Cone of silence descends on Essar Steel Algoma sale process

It's getting harder and harder to report on the latest news from the Essar Steel Algoma restructuring.

A court-ordered sales and investment solicitation process (SISP) is underway to identify a new purchaser or investor.

Everyone involved has been made to sign non-disclosure agreements.

The latest papers filed with Ontario's Superior Court of Justice are covered with blacked-out sections intended to keep the sales process under strict secrecy.

Confidentiality is considered especially important in this case because Essar Global Fund Ltd., the Cayman Islands-based parent company of Essar Steel Algoma, is known to be a possible bidder for the Sault steel operations.

"In view of the parent company's potential involvement and in order to avoid a potential conflict or the appearance of a conflict, the monitor [a court-appointed third party overseeing the restructuring process] put in place an information-sharing protocol for dealing with information relating to the SISP," says Monitor Brian Denega in a report filed last week.

This article presents what SooToday has learned, reading between the redacted lines on almost 600 pages of fresh documents filed in recent days.

We realize that our reporting at this point raises more questions than it answers.

But we feel it's important to tell you what we know about our the latest developments in our city's biggest current news story, even if the information is far from complete.

What we know:

• Everyone involved in the sales and investment solicitation process agrees that a successful SISP is a desirable outcome.

• There's been some disagreement about the specific wording of the court-ordered SISP. An ad hoc committee of Essar Steel Algoma noteholders objected to the terms. United Steelworkers Union Locals 2251 and 2724 have been on the fence, neither agreeing nor objecting to the final wording of the SISP.

• The SISP prevents the board of Essar Steel Algoma from knowing the names or numbers of bidders, the status of due diligence or the nature of any bids.

• The Algoma board is being intentionally kept in the dark on those points, to be advised only at the end of the SISP process if board approval is required before a final transaction is presented to the court.

• Only the court-appointed monitor may decide what information should be released to parties involved in the sale process. Final qualification of bidders is made by the managers of Essar Steel Algoma in consultation with court-appointed advisors and consultation parties, subject to approval by the monitor.

• Steelworkers Local 2251, representing all 2,235 hourly employees at Essar Steel Algoma, has been designated as a critical stakeholder with a right to be consulted about important steps in the SISP process.

• Holding an effective veto over the restructuring process, Local 2251 fought to ensure it would be actively involved in the SISP.

• More than one company submitted non-binding letters of interest in response to the SISP.

• One of those companies was determined on April 20 to be ineligible to continue to the second phase of the bidding process, reportedly because of failure to submit evidence that it had the financial wherewithal. The SISP stipulates that any initial bidder may be rejected if it's considered unqualified, inadequate or insufficient, or runs against the interests of Essar Steel Algoma, its creditors or other stakeholders.

• On Friday, representatives of Local 2251, Local 2724 (representing Essar Steel Algoma's salaried employees) and of the national Steelworkers union, appeared in a Toronto courtroom, demanding that the disqualified bidder be re-qualified and allowed to proceed to the second phase of bidding. The Steelworkers say they were not formally notified of the disqualification, as required by the SISP. "Consultation with Local 2251 regarding the elimination of bidders from the SISP is essential to a fair, transparent and robust process, particularly given the expedited timelines involved," the union argued. Failing to involve them "effectively disenfranchises Local 2251 and erodes its position as a critical stakeholder."

• A decision on the Steelworkers motion is expected sometime today (Monday).

• Court documents suggest that North American steel markets have been slowly improving in recent months, with some producers announcing price increases.

• "Notwithstanding the recent favourable steel pricing trend, Algoma has yet to stop its operating loss and cash burn primarily due to a lag between the benchmark steel price index and the actual selling prices realized," Monitor Denega reported last week. "Further, Algoma experienced certain temporary production issues."

• Essar Steel Algoma's liquidity continues to be "severely constrained," Denega said.

• $195 million of Algoma's debtor-in-possession financing has been released to the company, with $33 million remaining in an escrow account for future use.

• The SISP is expected to conclude by August 31.