The proposed recapitalization deal for Essar Steel Algoma has strings attached.
A lot of strings, in fact.
As announced last week, the deal proposes an investment of up to US$425 million in the Sault steelmaker, as part of either a restructuring plan or the acquisition of substantially all of Essar Algoma's assets.
But a SooToday review of the legal fine print suggests that any such deal will be conditional on negotiating relief from the $21-million property tax bill owed to the City of Sault Ste. Marie, as well as concessions from higher levels of government on pension and environmental obligations.
The recapitalization proposal is also conditional on government financial support.
So far, there's not a lot of specific detail on what's being sought, but the following is the language used in the restructuring support agreement signed on September 15 by about 77 percent of Essar Algoma's term loan lenders and approximately 73 percent of senior secured noteholders:
Conditions related to government
- environmental release
- revised suspected particulate matter standard
- acceptable benzo(a)pyrene standard
- financial support
- other operating permit issues
Conditions related to unions/employees
- amended collective bargaining agreements
- pensions/OPEB (other post-employment benefits) relief
- management agreements
- EIP
- other employee benefits
Conditions related to company/operating
- amendment of Port of Algoma agreements
- amendments to cogeneration facility agreements
- long-term supply agreement for iron ore
- long-term supply agreement for coal
- local tax authority agreements
India-based Essar Global is expected to lose control of the Sault mill if the recapitalization proposal is accepted by the Superior Court of Justice,
The composition of the board of directors of the restructured company or buyer would be reallocated based on relative size of equity ownership among the term lenders and senior secured noteholders.
According to one sworn affidavit filed in the Essar Algoma insolvency case, the company's principal term lenders include Bain Capital, GoldenTree Asset Management, Sankaty Advisors, and Oak Hill Capital Partners.
Bain Capital was founded in 1984 by Mitt Romney and two partners. Romney left the firm to run the 2002 Salt Lake City Winter Olympics and then campaigned in 2012 as Republican nominee for president of the United States. Bain has been widely criticized for taking million-dollar fees for loading up companies with debt, but an article last year in the Boston Globe described Bain as now being a very different company, with an emphasis on 'social-impact' investing.
GoldenTree Asset Management LP's holdings include 52 per cent of Postmedia Network Canada Corp., owner of the Sault Star, Sault This Week, Elliot Lake Standard, Sudbury Star, Timmins Daily Press, Timmins Times, North Bay Nugget, Barrie Examiner and many other Canadian newspapers.
Unraveling ownership issues surrounding the Port of Algoma and the cogen plant is viewed as especially important if the recapitalization plan is to succeed.
"The intercompany arrangements between Essar Steel Algoma Inc. and Port of Algoma Inc. and between Essar Steel Algoma Inc. and Essar Power Canada Ltd. must necessarily be addressed as part of the restructuring transaction," said Andrea Lockhart, a Toronto lawyer representing debtor-in-possession lenders and a majority of term lenders.
"To this end, the restructuring term sheet specifically provides that the amendment of the Port of Algoma agreements and the amendment of the cogen agreements must be agreed to or subject to waiver by the requisite consenting creditors as a condition to closing of the restructuring transaction," Lockhart said in an affidavit sworn last Thursday.
Today, lawyers representing the debtor-in-possession lenders will be in court, asking that Ernst & Young Inc., the court-appointed monitor, be authorized to commence an oppression proceeding under the Canada Business Corporations Act.
They will argue that Essar Global's leasing of the port and sale of the cogen facility ignored minority shareholders and have now resulted in an impasse in the proposed Essar Steel Algoma recapitalization.
The following is the full text of the Ontario government's announcement:
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Government of Ontario and Bedrock Industries Group sign MOU to facilitate restructuring of U. S. Steel Canada Inc.
Advances process to save jobs, industry and pensions in Hamilton and at Lake Erie
The terms of the MOU remain confidential until they can be released pursuant to a court process.
For its part, Ontario has agreed to a framework to support an acquisition proposal from Bedrock intended to protect pensions and assist in providing post-employment benefits.
The province has also agreed to support the development of industrial lands on behalf of pensioners in an effort to promote the economic development of the Hamilton region while ensuring that the environment continues to be protected.
In taking these actions, the province seeks to facilitate economic progress while minimizing financial risk for the public treasury.
Bedrock's principals have a long track record of owning and successfully operating businesses in the metals, mining and manufacturing and distribution sectors worldwide including in Canada.
Bedrock has been committed to working with all stakeholders, including organized labour, salaried workers, government and the affected communities, in order to provide well-paying long-term jobs and benefits as well as pursuing continuous improvement and ongoing financial strength.
The MOU and the contemplated restructuring remain subject to many conditions, including acceptance by USSC, ratified collective bargaining agreements with United Steelworkers union locals, agreements with certain stakeholders, government approvals and the approval of the court supervising USSC's CCAA proceeding.
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