Steel Mills
Essar Steel Algoma Teetering on Insolvency
Written by Sandy Williams
October 29, 2015
According to a media reports, Essar Steel Algoma is in talks with senior lenders regarding entering insolvency. Bloomberg sources say a court filing is possible within the next month. Reuters said the company has hired law firm Weil Gotshal & Manges LLP and restructuring specialists Evercore Partners Inc. to advise it.
Canadian steelmaker, Essar Steel Algoma is no stranger to insolvency procedures. Algoma has filed for bankruptcy protection two times, and was under court protection most recently in July 2014. Last year, parent company Essar Global provided a capital infusion of US $100 million to shore up liquidity and allow for seasonal build of raw material. The agreement also provided for a total equity infusion from Essar of US $300 million concurrent with refinancing all of Algoma’s senior secured debt. An interest payment to debt holders of US $18 million is due next month.
The company was issued a “negative” outlook by Standard & Poor’s and Moody’s Investors Service. The company is considered at risk for paying debt obligations. The company is not expected to receive another rescue from its parent company.
Recently, Cliffs Natural Resources took Essar Steel Algoma to court over breach of contract on ore supply agreements. The court agreed in Cliff’s favor and severed the supply agreement with Algoma.
Low steel prices of less than $400 per ton for hot rolled coil has put pressure on all North American steel producers. Global steel overcapacity and an influx of unfairly traded imports has negatively impacted the bottom line for steelmakers, including Algoma.
Earlier this month Essar Steel Algoma began layoff of 100 employees in the plate and cold mills. On Oct. 29, salaried workers were meeting to vote on a work-share proposal that would enable two employees to share the same job instead of being completely cut from payroll.
“We’ve had to match staffing levels to production and we have experienced a sustained drop in steel prices and demand across North America and we can’t sustain current production levels. We need to respond appropriately, curtail our costs and our production levels,” said Essar Steel Algoma spokesperson Brenda Stenta in early October.
Sandy Williams
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