Essar Steel Algoma Inc. (“Algoma”) announced today that it has finalized the terms of its support agreement and corresponding equity commitment with the investment fund that is the ultimate owner of Algoma, Essar Global Fund Limited (“EGFL”), and holders (the “Ad Hoc Noteholder Committee”) of more than 70% in principal amount of its 9.875% senior unsecured notes (the “Notes”).
This agreement provides Algoma with a near-term capital infusion from EGFL of up to US$100 million with the first US$25 million installment payable within five business days. This cash infusion will ensure the appropriate liquidity required to complete scheduled capital improvements and allows for the seasonal raw material build. The agreement provides for a total equity infusion from EGFL of up to US$300 million concurrent with the refinancing of all of Algoma’s senior secured debt, which will substantially deleverage Algoma’s balance sheet and reduce financing costs.
In lieu of full repayment of the Notes, holders of the Notes will receive a cash payment equal to
32.5% of the amounts owing on the Notes plus a restructured, non-cash pay junior lien instrument equal to 55% of the amounts owing on the Notes, subject to certain call rights. The transaction is subject to, among other things, the execution of definitive documentation, completion of the consensual processes under the Canada Business Corporations Act, and will be completed on or before November 15, 2014.
“This agreement provides for a comprehensive capital infusion, a substantial deleveraging of our balance sheet and the refinancing of all of Algoma’s senior secured debt. Our summary financial projections show EBITDA in the region of US$300 million and cumulative unlevered free cash flows of over US$700 million between FY2015 and FY2019 based on market pricing inputs under the new iron ore pricing contract. When combined with our strong business fundamentals, best quartile cost position and US$90 per ton run-rate EBITDA Algoma is strongly positioned with the financial flexibility for the future” said Kalyan Ghosh, Chief Executive Officer of Algoma
