Essar Steel Algoma gets third loan extension

Due to expire at the end of this month, the debtor-in-possession financing that's kept Essar Steel Algoma operating since November 9, 2015 will be extended for an additional 30 days.

Brian Denega of the Toronto office of Ernst & Young, the court-appointed monitor overseeing Essar Algoma's restructuring, reports that an agreement between the steelmaker and its lenders was reached on Monday.

It's the third time the Sault steel mill's insolvency financing has been extended.

The last extension, granted on January 31, included a condition requiring Algoma to reduce operating expenses by $22.2 million by March 15.

That condition wasn't met and the new agreement reached this week calls for Algoma to pay $1.25 million for this "technical default."

"The only practical way Algoma could have achieved this milestone was by imposing remuneration terms on its employees pursuant to a conciliation process after the issuance and expiry of a no-board report," Denega says.

The conciliation process was suspended on March 6, including any issuance of  a no-board report, pending further direction from the court.

The expiry date for Essar Steel Algoma's debtor-in-possession financing is now April 30.

The new financing arrangement calls for a US$10 million increase in scheduled prepayments by the end of next week.

Denega said that the extension comes "at a critical time when [Essar Algoma] continues to advance restructuring efforts and proceed with labour mediation."

"The monitor believes that the continuing availability of the debtor-in-possession facilities is critically important for [Essar Algoma] to mitigate potential concerns among customers and suppliers.

Prices for hot roll coil steel have been relatively flat in recent weeks but Essar Algoma's selling prices actually improved "due to a lag between the creation of sales orders and actual shipments," Denega said.

Algoma's per net ton average selling price in February was $739, compared to less than $700 in January.

February steel revenue was $157 million and production during the 28-day period was 196,000 tons.

Early sales figures for March showed moderate price improvement compared to February.

"Management sees a more positive outlook for March 2017 financial performance driven by the favourable selling prices," Denega said.

Mediation for Essar Algoma and United Steelworkers Local 2251 and 2724 start today in Toronto.

A blackout on public pronouncements or discussions of the talks has been ordered by Superior Court Justice Frank Newbould.

The Sault steel mill has 2,770 employees, 95 per cent of whom are unionized. 

Seventy-eight per cent of these are hourly workers represented by Local 2251.

Twenty-two per cent are salaried employees represented by Local 2724.