Sault Ste. Marie's steelmaker appears to have weathered the storm.
Prospective new owners have served notice that they're hoping to take charge of the local steel mill by the end of September, ensuring survival of 2,700 union and non-union jobs.
Superior Court Justice Glenn Hainey will be asked Wednesday, Aug. 22 to approve the sale of nearly all assets of Essar Steel Algoma Inc. (now Algoma) to a British Columbia-registered numbered company associated with Essar's term lenders and consenting senior secured noteholders.
A target date of Sept. 30 has been set to close the transaction, which covers worker pensions, city taxes, the co-generation plant, port and lenders who've kept Algoma afloat since it applied for insolvency protection on Nov. 9, 2015.
The news isn't all good, though.
The prospective new owners say they're unwilling to pay anything toward the more than $25 million owed to 125 Sault companies for work done before the steelmaker got Companies' Creditors Arrangement Act protection.
They're saying it will be up to the old company, Essar Steel Algoma, to pay those debts.
Here's how Brenda Stenta, Algoma's manager of communications and branding, describes what will happen now to local debts incurred before Nov. 9, 2015: "Any remaining pre-filing trade payables will remain with the old company and will be set off against the remaining assets through the claims process, which will be overseen by the monitor."
Sault Ste. Marie Construction Association has long feared its members would be frozen out of the final settlement for Essar creditors.
Today's news provides little solace to Adam Pinder, the construction group's executive director.
"My sense is that the local trade creditors aren't going to be receiving any of the dollars owed to them," Pinder said.
"They will endure and continue to endure a lot of hardship. Some of their business plans were drastically altered."
Algoma says the new deal would significantly reduce its debt, while providing new financing of up to US$300 million plus a new asset-based loan facility of US$125 million.
It would also provide liquidity to fund capital expenditures considered necessary over the next five years.
Stenta says the transaction will:
- significantly de-leverage Algoma's business from US$1.2 billion to US$300 million;
- maintain the pension plans with agreed go-forward funding for the benefit of current employees and retirees;
- provide for the payment of city taxes as agreed by the Municipal Property Assessment Corporation, the City of Sault Ste. Marie and the company;
- provide customers confidence that Algoma's future is stable and they should place their business with Algoma; and
- ensure Algoma remains a going concern business that is critical to the City of Sault Ste. Marie.
The proposed deal assures Essar Steel Algoma unimpeded access to the Port of Algoma and allows the steelmaker to extend port access to the new owner.
It promises "continued employment of substantially all of Algoma's non-unionized employees who are employed as of, today, Aug. 1, 2018 and all of Algoma's unionized employees."
Excluded from the proposed sale are legacy mining properties near Wawa and the Goudreau region, which may be offered for sale through a separate process.
If the sale is approved, ownership of the company will be transferred to 1076318 B.C. Ltd.
The transaction is conditional on the following:
- final agreement with the City of Sault Ste. Marie and Municipal Property Assessment Corp. regarding property taxes;
- addition of special regulations to Ontario's Pension Benefits Act with new collective agreements ratified and effective by closing date;
- releasing or indemnifying the proposed new owner from any pre-existing environmental liabilities;
- the new owner must enter into a minimum US$125 million asset-based lending revolving credit facility;
- consensus between parties on changes to the port agreement satisfactory to the new owner;
- the Port of Algoma lease must be transferred to the new owner at closing; and
- insolvency protection covering Algoma and the Port of Algoma must be extended until at least Sept. 20, 2019.
In May, the Superior Court ordered Algoma to stop all further investigations or actions regarding its alternative port proposal, pending the outcome of mediation on that issue.
The steelmaker says it is complying with that order.Recently ratified collective agreements with Algoma's major unions came into effect today.
The debtor-in-possession financing under which Algoma has been operating was to have expired at midnight but has been extended until Sept. 30, 2018.
Algoma's insolvency protection also remains in effect until at least Sept. 30, 2018.
The Sault steelmaker's cash on hand as of June 29, 2018 was $21 million.
The company projects its cash on hand will total about $137 million on Oct. 5.
Prices for North American hot-rolled steel coil have been unusually strong in recent months, surpassed US$900 for the first time since October 2008.
"However, in light of the high level of volatility in steel prices, it is uncertain how long the current favourable prices will last," the company says.
"In addition, management sees the risk of domestic steel prices facing increased pressure due to the ripple effects of the U.S. tariffs (especially if adequate Canadian anti-dumping measures cannot be implemented in time), potentially deepening an existing pricing gap between the U.S. and Canada."