If you did business with Essar Steel Algoma before November 9th, 2015, chances are you’re not going to get paid.
That’s the word coming from Essar Steel Algoma CEO Kalyan Ghosh to creditors this week as the steelmaker filed for creditor protection.
“Essar Steel Algoma commenced restructuring proceedings in Canada under the
Companies’ Creditors Arrangement Act, also known as the CCAA, and in the United
States under Chapter 15, which recognizes and gives effect to the Canadian filing. We
are pursuing this course of action in order to provide the Company with time to
restructure its finances, while continuing normal operations. We have secured a USD
$200 million debtor-in-possession (DIP) financing facility from a syndicate of lenders led
by Deutsche Bank AG, providing us with adequate liquidity to operate while we
restructure our debt. This will enable us to continue to pay suppliers in the ordinary
course for materials and services required by the Company after the date of filing.” Ghosh said in an email to creditors this week.
About $38 million in total is owed to Sault Ste. Marie businesses alone including the city of Sault Ste. Marie who is out of pocket close to $14 million.
“The Initial Order under the CCAA generally prohibits us from paying for any goods and
services that were received before November 9th, 2015. We understand the impact this
may have on you and your business, and we are committed to working with you to the
best of our ability throughout the process to minimize this impact, while complying with
the terms of the Initial Order.” Ghosh said.
Over 120 Sault Ste. Marie firms that have done business with Essar could be in for a long wait to collect and what they collect will likely be pennies on the dollar as with any restructuring when creditors are owed money. “If you are owed monies for goods or services supplied prior to the filing you will have the opportunity to file a Proof of Claim once the Court has approved a claims process. You will be provided with further information in that regard once a claims process has been approved.” Ghosh said.
The company however is not bankrupt. Under Canadian insolvency and restructuring laws, “bankruptcy” is a specific type of proceeding under which an insolvent company’s operations are often terminated and its assets sold or “liquidated.” In CCAA, Algoma continues to manage its own business under Court protection while it develops its restructuring and refinancing plan.
Other Sault based businesses owed in excess of one million include, Triple M Metal for $4million, while Algoma Tubes is on the books for $1.5 million. Algoma Tubes is dealing with its own financial problems due to a weak demand for product.
Most of the other creditors are owed lass than a million, including the PUC for close to $630,000.
Still an unknown, what will be left after the restructuring and how many employees will remain on the payroll once Essar Steel Algoma comes out of creditor protection. Some close to the situation believe up to 1,000 jobs could be cut locally.
As of November 9, 2015, about $1.6 billion is owed to creditors, while $1.4 billion of that was secured debt.