Steel Mills

Confrontation Among Essar Steel Algoma Stakeholders

February 5, 2017

In the last week there have been four statements released regarding the restructuring of Essar Steel Algoma. The first began last weekend with an appeal by former parent company Essar Global to be readmitted to the bidding process for Algoma.

Essar Global criticized the Sales and Investment Solicitation Process (SISP) noting that KPS Capital dropped out of the running and the current bid by the Term Creditors seemed stuck in quagmire. Essar asserts that is was a “responsible owner” who has forged “good relationships with employees, community representatives, and other stakeholders” and should be considered as a potential buyer in bidding process.

Wrote Essar Global in their letter to court monitor Brian Denega, “The proposed transaction being pursued seems besieged with problems. After its principal capital sponsor backed out, the remaining members of the bidding consortium tried to proceed on their own. But they have failed to obtain critical support, including from unionized and non-unionized employees.

“The consortium has also made its proposal conditional on the imposition of non-consensual changes to ESAI’s contractual relationships for critical port services. There may very well be other deficiencies in the consortium’s proposal, in the form of necessary concessions or contributions from stakeholders and/or government bodies.

“We understand further from court filings that it has been inferred that a liquidation of ESAI may be necessary or otherwise considered should the bidding consortium’s troubled bid not proceed.”

Essar’s bid was originally terminated for failure to show sufficient funds to complete a transaction for the company. Essar made another try as Ontario Steel and, with the support of the union and the Port of Algoma, effectively blocked the purchase by KPS Capital. KPS withdrew its bid and the DIP Term lenders moved forward without KPS to purchase the assets.

Algoma sought from the Ontario court an “Oppression Remedy” proceeding against Essar Global Fund. The proceeding is centered on what Algoma considers an “onerous” lease agreement made by its parent company with Port of Algoma, an entity almost entirely owned by Essar Global Fund. The DIP lenders argued that Essar Global was employing “oppressive arrangements to hold the company and its stakeholders hostage” in the restructuring proceedings. That court case is ongoing.

On February 2, Essar Steel Algoma’s Secured Creditors responded to Essar Global’s letter with a statement of their own:

Dan Gagnier, spokesperson for the secured creditors, said, “The time for smoke and mirrors is over. Essar Global’s ownership, and its inability to manage the volatility of commodity pricing, is a principal reason why Algoma failed. It is also critically important to note that Essar Global was rejected from participating in the Algoma and Stelco sale processes multiple times given concerns regarding its financial wherewithal.”

Gagnier added, “In addition, we are alarmed by the number and magnitude of claims being advanced against the Essar Global entities by parties involved with or affected by Essar Global, including creditors, banks, suppliers, regulators, former Directors, and local communities. We certainly have significant concerns regarding the conduct of Essar Global as it relates to the Algoma operations and the negative impact certain decisions and affiliate transactions have had on its stakeholders and the Sault Ste. Marie community.”

Essar Steel Algoma CEO Kalyan Ghosh defended the company’s restructuring efforts in a statement issued on February 3.

Said Ghosh, “We take issue with the continued tactics deployed by Essar Global Fund Limited (EGFL) to circumvent the established Sale and Investment Solicitation Process and to disrupt the Restructuring Proceedings.”

Ghosh noted that Essar Global Fund “was given equal opportunity to compete in the process; and they did not advance.” Algoma, said Ghosh, is at a critical stage in its negotiations with a committed bidder whose proposal “aligns with Algoma’s targeted restructuring objective to emerge a stronger, more sustainable advanced steel manufacturer with substantially less debt and a capital infusion to invest in the company’s competitive position.”

In conclusion Ghosh added, “This attempt by EGFL to disrupt the Process at this late stage can only be viewed as opportunistic. EGFL’s actions are detrimental to the interests of the company and its stakeholders and the company intends to defend the integrity of the Process through to a successful exit from CCAA as a strong, sustainable going concern.”

Not one to sit on the sidelines in this debate, USW Local 2251 issued a response to the Essar Steel Algoma press release.

Said the union, “A robust SISP (Sales and Investment Solicitation Process) process has a number of interested entities bidding to acquire the assets of Essar Steel Algoma. There are a number of stakeholders entitled to consultation with respect to proposed bidders. A robust SISP process does not take place if only one person or entity is allowed to make a bid.”

The union citied several court orders that specified the union should be included in any discussions in respect to proposed bidders.

“None of the Unions were consulted or involved in the elimination of prospective bidders. The Union was presented with one successful bidder who subsequently left and now is presented with another successful bidder.”

In its press release, Local 2251 said, “Algoma’s news release states that they have a committed bidder. Local Union 2251 still believes that there are interested parties interested in purchasing the assets, which may provide a preferred solution.”