With Debt Payment Coming Due, Essar Steel Algoma Files for Creditor Protection
11/09/2015 - Canada’s Essar Steel Algoma Inc. has filed for creditor protection under Companies' Creditors Arrangement Act (CCAA), marking its second round of debt restructuring in recent years.
In a statement, Essar Steel Algoma President and CEO Kalyan Ghosh said that despite aggressive cost-reductions and productivity enhancing measures, the company has been forced to seek protection on account of low prices and a barrage of imported steel.
He also blamed what he said was the wrongful termination of its long-term iron ore supply contract with Cliffs Natural Resources.
"This process will provide the company with the time and stability to restructure our finances. We expect that Essar Steel Algoma will emerge stronger and better able to compete as an advanced manufacturer," he said.
“I want to assure our customers, vendors and employees that we fully expect this restructuring not to disrupt daily operations," Ghosh said.
Also, the company said it has secured US$200 million in debtor-in-possession financing from a syndicate of lenders by Deutsche Bank AG, giving the company adequate liquidity to operate while it restructures its debt.
The filing is before the Ontario Superior Court of Justice, which has appointed Ernst & Young Inc. to act as monitor. The company has also made a concurrent Chapter 15 bankruptcy filing in U.S. federal bankruptcy court.
Evercore Group LLC is serving as Essar Steel Algoma’s financial adviser. Weil Gotshal & Manges LLP and Stikeman Elliott LLP represent the company as outside U.S. and Canadian legal counsel, respectively.
Based in Sault Ste. Marie, Ont., Canada, Essar Steel Algoma Inc. was acquired in 2007 by India’s Essar Steel Holdings Ltd. It primarily makes hot rolled and cold rolled flat products.
According to The (Toronto) Globe and Mail newspaper, the company last went through a restructuring in 2014 under the Canada Business Corporations Act. On the last go-around, it reached a deal to restructure more than US$300 million in debt.
The newspaper said the company has a US$25 million interest payment on that debt due this week, but is in a severe cash crunch.
He also blamed what he said was the wrongful termination of its long-term iron ore supply contract with Cliffs Natural Resources.
"This process will provide the company with the time and stability to restructure our finances. We expect that Essar Steel Algoma will emerge stronger and better able to compete as an advanced manufacturer," he said.
“I want to assure our customers, vendors and employees that we fully expect this restructuring not to disrupt daily operations," Ghosh said.
Also, the company said it has secured US$200 million in debtor-in-possession financing from a syndicate of lenders by Deutsche Bank AG, giving the company adequate liquidity to operate while it restructures its debt.
The filing is before the Ontario Superior Court of Justice, which has appointed Ernst & Young Inc. to act as monitor. The company has also made a concurrent Chapter 15 bankruptcy filing in U.S. federal bankruptcy court.
Evercore Group LLC is serving as Essar Steel Algoma’s financial adviser. Weil Gotshal & Manges LLP and Stikeman Elliott LLP represent the company as outside U.S. and Canadian legal counsel, respectively.
Based in Sault Ste. Marie, Ont., Canada, Essar Steel Algoma Inc. was acquired in 2007 by India’s Essar Steel Holdings Ltd. It primarily makes hot rolled and cold rolled flat products.
According to The (Toronto) Globe and Mail newspaper, the company last went through a restructuring in 2014 under the Canada Business Corporations Act. On the last go-around, it reached a deal to restructure more than US$300 million in debt.
The newspaper said the company has a US$25 million interest payment on that debt due this week, but is in a severe cash crunch.
