EBITDA) of between $8-10 million, two of the sources said. (Reporting by Tom Freke and Zaida Espana; Editing by Douwe Miedema and Karen Foster)