Lenders push Essar Steel Algoma to hike int rates

Lenders to Essar Steel Algoma, the US-based unit of the local steel major, have got the company to increase the interest rate it pays on their loans as the slowdown in the global steel industry has affected revenue flows.

Essar Steel Algoma will now be paying 250 basis points or 2.5% higher interest rates on loans taken. The new loan rate will be the London Inter Bank Offer Rate plus 650 basis points. The company declined to provide details of the total loans taken and the repayment schedule.

Essar Steel Algoma is said to have told its creditors it may breach debt covenants in the second half of the current financial year and therefore, moved them before that. In an emailed response to DNA Money, the company said: “Essar Steel Algoma acted pro-actively for relaxation of certain financial covenants, which the term lenders, based on the confidence on the performance capability of the company, have agreed to.”

The company continues to meet its repayment obligations under the original schedule and that the steelmaker has not sought any re-schedulement of any loan, the response said.
Earnings of most steel companies have been significantly impacted by the global slowdown, including Essar Steel.

“But despite depressed market conditions, especially in the steel sector in the western markets, Essar Steel Algoma continues to meet all its debt obligations on time,” the company said.

However, sources close to the development said that the steelmaker pleaded rescheduling as it had already breached certain covenants in the creditors’ agreement which included a cap on leverage at four times and interest cover of 3.5 times over the next four quarters.
“But the interest cost is similar to last year’s due to a reduction in overall debt,” the company said.