A rejuvenated Essar Steel Algoma Inc. has repaid US$42.7 million (C$57.1 million) to key lenders over the past six weeks, according to financial results released Wednesday.
Brian Denega of Ernst & Young, the court-appointed monitor overseeing Algoma's restructuring, says based on the cash balance projected for tomorrow (Friday, Mar. 31), Algoma expects to pay an additional US$2.5 million on Monday.
The payments are being made through weekly court-ordered "cash sweeps" payable to the debtor-in-possession (DIP) lenders who've kept the mill running since Nov. 2015.
If the steel mill's unrestricted cash exceeds US$25 million at the end of any Friday, it must "sweep" the excess (calculated to the nearest US$100,000) to the DIP lenders.
Next week's payment would reduce the outstanding balance on Essar Algoma's debtor-in-possession facility to $164.8 million.
The payments don't include tens of millions of dollars owed to the City of Sault Ste. Marie for property taxes and to local trade creditors.
The following are payments made under cash sweeps in February and March:
Feb. 13, 2017 - $6.7 million
Feb. 21, 2017 - $3.1 million
Feb. 27, 2017 - $6.6 million
Mar. 06, 2017 - $12 million
Mar. 13, 2017 - $7.2 million
Mar. 20, 2017 - $7.1 million
Mar. 27, 2017 - ----------------
An updated short-term cash flow forecast released yesterday for the period Mar. 25 to May 5 shows expected net operating cash flow around $12 million.
Of that, $7 million will be needed to pay interest and fees on the DIP facilities and $6 million will be spent on professional fees, leaving a net cash outflow of $1 million.
New shipping season: ramping up raw material purchases
The Sault steelmaker has reached the time of year when it must replenish inventory stocks partially depleted during winter production.
"Starting in late March 2017, Algoma has ramped up raw material disbursements," Denega says.
"Algoma will continue to ramp up raw material purchases after the reopening of the Great Lakes shipping season in order to restore its inventory stocks to normal levels," the monitor said.
"The increased raw material disbursements are projected to absorb a majority of improved cash collections driven by higher selling prices."
Mediation between Essar Steel Algoma and its United Steelworkers locals, retirees and consenting creditors started in Toronto on Mar. 22 and continue under a media blackout.
In notes to its latest financial forecast, the company indicates that its sales receipts and other projections make no allowance for labour disruptions:
"High uncertainty exists due to the current status of union negotiations and the associated media exposure, however the projection does not include any negative impact in this regard."
"The company has engaged with both Locals 2724 and 2251 in collective bargaining discussions. Where this process will lead remains highly uncertain at this time. Potential labour disruptions in this process, if any, would severely impact the company’s operations and cash flow over next several months. In this scenario, the projection does not contemplate any business disruptions other than certain preparedness efforts."
Nine lives of Essar Algoma
Today, Essar Steel Algoma will ask a Toronto judge to grant the company a ninth period of protection from its creditors.
The original 30-day stay of proceedings, granted on Nov. 9, 2015, has so far been extended on seven occasions.
The current stay expires tomorrow.
The company will ask for one more extension to April 30, allowing it to continue operating while participating in mediation efforts and addressing other issues related to the restructuring.
Denega will argue in favour of the extension, indicating that Essar Steel Algoma has been operating in good faith and with due diligence, and has sufficient liquidity to continue operating until the end of April.
Also today, Ontario's Superior Court of Justice will be asked to order Essar Steel Algoma to resume its monthly cargo-handling payments to the Port of Algoma.
The request is being made by GIP Primus LP and Brightwood Loan Services LLC, who provided a US$150 million term loan that allowed the port to buy Essar Algoma's port assets in November, 2014.
GIP is asking that the US$3 million monthly payments be made directly to itself.
Essar Algoma stopped making the scheduled payments in May 2016 after its debtor-in-possession lenders refused to agree to them.
Port ready to cut off Essar Algoma's access?
GIP maintains that no further payments should be made to the DIP lenders until it has resumed making the cargo-handling payments and paid the US$17.1 million it says it's owed for missed interest payments.
"Algoma is quite capable of making the cargo-handling agreement payments," GIP's lawyers say in their court motion.
The monitor will argue that the cargo handling payments shouldn't be restarted until oppression proceedings involving Trinity Coal and related party expense payments have been resolved.
It's acknowledged by all parties that Essar Algoma must have access to the port to continue its steelmaking operations in the Sault.
GIP argues that the steelmaker should not be allowed to access the port if it's in default of its obligations under the cargo-handling agreement.
"If Algoma does not resume payments under the cargo-handling agreement immediately, this court should permit [Port of Algoma] to deny Algoma access to the port and port facilities," GIP lawyers say in a court factum filed on Tuesday.