Steel Mills

US Steel Canada Running Out of Money

July 25, 2015

US Steel Canada has a new financial backer to help it through its credit protection period. A court hearing on Friday removed parent company US Steel as provider of debtor in possession (DIP) financing and installed Brookfield Capital Partners as the new lender.

The new lending package gives USSC access to $150 million to keep operations underway until the company can be restructured or sold. Although the interest rate and fees are higher (11 percent and 3 percent, respectively) the change in lender alleviates concerns by union leaders and the provincial government about US Steel having too much control over the sales process. Brookfield confirmed it will not participate in the sales or restructuring process, wrote court monitor Alex Morrison in his recommendation to accept the replacement DIP.

“The Replacement DIP Facility will provide the liquidity projected to be necessary for USSC to complete its restructuring in a stable manner while at the same time facilitating the completion of the (sales process) for the benefit of all stakeholders,” wrote Morrison.”

“From the beginning we have said the DIP financing should not have been held by U.S. Steel,” said Bill Ferguson, president of United Steelworkers union Local 8782.

For the reporting period April, May and June 2015, receipts were $400 million, $20.7 million higher than forecast. Disbursements totaled $452.6 million, $10.7 million greater than forecast. The cash balance at the end of the reporting period was approximately $124 million, down from $174 million at the start of the summer.

USSC did not utilize any of the DIP funds under US Steel. Morrison indicated in his 11th report that cash reserves are expected to drop to $31.7 million by the end of the forecast period on September 11. The cash will be needed to build inventory of raw material before freezing weather ends shipments on the St. Lawrence Seaway. In his forecast from July 1 through December 31, Morrison expects USSC will need to withdraw almost $90 million from the new DIP by the end of the year.

The Sale and Restructuring/Recapitalization Process (SARP) is now in Phase 2 with the deadline for binding bids extended two weeks to July 24, 2015.

The current credit protection was extended through September 11, 2015. The new DIP financing agreement extends credit to US Steel Canada until July 2016.