Algoma Steel Inc. Announces Pricing of US$350 Million 9.125% Senior Secured Second Lien Notes due 2029
Algoma Steel Group Inc. announced the pricing of US$350 million aggregate principal amount of 9.125% Senior Secured Second Lien Notes due 2029 by its subsidiary, Algoma Steel Inc. The Notes will be issued at a price of 100% of their face amount, with an interest rate of 9.125% per year, providing financial flexibility for general corporate purposes.
The pricing of Algoma Steel Inc.'s Senior Secured Second Lien Notes at an interest rate of 9.125% is indicative of the company's credit standing and the current market conditions. In a stable economic environment, such a high-interest rate may suggest that lenders perceive a higher risk associated with the company. Investors should consider the implications this may have on the company's debt servicing costs and overall financial health.
Further, the use of the net proceeds for general corporate purposes is a broad designation and stakeholders might seek more specificity to gauge the potential impact on the company's operations. For example, if the funds are used for deleveraging high-interest debt, it could be a positive sign. However, if used for operational losses, it could be a concern.
It's also noteworthy that the notes are being issued at 100% of their face value, which means there is no discount to investors at the time of purchase. The guarantee by ASI's parent company and subsidiaries creates a senior secured position, which could be seen as a measure to attract investors by offering a higher degree of security for their investment.
Investors in the fixed income space will note that the 9.125% interest rate on Algoma's Notes is significantly higher than the average for industrial companies, which could reflect the specific risk profile of the steel industry and Algoma's financials. The steel industry is cyclical and can be highly sensitive to economic downturns, trade policies and input costs, such as iron ore and coal. These factors could be contributing to the perceived risk and the resultant interest rate.
From a market perspective, the closing of this offering will add to the company's liquidity and may provide the flexibility needed to navigate the volatile steel market. However, the long-term impact on the company's balance sheet and interest coverage ratios should be closely monitored, as the high-interest rate could become a burden if the company's earnings do not keep pace with its debt obligations.
The decision to issue Senior Secured Second Lien Notes also reflects the company's position in the competitive landscape of the steel industry. Given that the industry is capital intensive, Algoma's move to strengthen its balance sheet could be in preparation for future capital expenditures or to cushion against potential downturns. Investors should be aware of the company's strategic plans and capital allocation to assess whether the debt issuance aligns with long-term growth initiatives or merely serves short-term liquidity needs.
Additionally, the guarantee by the parent company and subsidiaries could be seen as a commitment to the subsidiary's operations and its strategic importance to the overall corporate structure. This might provide some assurance to note holders regarding the prioritization of their claims in the event of financial distress.
03/26/2024 - 05:30 PM
SAULT STE. MARIE, Ontario, March 26, 2024 (GLOBE NEWSWIRE) -- Algoma Steel Group Inc. (NASDAQ: ASTL; TSX: ASTL) (“Algoma”), a fully integrated producer of hot and cold rolled steel products including sheet and plate, announced today that its indirect wholly-owned subsidiary, Algoma Steel Inc. (“ASI”), has priced its previously announced offering of US$350 million aggregate principal amount of 9.125% Senior Secured Second Lien Notes due 2029 (the “Notes”). The Notes will be issued at a price of 100% of their face amount, for gross proceeds of US$350 million , and will bear interest at the rate of 9.125% per year. The Notes will be guaranteed on a senior secured basis by ASI’s immediate parent company and all of ASI’s subsidiaries. ASI intends to use the net proceeds from the offering of the Notes for general corporate purposes, adding strength and flexibility to its balance sheet. The offering of the Notes is expected to close on or about April 5, 2024, subject to customary closing conditions.
The Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state and may not be offered or sold in the United States absent registration under the Securities Act or an applicable exemption from the registration requirements thereof. The Notes will be offered and sold in the United States only to qualified institutional buyers in accordance with Rule 144A under the Securities Act and outside the United States in reliance on Regulation S under the Securities Act. The Notes will be offered and sold in Canada on a private placement basis pursuant to certain exemptions from applicable Canadian securities laws.
This news release does not constitute an offer to sell or a solicitation of an offer to buy the Notes in the United States or any other jurisdiction, nor shall there be any sale of the Notes in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction or an exemption therefrom.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains “forward-looking information” under applicable Canadian securities legislation and “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 (collectively, “forward-looking statements”), related to the offering of the Notes, the application of the net proceeds therefrom, and Algoma’s business. These forward-looking statements generally are identified by the words “intend,” “future,” “will,” “would,” “will be,” and similar expressions. Forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions. Many factors could cause actual future events to differ materially and adversely from the forward-looking statements in this document. Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements, and Algoma assumes no obligation and does not intend to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
About Algoma Steel Group Inc.
Based in Sault Ste. Marie, Ontario, Canada, Algoma is a fully integrated producer of hot and cold rolled steel products including sheet and plate. Driven by a purpose to build better lives and a greener future, Algoma is positioned to deliver responsive, customer-driven product solutions to applications in the automotive, construction, energy, defense, and manufacturing sectors. Algoma is a key supplier of steel products to customers in North America and is the only producer of discrete plate products in Canada. Its state-of-the-art Direct Strip Production Complex is one of the lowest-cost producers of hot rolled sheet steel in North America.
Algoma is on a transformation journey, modernizing its plate mill and adopting electric arc technology that builds on the strong principles of recycling and environmental stewardship to significantly lower carbon emissions. Today Algoma is investing in its people and processes, working safely, as a team to become one of North America’s leading producers of green steel.
As a founding industry in their community, Algoma is drawing on the best of its rich steelmaking tradition to deliver greater value, offering North America the comfort of a secure steel supply and a sustainable future as your partner in steel.
For more information, please contact:
Michael Moraca Treasurer & Investor Relations Officer
What is the announcement made by Algoma Steel Group Inc. regarding its subsidiary?
Algoma Steel Group Inc. announced the pricing of US$350 million aggregate principal amount of 9.125% Senior Secured Second Lien Notes due 2029 by its subsidiary, Algoma Steel Inc.
What is the price at which the Notes will be issued?
The Notes will be issued at a price of 100% of their face amount.
What is the interest rate on the Notes?
The Notes will bear interest at the rate of 9.125% per year.
How will ASI utilize the net proceeds from the offering of the Notes?
ASI intends to use the net proceeds from the offering of the Notes for general corporate purposes.
What is the expected closing date for the offering of the Notes?
The offering of the Notes is expected to close on or before a specified date.
