Judge rules on Essar Algoma oppression case, won't re-open sale process (update)

Superior Court Judge Frank Newbould has ruled that Essar Global Fund Ltd. and related company Essar Capital Ltd. were behind Essar Steel Algoma's decision two years ago to lease its aging dock to Port of Algoma Inc., and that  the transaction was unfair and oppressive.

"I conclude and find that the port transaction was in itself unfairly prejudicial to, and unfairly disregarded, the interests of Algoma's trade creditors, employees, pensioners and retirees," the judge says in decision released today in Toronto.

In a separate decision, the judge has also denied an application from Essar Capital Ltd., which manages the financial investments of Essar Global Fund Ltd., to open Essar Algoma's sales and Investment solicitation process to other bidders.

Still, “it is open to any person to reach out to the term lenders and the consenting secured noteholders to propose and negotiate a transaction that they are willing to accept and support,” Justice Newbould said. 

In the oppression matter, the judge has ordered changes to Essar Steel Algoma’s lease to Port of Algoma, and also to the cargo handling agreement and the shared services agreement.

GIP Primus, LP largely financed the port transaction with a $150-million, eight-year term loan to Port of Algoma.

After the cost of operating the port is paid through cargo operating charges, Essar Steel Algoma has been paying about $25 million a year to the port to service the loan. 

Here’s the solution ordered today by Judge Newbould:

“After the GIP loan has matured and been paid, Algoma shall have at any time thereafter during which the lease exists the option of terminating the lease to [Port of Algoma], the cargo handling agreement and the shared services agreement.”

“Further, if the cargo handling agreement continues and if [the Port] elects not to renew it after 20 years or after any three-year extension, the lease to [Port] shall terminate at that time along with the cargo handling agreement and shared services agreement.”

“Upon termination of the lease, Algoma shall repay to [Port] $4.1 million with interest from the date of termination of the lease.”

Today’s decision by Judge Newbould states that if GIP should become the equity owner of Port of Algoma, neither Essar Steel Algoma nor its India-based parent company may agree to or undertake a change of control of Essar Algoma with GIP’s consent.   

Today’s decisions constitute a mixed bag of results for Sault Ste. Marie: the judge ruled for Essar Algoma when he refused to re-open its sales and investment solicitation process, and against Essar Global on the oppression issue

The oppression finding against Essar Global also had mixed effects on Sault Ste. Marie.

Judge Newbould commented that he had every right to order ownership of the port transferred to Essar Steel Algoma, but he cited a legal principle that oppression remedies should be done with a scalpel, not a battle axe.

“If there were no less obtrusive way to remedy the oppression in this case, I would order the shares of [Port of Algoma] transferred to Algoma. But in my view, there are less obvious ways,” the judge said.

Additional coverage of today’s court decisions will be posted on SooToday’s home page.