Essar Steel Algoma: KPS Capital pulls out of asset purchase consortium

By Caroline Salls

Pittsburgh, July 14 – Essar Steel Algoma Inc. received notification from its term lenders that a consortium agreement between KPS Capital Partners LP and some of the term lenders has been terminated, prompting the company to seek an adjournment of its motion for approval of an asset purchase agreement, according to a company news release.

As previously reported, Essar Steel Algoma entered into an asset purchase agreement for the sale of substantially all of its assets to a consortium of bidders formed by KPS Capital Partners and Essar’s pre-bankruptcy term lenders.

Essar said the consortium bid included cash consideration, a credit bid equivalent to the term loan and the assumption of specified liabilities.

In Thursday’s release, Essar said the term lenders remain committed to a going-concern outcome for the company and all of its stakeholders, as well as to closing the asset purchase transaction as soon as possible.

“While it is unfortunate that KPS has withdrawn from the consortium, I am pleased that the term lenders remain committed to closing the transaction,” Essar Steel Algoma chief executive officer Kalyan Ghosh said in the release.

“Algoma will seek to work with its stakeholders to achieve the optimal outcome for the future of Algoma, its employees, pensioners and the customers we serve.”

Union response

The United Steelworkers (USW) said in a news release that KPS’ withdrawal and the lenders’ plans to move forward with the purchase bid independently “is the latest twist in a mismanaged sale and investment solicitation process.”

The USW said the process so far has ignored the advice of key stakeholders who have a functional veto over the restructuring and prematurely excluded bidders.

“This flawed process lacked the bid tension needed to allow difficult decisions to be made in an informed way,” the union said.

USW District 6 director Marty Warren said in the release that “the USW understands KPS could have brought a lot to the table. But what they bring comes at a very steep price for the workers.”

“It is hard for a local union to recommend to its members that they pay such a high price when there are other serious bidders out there who appear to be offering materially better terms,” Warren said.

“I’m not even sure if we know who the term lenders are. So far, the only faces that they have put forward are those of their financial advisers and lawyers and once this process is over, those guys will be gone.

“It is hard to see what they can bring to the table besides money. All the bidders have that, and it seems that other bidders are prepared to leave more of it with the workers in Sault Ste. Marie.”

Going forward, the USW said it would like the restructuring effort to be more responsive to the interests of key stakeholders and is considering bringing a motion to the court seeking relief to that effect.

“With KPS withdrawing its bid, we now have the opportunity to put the restructuring back on track,” Lisa Dale, president of USW Local 2724 at Algoma, said.

Essar Steel Algoma is based in Sault Ste. Marie, Ont., and manufactures hot and cold rolled steel products. The company filed for bankruptcy on Nov. 9, 2015 in the U.S. Bankruptcy Court for the District of Delaware under Chapter 15 case number 15-12271.

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