NEW YORK Essar Steel Algoma Inc. has finalized the terms of an agreement that would provide the struggling steelmaker with a near-term capital infusion of $100 million.
The Sault Ste. Marie, Ontario-based flat-rolled steelmaker reached the deal with Essar Global Fund Ltd. and holders of more than 70 percent of its 9.875-percent senior unsecured notes.
Essar Steel Algoma will receive the first $25-million tranche of the capital boost within five business days of the agreement being completed, with the proceeds to be used to finalize scheduled capital improvements and a "seasonal raw material build," the company said July 24.
The steelmaker is slated to receive $300 million from Essar Global Fund once it refinances all of its senior secured debt (amm.com, July 16).
Under the terms of the agreement, unsecured noteholders, "in lieu of full repayment," will receive "a cash payment equal to 32.5 percent of the amounts owing on the notes plus a restructured, noncash pay junior lien instrument equal to 55 percent of the amounts owing on the notes," the company said.
The deal is subject to the company successfully completing its reorganization under the Canada Business Corporations Act and is expected to be finalized on or before Nov. 15.
"This agreement provides for a comprehensive capital infusion, a substantial deleveraging of our balance sheet and the refinancing of all of Algomas senior secured debt," chief executive officer Kalyan Ghosh said in a statement.
Essar Steel Algomas projections show earnings before interest, taxes, depreciation and amortization (Ebitda) "in the region of $300 million and cumulative unlevered free cash flows of over $700 million" between 2015 and 2019 based on market pricing inputs under a new iron ore contract, Gosh said.
"When combined with our strong business fundamentals, best quartile cost position and $90-per-ton run-rate Ebitda, Algoma is strongly positioned with the financial flexibility for the future," he said.
Gosh reassured constituents that Essar Steel Algoma would run as normal during the recapitalization process.
"There is no impact to employees, suppliers or customers. Production remains at normal levels and we do not expect any disruption to customer shipments," he said in a letter to customers.
The company recently filed for protection under Chapter 15 of the U.S. Bankruptcy Code, which gives foreign companies protection from creditors in the United States while they attempt to restructure their finances in another country (amm.com, July 17).