New wrinkles: judge rejects restructuring committee, loan extension for Essar Algoma

Superior Court Justice Frank Newbould has rejected Essar Steel Algoma's bid to establish a new restructuring committee that would have acted as the "independent guiding mind of Algoma."

And in a surprise ruling, Judge Newbould also denied a proposed fourth extension of the debtor-in-possession loan that's kept the steelmaker afloat since it first filed for insolvency protection in November, 2016.

"The problems at Algoma with the restructuring are mainly the inability of the participating lenders under the restructuring support agreement to come to terms with the United Steelworkers and Local 2251," Judge Newbould said in a written endorsement released yesterday.

"Why that has occurred is something the court is not privy to," Newbould said, adding: "I fail to see...that adding another layer of restructuring advisors will do much to resolve the labour negotiations."

"The resolution lies in the hands of the participating lenders, working with the management of Algoma and the United Steelworkers and its Local 2251," the judge ruled. 

Algoma wanted the following individuals appointed to a new restructuring committee to oversee and direct the company's restructuring efforts:

Judge Newbould commented that Algoma's existing chief restructuring advisor, CDG Group, recently got its monthly fees increased US$75,000 to US$200,000.

"I do not see how the proposed restructuring committee will alleviate work of management, particularly as Mr. Ghosh, the chief executive officer of Algoma, will be on the committee," Newbould said.

"A restructuring committee will just add another layer of advisors that would be in a position to second-guess the chief restructuring advisor without any responsibilities or powers of a board of directors."

"It makes little or no sense to create another body of restructuring advisors that will likely create disruption," the judge ruled.

Financing extension also denied

Justice Newbould also denied a request to extend Algoma's debtor-in-possession (DIP) loan to Aug. 30, 2017, with an automatic extension to Sept. 29, 2017 if certain repayments were made.

This decision came as a surprise to many, given that the proposed extension was supported by the court-appointed monitor and chief restructuring advisor, and other stakeholders.

Two potential lenders had submitted DIP extension proposals.

"I have received a confidential report from the monitor setting out the two DIP proposals, one from the current DIP lenders and whose loan expired on April 30, 2017 and one from a new alternative lender," Newbould said.

"A copy of the confidential report has been made available to any party who has signed a confidentiality agreement. Council for the United Steelworkers has in that way obtained a copy of the confidential report."

"The current DIP lenders' proposal calls for substantially less fees than the alternative proposal," the judge said.

Litigation threat

However, Judge Newbould expressed concern, that the DIP lenders might be imposing terms "to assist their position as term lenders who are party to the restructuring agreement."

Possible litigation has been discussed over this issue.

"Whether it can be said that the DIP lenders and the term lenders are in conflict, I am concerned in this proceeding that their interests are now too closely aligned with what has been proposed and that the provision of DIP lending is now being too negatively affected," Newbould said.

"The problem with acceding to this litigation threat is that the current DIP lenders are agreeable only to extending the DIP facility to the end of August or September of this year. That means that the funding for the winter material build-up that will be necessary before the northern freeze would have to be financed by a further DIP loan."

"I have considerable concern that the current DIP lenders would have material leverage to exact large fees for any further extension and an increase of their DIP loan and the current lower fee proposed by them might be short-lived."

"The current DIP lenders have not shied in the past from extracting heavy fees, even for short extensions of their DIP loan."

"In all the circumstances... I am not prepared to approve the proposed extension of the current DIP loan. I am not at all satisfied that the proposed extension would enhance the prospects of a viable and reasonable outcome," the judge ruled.

"Any attempts by the current DIP lenders to take steps under their DIP security is of course stayed pending any further order of this court."

Mayor wants Essar Centre renamed Memorial Gardens

Meanwhile, Sault Ste. Marie Mayor Christian Provenzano is asking the company to allow its name to be removed from the downtown Essar Centre, one year before the expiry of a 10-year naming rights agreement.

The mayor has been hearing concerns from the community that the Essar name is still on the sports and entertainment venue, even though the company owes the city millions of dollars in property taxes.

He's discussed the issue with CEO Ghosh and has sent a letter to the company.

Provenzano personally wants to see the old Memorial Gardens name re-instated, a decision that would require City Council approval.