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Essar Algoma still too wobbly to start paying port, city

City's claim for property taxes takes precedence over port's demands, Justice Frank Newbould said Friday
Judge Newbould has rejected a bid by Port of Algoma, GIP Primus LP and Brightwood Loan Services LLC to force Essar Algoma to resume monthly cargo-handling payments to Port of Algoma

Port of Algoma can't queue-jump ahead of the City of Sault Ste. Marie in seeking payment from Essar Steel Algoma, Superior Court Justice Frank Newbould ruled Friday.

The Sault steelmaker still has insufficient cash to pay anything to the Port of Algoma, the city or other creditors, Judge Newbould said.

Newbould dismissed motions from Port of Algoma, GIP Primus LP and Brightwood Loan Services LLC, asking that Essar Algoma be ordered to resume its monthly cargo-handling payments to the Port of Algoma. 

GIP and Brightwood provided the US$150 million term loan that allowed Port of Algoma to buy Essar Algoma's port assets in November, 2014.

Essar Algoma stopped making the US$3 million scheduled monthly payments in May 2016 after its debtor-in-possession lenders balked at paying them.

"In this case, the city has a statutory lien for unpaid taxes," the judge concluded.

"I see no basis whatsoever to permit a charge in favour of [Port of Algoma] or GIP that would rank in priority to the city's lien. The obligations of Algoma under the cargo handling agreement are unsecured and, even if they were secured, there would be no reason for those obligations to be secured ahead of the city's lien."

Newbould pointed out that Port of Algoma tried unsuccessfully on two previous occasions to get the cargo-handling payments resumed, using similar arguments.

"It is not open for [Port of Algoma] to do so," the judge said. "It has been decided against [the port] and there was no appeal from that decision. In any event, I am not persuaded that anything has changed regarding how the port is operated."

"Litigation like this in piecemeal is not permitted. When relying on a section and having lost, it is not open to a party to come back and say that there are further arguments why that section requires the result the party was looking for in the first place," Newbould said.

Essar Algoma owes the City of Sault Ste. Marie $26 million in property taxes, representing about one quarter of the city's tax levy.

The judge rejected an argument from Port of Algoma that Essar Steel Algoma may enter port property only if it makes the cargo-handling agreements, upholding the steelmaker's right to access port facilities as allowed in its lease.

GIP argued that improving steel prices and cash flow make it possible for Essar Algoma to resume payments, but the judge pointed out that the steel mill needs a cash cushion of $25 million to $30 million to operate, and it's required to use any excess cash to pay down its debtor-in-possession DIP financing.

"This is exacerbated by the question of what may happen to the DIP loan at the end of April," Newbould said.