The possibility of liquidating Essar Steel Algoma, ending 115 years of steelmaking in the Sault and oxy-torching the steel mill's assets for distribution to creditors, is starting to be discussed in court documents.
That talk is very upsetting to parent company Essar Global, which sees the Sault operations as a perfectly viable business and is pushing for reconsideration as a potential purchaser or investor.
"It makes little sense to raise the spectre of liquidation given market conditions and the company's recent financial performance," Essar Global says in an email sent last weekend to Brian Denega, the court-appointed monitor overseeing Essar Algoma's insolvency proceedings.
"Such tactics are both feeble and transparent," the email states.
A new clause added by lenders to Essar Algoma's debtor-in-possession financing agreement on Tuesday requires the company to prepare a comprehensive liquidation plan by the end of this month.
"We understand . . . from court filings that it has been inferred that a liquidation of Essar Steel Algoma Inc. may be necessary or otherwise considered should the bidding consortium's troubled bid not proceed," the email to Denega says.
Essar Global argues that the liquidation requirement fails to consider that market conditions have changed, that Essar Steel Algoma is now enjoying positive cash flow, and that viable options exist that aren't being pursued by the Sault steelmaker.
The Indian parent company wants Ontario's Superior Court of Justice to allow Essar Algoma's sales and investment solicitation process to be re-opened, allowing Essar Global and other interested parties to participate.
In May, Superior Court Justice Frank Newbould ruled out Essar Global as a potential buyer or investor, ruling that the Mumbai-based parent “lacked the financial ability to consummate the proposed transaction.”
"We believe that a wholesale reconsideration of Essar Steel Algoma Inc.'s restructuring and sales process is warranted, and we are hopeful that the court-appointed monitor and the court will enable this to occur with a view to fairness and the best interests of all of Essar Steel Algoma Inc.'s stakeholders," Essar Global says in the weekend email.
Judge Newbould indicated Tuesday that he will respond to Essar Global's request on an unspecified future date.
The following is the full text of the email sent on Saturday to the court-appointed insolvency monitor:
Re: Essar Steel Algoma Inc. et. al. ('ESAI' or the 'company' - Essar group of companies and related entities (collectively 'Essar')
We have been ESAI's owner for nearly a decade and, as such, are familiar with that company's operations, properties, employees and local interests.
As a responsible owner. we have forged good relationships with employees, community representatives, and other stakeholders.
Essar also owns businesses that deliver critical power and port services to ESAI, and it has extensive expertise elsewhere in the steel and related industries.
Essar also has a long track record of efficiently completing large acquisitions for business like that of ESAI.
We invested a great amount of time and resources in pursuing a possible acquisition of ESAI's assets and businesses last year.
Essar participated in ESAI's sale and investment solicitation process (SISP) and, even after being pre-emptively disqualified at the initial stage, Essar followed up with a second unsolicited purchase offer.
That offer was also quickly rejected and, since that time, Essar has been blocked from advancing and further purchase interest.
Essar repeatedly attempted to engage with representatives of ESAI, only to be actively discouraged from moving forward.
Essar has not received the information and access required by any prospective purchaser.
Among other things, Essar has not been given:
- current financial and other corporate information
- access to ESAI's operations, premises and personnel; and
- constructive feedback or guidance of any kind
We understand from court filings that:
- ESAI's financial performance has stabilized and that it will be generating positive cash flow for some months to come; and
- supposed deadline imposed by ESAI's debtor-in-possession lender have again proved to be artificial and are shifting yet again
However, the proposed transaction being pursued seems besieged with problems.
After its principal capital sponsor backed out, the remaining members of the bidding consortium tried to proceed on their own.
But they have failed to obtain critical support, including from unionized and non-unionized employees.
The consortium has also made its proposal conditional on the imposition of non-consensual changes to ESAI's contractual relationships for critical port services.
There may very well be other deficiencies in the consortium's proposal, in the form of necessary concessions or contributions from stakeholders and/or government bodies.
We understand further from court filings that it has been inferred that a liquidation of ESAI may be necessary or otherwise considered should the bidding consortium's troubled bid not proceed.
Such a motion:
- fails to consider that there are other viable options not being pursued by ESAI; and
- ignores the considerable improvement in market conditions and the circumstances of the company since the inception of the SISP, including that ESAI is cash-flow positive.
It makes little sense to raise the spectre of liquidation given market conditions and the company's recent financial performance, and such tactics are both feeble and transparent.
Accordingly, Essar is again considering its interest in ESAI. We are writing to you to ask that you:
- advise the court of Essar's continuing interest in a possible acquisition of ESAI's assets and businesses, either alone or in partnership with others; and
- support a re-opening of the SISP on terms that would permit Essar and other interested parties reasonable time, access and opportunity to advance their transaction interest, including by way of receiving updated financial and corporate information, access to ESAI's premises and personnel, and permission to engage in discussions with principal stakeholders and prospective equity or financing partners.
We believe that a wholesale reconsideration of ESAI's restructuring and sales process is warranted, and we are hopeful that the court-appointed monitor and the court will enable this to occur with a view to fairness and the best interests of all of ESAI's stakeholders.
Essar Global Fund Ltd.