Steel Mills

Algoma Requests Financing Extension to March 2018

July 11, 2017

Essar Steel Algoma, rebranded as Algoma, is requesting a fourth extension to its financing as it continues toward emergence from bankruptcy protection. The last Debtor In Possession extension was denied by the court due to concerns that the financing would not cover the winter material build-up and could provide too much transaction leverage for the DIP lenders. The DIP agreement expired April 30 and an extension was requested to Aug. 31 with a conditional further 30-day extension.

The latest proposal extends financing through March 31, 2018, and provides the security requested by the court. Algoma court monitor Brian Denega said the new financing agreement gives the company sufficient liquidity and flexibility through the winter months and enhances prospects for a successful conclusion to its CCAA proceedings. A decision by the Ontario Superior Court is expected next week.

Algoma hopes to conclude purchase by September

The DIP lenders continue to be engaged in negotiations with stakeholders to close a transaction to acquire Algoma. Denega called the recapitalization arrangement with the lenders “the best and only viable prospect to continue as a going concern.”

Under the transaction agreement, the lenders, which include Deutsche Bank, will receive a 78 percent share in the company with the other 22 percent held by investors holding Algoma’s senior secured notes. Algoma hopes to conclude the transaction by the end of September.

Mediated discussions with the labor unions are currently on hold. USW Local 2251 has caused consternation by making overtures during the course of the CCAA proceedings to other potential buyers, including Algoma’s former owner Essar Global Fund (i.e., Ontario Steel). In April, the union signed a letter of support for acquisition by MAGA Steel, run by Tom Cooke. MAGA was rejected by Algoma due to purchase price and funding concerns. On June 29, Local 2251 published a message to its members stating it is working on another purchase agreement to present to the court if necessary. The potential buyer was not identified. Alan Kestenbaum, chair of Bedrock Industries and new owner of Stelco, told the Hamilton Spectator last week that he is still interested in acquiring Algoma.

In an affidavit supporting the DIP extension, Algoma financial advisor Bo Yi stated that the steel and capital markets currently are strong and Algoma cannot afford to “miss the window of opportunity to emerge from CCAA proceedings.”

“Attempts at pursuing proposed transactions with OSI, MAGA or the inevitable next strawman are a distraction to stakeholders achieving to the necessary agreements to reach a viable restructuring solution,” said Yi. “Expending the applicants’ time and resources on these distractions without the support of the consenting creditors is not in the best interests of the applicants or their stakeholders and is counterproductive to the applicants’ restructuring efforts,” he added.

Algoma doubled its cash flow projection for June due to favorable timing variances, reported Denega. Net cash flow was U.S. $1.5 million last month and cash on hand was U.S. $26.3 million.

A new judge, Justice Glenn Hainey, has been assigned to the Algoma proceedings following the retirement of Justice Frank Newbould last month.