Algoma Steel arranges $500-million in gov't loans

Executive Summary

• Algoma Steel Group Inc. secured C$500 million in liquidity support from the Government of Canada (C$400 M) and the Province of Ontario (C$100 M).
• The financing includes a third‑lien secured tranche and an unsecured tranche tied to 6.77 million common share purchase warrants priced at $11.08 per share, exercisable over ten years.
• Concurrently, Algoma announced it will exit its blast furnace and coke oven operations and accelerate its transition to electric arc furnace (EAF) steelmaking, with the EAF project now estimated to cost approximately C$987 million.

Key Details

• Loan Facilities
• Federal loan: C$400 M unsecured tranche; interest at CORRA +200 bps for three years, stepping up by 200 bps annually thereafter; term of seven years.
• Provincial loan: C$100 M third‑lien secured tranche, junior to existing first‑lien revolving facility and second‑lien notes.
• Warrant Component
• 6.77 million common share purchase warrants issued with the unsecured tranche.
• Exercise price: $11.08 per share (volume‑weighted average price of Algoma’s TSX shares from Oct 2021 to Nov 1 2024).
• Each warrant exercisable for one common share; ten‑year term; vesting proportionately as unsecured draws are made.
• Covenants & Conditions
• Standard positive and negative covenants, including a restriction on capital distributions.
• Access to facilities subject to completion of definitive loan documentation and required approvals under Algoma’s existing first‑lien revolving facility.
• Operational Adjustments
• Due to U.S. Section 232 tariffs closing the U.S. market to Canadian steel, Algoma will cease operation of its blast furnace and coke ovens.
• Accelerated transition to an electric arc furnace (EAF) with a revised total project cost estimate of approximately C$987 million.
• Future production focus: as‑rolled and heat‑treated plate, plus select coil products primarily for the Canadian market.
• Strategic Rationale
• Liquidity support intended to provide financial flexibility amid prolonged trade uncertainty and to fund the EAF transformation.
• Government backing underscores Algoma’s role in Canada’s industrial base and its contribution to domestic supply chain resilience.

Notable Quotes

• “The government's financial support underscores their recognition of Algoma's critical role in Canada's industrial base…” – Michael Garcia, CEO.
• “By combining essential liquidity with targeted support for our transition to EAF steelmaking, this support allows us to move forward with confidence…” – Rajat Marwah, CFO.