Essar Steel Algoma files for chapter 15 Protection

Essar Steel Algoma, a Canadian steelmaker, started court proceedings in Ontario to carry out an agreement with a majority of unsecured bondholders to reorganise its debt.

Algoma also filed for creditor protection in the US, under Chapter 15 of the Bankruptcy Code, which gives foreign companies protection from creditors in the US while these attempt to restructure their finances in another country. The company listed liabilities of more than $1 billion.

The company attributed the downward trend in its business to a combination of the downturn, severe weather disruptions, raw material prices increase and a rise in near-term pension costs, according to the bankruptcy filing.

Unsecured bondholders representing 70 per cent of Algoma's $384.7 million of 9.875 per cent bonds due June 2015 agreed to a plan that would reduce leverage and recapitalise the steelmaker, according to a company statement on Thursday. Under the pact, bondholders will receive 32.5 per cent of claims in cash and a new secured note for 55 per cent of the old debt, according to the bankruptcy filing. The secured debt is to be refinanced. Essar Global Fund will contribute $300 million of new equity into the Canadian unit, including $100 million before the plan is approved, according to the bankruptcy filing.

Essar Global Fund is a unit of Mumbai-based Essar Global, Essar Steel Algoma's parent.

After skipping a June 15 interest payment on the unsecured bonds, the Sault Ste. Marie, Ontario-based company entered negotiations with unsecured creditors as well as holders of its secured bonds to refinance or rework its $1.2-billion capital structure, according to a June 16 statement.

"This path offers the best means to maximise long-term value while offering certainty of supply for customers and continued security for our employees, retirees, vendors and all other important stakeholders, which were key considerations," Algoma's Chief Executive Kalyan Ghosh said in Thursday's statement.

Essar Global will provide the equity infusion after Algoma refinances its $400 million of 9.375 per cent secured bonds due March 2015, according to the statement.