Essar Steel Algoma Inc., a Canadian steelmaker, started court proceedings in Ontario to carry out an agreement with a majority of unsecured bondholders to reorganize its debt.
Algoma also filed for creditor protection in the U.S., under Chapter 15 of the Bankruptcy Code, which gives foreign companies protection from creditors in the U.S. while they attempt to restructure their finances in another country. The company listed liabilities of more than $1 billion.
The company attributed the downward trend in its business to a combination of the economic downturn, severe weather disruptions, raw material prices increase and a rise in near-term pension costs, according to the bankruptcy filing.
Unsecured bondholders representing 70 percent of Algoma’s $384.7 million of 9.875 percent bonds due June 2015 agreed to a plan that would reduce leverage and recapitalize the steelmaker, according to a company statement today.
Under the agreement, bondholders will receive 32.5 percent of claims in cash and a new secured note for 55 percent of the old debt, according to the bankruptcy filing. The secured debt is to be refinanced. Essar Global Fund Ltd. will contribute as much as $300 million of new equity into the Canadian unit, including $100 million before the plan is approved, according to the bankruptcy filing.
Essar Global Fund is a unit of Mumbai-based Essar Global Ltd., which is Essar Steel Algoma’s parent.
After skipping a June 15 interest payment on the unsecured bonds, the Sault Ste. Marie, Ontario-based company entered negotiations with unsecured creditors as well as holders of its secured bonds to refinance or rework its $1.2 billion capital structure, according to a June 16 statement.
“This path offers the best means to maximize long-term value while offering certainty of supply for customers and continued security for our employees, retirees, vendors and all other important stakeholders, which were key considerations,” Algoma’s Chief Executive Officer Kalyan Ghosh said in today’s statement.
Essar Global will provide the equity infusion after Algoma refinances its $400 million of 9.375 percent secured bonds due March 2015, according to the statement.
The case is In re Essar Steel Algoma Inc., 14-11730, U.S. Bankruptcy Court, District of Delaware.