Creditors in Essar Steel Algoma Inc. put forward a restructuring plan on Friday that would inject $425-million (U.S.) of new capital in the troubled steel maker and force out current owner Essar Global Ltd. of India.
Sault Ste. Marie, Ont.-based Essar Algoma, the city's largest employer, filed for creditor protection in November, 2015. Control of the company has been up for grabs since that filing. Creditors led by distressed debt fund GoldenTree Asset Management LP and private equity fund Bain Capital put forward a recapitalization plan in court on Friday that would see loans swapped for equity, reducing Essar Algoma's debt by approximately $1.15-billion, which would cut interest costs by $125-million annually.
The creditors pledged to backstop an Essar Algoma rights offering that would raise a minimum of $165-million in new equity. The rights offering could be increased to $200-million. Essar Algoma's term loan lenders, who include GoldenTree and Bain, would be offered 78 per cent of this equity, while senior secured lenders would be offered 22 per cent.
In addition, Essar Algoma's creditors pledged a total of $225-million in additional new loans. Essar Algoma also received an additional $35-million of debtor-in-possession (DIP) financing to keep the company operating. The Ontario Superior Court of Justice approved the new DIP financing on Friday and extended protection under the Companies' Creditors Arrangement Act to Jan. 31.
The extension will enable Essar Algoma to secure its raw materials and provide the stability necessary to continue operations, chief executive officer Kalyan Ghosh said in a statement Friday.
The co-operation between groups of lenders "signals a collaborative approach and we look forward to working with them, the United Steelworkers, the various levels of government and all other stakeholders toward a final plan that achieves our shared goal of a stronger, more competitive Algoma," Mr. Ghosh said.
"We intend to meet with the new bidders and hear what they have to say," said Lou Brzezinski, a lawyer for local 2251 of the United Steelworkers union, which represents employees at the Essar Algoma mill in Sault Ste. Marie. The union has been backing a $900-million bid for the company by Essar Algoma's former parent, Essar Global, through a company called Ontario Steel Investments Ltd. That entity has made an offer to buy Essar Algoma that includes the assumption of all pension liabilities and other post-employment benefit payments.
Essar Algoma needs money to build its inventories of coal and iron ore ahead of the winter freeze. The company has 3,000 employees – 69 per cent of the city's population is directly or indirectly dependent on Essar Algoma. The 1,600-acre facility can produce approximately four million tons of steel annually.
Through a spokesman, Essar Global declined comment Friday.
Essar Global acquired Algoma in 2007. The Mumbai-based conglomerate is controlled by the Ruia family, and has interests in construction, energy, services and retail, along with steel facilities. The company has run into controversy in India, as Essar Group has been accused of attempting to improperly influence politicians to obtain telecommunications spectrum and government contracts. Essar Group is also being investigated in India for avoiding taxes.