Essar Steel Algoma plans tender for notes as part of recapitalization

New York, Oct. 10 – Essar Steel Algoma said it plans to launch a tender offer for its senior secured notes as part of a recapitalization.

No further details of the offer were included in the late-Friday announcement.

But the company did say it will exercise the cash payout option for its existing 9 7/8% senior notes included in its plan of arrangement.

Last month Essar Steel Algoma obtained court approval for a plan of arrangement with holders representing about 92% of its 9 7/8% notes that includes a near-term capital infusion of up to $100 million of equity.

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.

Essar Global Fund Ltd. and its affiliates said they are providing more than $400 million of support to Algoma through the infusion of new cash equity, conversion of existing obligations into preferred equity and the purchase of the Port of Algoma.

The refinancing is expected to result in a $240 million reduction of gross debt and an increase in liquidity to approximately $90 million to $100 million.

As part of the refinancing, Essar Steel Algoma scheduled an Oct. 15 bank meeting for a new $350 million first-lien term loan due in 4.75 years, according to a term sheet.

The bookrunners are Deutsche Bank Securities Inc., as the left lead, Goldman Sachs & Co. and Jefferies & Co.

The new term loan is part of a $975 million debt facility that also includes junior secured debt.

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

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