A Canadian steelmaker is seeking bankruptcy protection. Essar Steel Algoma, Inc., filed court proceedings in Ontario this week. The company also filed for protection from creditors in the United States, under Chapter 15 of the bankruptcy code. Chapter 15 provides protection for foreign companies from U.S. creditors while they restructure finances.
Essar cites several factors in the decision. They include a downturn in the economy, severe weather, raw material prices and rising pension costs. They expect to lose money through the rest of 2014, with no improvements until the end of next year.
In June Algoma missed an interest payment on unsecured bonds, which led to negotiations with unsecured creditors and secured bond holders. Unsecured bondholders make up 70 percent of the 9.875 percent bonds, worth $384.7 million. The company needs to refinance or rework $1.2 billion in capital structure.
Essar Steel Algoma is a major buyer of iron ore pellets from Cliffs Natural Resources. However they are not a partner in any Cliffs properties.
According to Jennifer Huetter with Cliffs they are aware of the situation with Essar Steel Algoma. They can't comment on what this means for Cliffs at this time due to the upcoming shareholders meeting and SEC rules.