Essar Steel gets court OK for $300 million equity infusion agreement

By Susanna Moon

Chicago, Sept. 16 – Essar Steel Algoma, Inc. obtained court approval for its plans of arrangement for a $100 million capital infusion under its 9 7/8% senior notes.

The order by the Ontario Superior Court of Justice follows unanimous support by holders representing about 92% of the notes at the meeting Sept. 10, according to a press release from Essar Steel.

The order paves the way for the recapitalization and refinancing to close by Nov. 15, the company said.

“This plan provides for a comprehensive capital infusion, a substantial deleveraging of our balance sheet and the refinancing of all of Algoma’s senior secured debt,” Kalyan Ghosh, chief executive officer of Essar Steel Algoma, said in the press release.

“In recent months, we have been able to capitalize on the favorable market environment, building on sustainable operational improvements that positioned the company well for the future. In July and August alone we generated EBITDA of C$22 million and C$30 million, respectively. Our order book is full and we are currently taking orders for November.”

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As announced July 24, Essar Steel finalized the terms of its support agreement and related equity commitment with parent company Essar Global Fund Ltd. and holders of more than 70% of the 9 7/8% notes.

The agreement will provide Essar Steel with a near-term capital infusion of up to $100 million, with an initial installment of $25 million payable within five business days.

A total equity infusion of up to $300 million is allowed under the agreement concurrently with the refinancing of all of Essar Steel’s senior secured debt, which will deleverage Essar Steel’s balance sheet and reduce financing costs.

Holders of the 9 7/8% notes will not receive full repayment under the agreement; they will instead receive a cash payment equal to 32.5% of the amounts owing plus a restructured, non-cash pay junior-lien instrument equal to 55% of the amounts owing on the notes.

Ghosh previously said the agreement “provides for a comprehensive capital infusion,” and that financial projections for the company based on market pricing inputs under a new iron ore pricing contract show EBITDA in the region of $300 million and cumulative unlevered free cash flows of over $700 million between fiscal years 2015 and 2019.

The agreement will be finalized through the plan of arrangement under the Canada Business Corporations Act.

Essar Steel is based in Sault Ste. Marie, Ont., and manufactures hot and cold rolled steel products.

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