Court File and Parties

Citation: Essar Steel Algoma Inc. (Re), 2017 ONSC 4652 Court File No.: CV-15-11169-00CL Date: 2017-08-01 Superior Court of Justice – Ontario Commercial List

Re: In the Matter of the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended And in the Matter of a Plan of Compromise or Arrangement of Essar Steel Algoma Inc., Essar Tech Algoma Inc., Algoma Holdings B.V., Essar Steel Algoma (Alberta ULC), Cannelton Iron Ore Company and Essar Steel Algoma Inc. USA, Applicants

Before: Hainey J.

Counsel: Ashley Taylor and Lee Nicholson, for the Applicants Susan Ursel and Karen Ensslen, for the Retirees Monique Jilesen, for GIP Lou Brzezinski, for Local 2251 Jeremy Nemers, for City of Sault Ste. Marie Ken Rosenberg, Massimo Starnino, and Emily Lawrence, for the USW and Local 2724 Andrew Kent, for Cliffs Clifton Prophet and Nicholas Kluge, for the Monitor Marc Wasserman and Shawn Irving, for Certain Term Lenders and DIP Lenders Robert Chadwick and Bradley Wiffen, for Ad Hoc Committee of Noteholders Tony Reyes, for Essar Steel Algoma Inc. Board of Directors Danish Afroz, for Avenue Capital Group

Heard: July 17, 2017

Endorsement

[1] The Applicants were granted protection from their creditors under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA”) on November 9, 2015. Ernst & Young Inc. was appointed as the Monitor of the Applicants.

[2] The Applicants brought a motion seeking an order (“DIP Extension Order”) authorizing the Applicants to enter into and approving the Revised Fourth DIP Amendment as defined in the attached Order.

[3] On July 17, 2017, I granted the Applicants’ motion for the DIP Extension Order approving the Revised Fourth DIP Amendment.

[4] The following are my reasons for doing so.

[5] The motion was opposed by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union together with its Locals 2724 and 2251 (collectively “USW”) and GIP Primus LP and Brightwood Loan Services LLC (“GIP”). Despite the able arguments of counsel for the USW and GIP, I am satisfied that the Revised Fourth DIP Amendment should be approved because it is the best DIP financing proposal received by the Applicants following two robust and fair competitive marketing processes.

[6] I am also satisfied that the Revised Fourth DIP Amendment improves upon the terms of the Fourth DIP Amendment that was not approved by Newbould J. in May 2017 and fully addresses the concerns raised by Newbould J. in his May 30th, 2017 endorsement.

[7] I do not accept the USW’s submission that the DIP solicitation process conducted in June 2017 was fundamentally flawed and did not adequately address the concerns expressed by Newbould J. in his May 30th endorsement.

[8] Further, I do not accept GIP’s other complaints about the DIP solicitation process for the reasons set out below.

[9] I accept the Monitor’s recommendation that the Revised Fourth DIP Amendment should be approved because of the following:

(a) I find that the DIP solicitation process was a competitive, robust and fair process.

(b) In order to address the concerns raised by Newbould J. the Applicants and the Monitor imposed minimum terms upon all potential DIP lenders including the following:

(i) A maturity date of March 31, 2018, well past the winter build period;

(ii) A US$175 million commitment amount in order to fund the Applicants’ projected peak liquidity need in December 2017;

(iii) Minimal conditions on covenants limiting the Applicants’ ability to borrow and use the full commitment amount; and

(iv) The ability for the Applicants to pay down and redraw the facility.

(c) The DIP marketing processes broadly canvassed available DIP financing opportunities. The Applicants engaged in two competitive DIP marketing processes in which the Monitor was significantly involved.

(d) I agree with the Monitor’s conclusion that the other three DIP proposals that the Applicants received from the Alternate DIP Bidder and two new DIP Bidders were all inferior to the Revised Fourth DIP Amendment for the reasons set out at paras. 44-54 of the Applicants’ factum.

(e) The Revised Fourth DIP Amendment adequately addresses Newbould J.’s concerns because,

(i) It provides for a maturity date of March 31, 2018, thereby providing sufficient financing for another winter build if a restructuring transaction cannot be completed in the fall.

(ii) It does not contain any case controls that would allow the DIP lenders to improve their position with respect to the recapitalization transaction. I accept the Monitor’s conclusion that it “does not believe that the DIP lenders will gain the added leverage in these restructuring proceedings which the Court referred to in the May 30 Endorsement”.

(iii) I do not find any conflict on the part of the DIP lenders as prospective purchasers of Algoma as alleged by the USW since the Revised Fourth DIP Amendment does not contain case controls or a looming maturity date intended to put pressure on the parties. I find nothing unusual about pre-filing creditors acting as the DIP lender or as a prospective purchaser. There have been many instances of pre-filing creditors acting as a debtor company’s DIP lender with court approval (e.g. Performance Sports Group., Pacific Exploration & Production, Comark, Mobilicity and Canwest).

[10] For all of these reasons I accept the Monitor’s recommendation at para. 40 of its Thirty-Third Report as follows:

The Monitor believes that the Revised Fourth DIP Amendment is the best available DIP financing proposal and that it was reached through a robust and fair process. The Monitor is of the view that the Revised Fourth DIP Amendment will provide the Applicants with sufficient liquidity and flexibility to continue through the winter build period, if necessary, based on the Applicants’ projections. The Monitor is also of the view the financing contemplated under the Revised Fourth DIP Amendment will enhance the Applicants’ prospects of achieving a viable and reasonable outcome in these CCAA proceedings.

[11] I am satisfied that the Revised Fourth DIP Amendment is the best proposal available to the Applicants. The USW and GIP have not persuaded me that directing the Applicants to pursue alternative proposals would lead to DIP financing on more favourable terms.

[12] In approving the Revised Fourth DIP Amendment I accept the Monitor’s observation that this “will help the Applicants to focus with stakeholders on the resolution of issues outstanding in relation to the Recapitalization Transaction.”

[13] The motion is therefore granted on the terms of the attached Order.

Hainey J.

Date: August 1, 2017