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Essar Algoma CEO Blasts Parent Company's Request to Reopen Sales Process
02/03/2017 - Essar Steel Algoma chief executive Kalyan Ghosh issued a statement Friday criticizing his company’s corporate parent, calling it “opportunistic” for making another pass at the business during late-stage negotaions with a potential buyer.
Ghosh was responding to a motion filed last week by Essar Global Fund Ltd. asking a Canadian court to reopen Essar Algoma’s sales and investment solicitation process, which began after the steelmaker filed for creditor protection in late 2015.
In the statement, Ghosh accused Essar Global of trying to “circumvent” the established sales process and “disrupt the restructuring.”
Essar Global had put down an offer for its subsidiary last year, but ultimately was rebuffed because it reportedly lacked the financial wherewithal to close on a deal. Essar Algoma is now in advanced negotiations with a group made up of its term lenders, who are promising to continue operating the business.
“This attempt by (Essar Global) to disrupt the process at this late stage can only be viewed as opportunistic,” Ghosh said in the statement.
Essar Capital filed the motion late last week, asking that the sales and investment solicitation process be reopened on grounds that nearly a year’s worth of effort has yet bear fruit.
“The sale transaction appears to be mired and the conditions precedent imposed by the term loan bidders appear incapable of satisfaction,” the motion said, according to the Salut Star newspaper. “A considerable amount of time and resources have been squandered pursuing solely the sale transaction to the exclusion of any other sale transaction or restructuring options.”
Additionally, Essar argued that because the circumstances and market conditions prompting the creditor protection filing have changed substantially, it would be worthwhile to explore other offers.
But Ghosh slammed that idea.
“The (solicitation process) has produced a committed bidder who is in the advanced stages of stakeholder negotiations. The recapitalization proposal that they have tabled 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,” he said.
“We have reached a critical juncture in the process, and it is in the best interest of the business, our customers, suppliers and employees that we come to a timely resolution. It is critical that all parties engage in focused, meaningful discussions to ensure the optimal outcome for all stakeholders.”
He also said that Essar Global had had an equal opportunity to compete for the business, but its offer failed to advance.
Separate from the motion, Essar wrote a letter to the court-appointed monitor in Essar Algoma’s creditor protection case, expressing concern over new terms related to an extension of its debtor-in-possession financing. One of those terms, the online SooToday.com reported, was that Essar Algoma prepare a comprehensive liquidation plan.
"It makes little sense to raise the specter of liquidation, given market conditions and the company's recent financial performance,” Essar Global wrote, according to the publication.
The letter prompted a strongly worded response from the majority of term lenders and bondholders, who accused it of trying to manipulate shareholders.
“The time for smoke and mirrors is over,” the group wrote. “Essar Global’s ownership, and its inability to manage the volatility of commodity pricing, is a principal reason why Algoma failed.” They also said that Essar Global was rejected several times from participating in sales process on concerns over its financial ability to close a deal.
Meanwhile, the group said it is negotiating a proposal that could reduce Essar Algoma’s debt by approximately CA$1.5 billion, provide up to CA$550 million of new capital and improve its financial flexibility.
“Algoma has been through four restructurings in its history, and it is our primary interest to help the company emerge from bankruptcy with the best chance of competing across any market cycle,” they wrote.
Essar Global is raising objections as the United Steeelworkers union and Essar Algoma begin to consider a new collective bargaining agreement. The current deal has expired, and the Steelworkers are working under a contract extension.
The court-appointed monitor in the case has said new agreement is a necessity for a successful restructuring. And failing to secure one sooner rather than later could have consequences – a strike or a lockout is cause for default under extended debtor-in-possession financing.
“Accordingly, the monitor reiterates its view that it is critical that the term lenders and the unions commence good-faith negotiations and that material progress be made to narrow the issues between the term lenders and the unions so as to move the applicants closer towards a successful restructuring,” the monitor wrote.
In the statement, Ghosh accused Essar Global of trying to “circumvent” the established sales process and “disrupt the restructuring.”
Essar Global had put down an offer for its subsidiary last year, but ultimately was rebuffed because it reportedly lacked the financial wherewithal to close on a deal. Essar Algoma is now in advanced negotiations with a group made up of its term lenders, who are promising to continue operating the business.
“This attempt by (Essar Global) to disrupt the process at this late stage can only be viewed as opportunistic,” Ghosh said in the statement.
Essar Capital filed the motion late last week, asking that the sales and investment solicitation process be reopened on grounds that nearly a year’s worth of effort has yet bear fruit.
“The sale transaction appears to be mired and the conditions precedent imposed by the term loan bidders appear incapable of satisfaction,” the motion said, according to the Salut Star newspaper. “A considerable amount of time and resources have been squandered pursuing solely the sale transaction to the exclusion of any other sale transaction or restructuring options.”
Additionally, Essar argued that because the circumstances and market conditions prompting the creditor protection filing have changed substantially, it would be worthwhile to explore other offers.
But Ghosh slammed that idea.
“The (solicitation process) has produced a committed bidder who is in the advanced stages of stakeholder negotiations. The recapitalization proposal that they have tabled 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,” he said.
“We have reached a critical juncture in the process, and it is in the best interest of the business, our customers, suppliers and employees that we come to a timely resolution. It is critical that all parties engage in focused, meaningful discussions to ensure the optimal outcome for all stakeholders.”
He also said that Essar Global had had an equal opportunity to compete for the business, but its offer failed to advance.
Separate from the motion, Essar wrote a letter to the court-appointed monitor in Essar Algoma’s creditor protection case, expressing concern over new terms related to an extension of its debtor-in-possession financing. One of those terms, the online SooToday.com reported, was that Essar Algoma prepare a comprehensive liquidation plan.
"It makes little sense to raise the specter of liquidation, given market conditions and the company's recent financial performance,” Essar Global wrote, according to the publication.
The letter prompted a strongly worded response from the majority of term lenders and bondholders, who accused it of trying to manipulate shareholders.
“The time for smoke and mirrors is over,” the group wrote. “Essar Global’s ownership, and its inability to manage the volatility of commodity pricing, is a principal reason why Algoma failed.” They also said that Essar Global was rejected several times from participating in sales process on concerns over its financial ability to close a deal.
Meanwhile, the group said it is negotiating a proposal that could reduce Essar Algoma’s debt by approximately CA$1.5 billion, provide up to CA$550 million of new capital and improve its financial flexibility.
“Algoma has been through four restructurings in its history, and it is our primary interest to help the company emerge from bankruptcy with the best chance of competing across any market cycle,” they wrote.
Essar Global is raising objections as the United Steeelworkers union and Essar Algoma begin to consider a new collective bargaining agreement. The current deal has expired, and the Steelworkers are working under a contract extension.
The court-appointed monitor in the case has said new agreement is a necessity for a successful restructuring. And failing to secure one sooner rather than later could have consequences – a strike or a lockout is cause for default under extended debtor-in-possession financing.
“Accordingly, the monitor reiterates its view that it is critical that the term lenders and the unions commence good-faith negotiations and that material progress be made to narrow the issues between the term lenders and the unions so as to move the applicants closer towards a successful restructuring,” the monitor wrote.
