Aussie miner backs GSO debt and equity rescue

The credit firm and Arrium have agreed an exclusivity period after GSO offered to pour almost $1 billion into the miner.

The management of struggling listed Australian miner Arrium have backed a rescue plan led by Blackstone’s credit arm, GSO Capital Partners.

Under the plan, outlined by the firm on Monday, GSO will invest up to $927 million through a mix of debt and equity. The deal would wipe out the miner’s current shareholders as the firm would raise $262 million via a pro rata rights issue underwritten by GSO. 

Arrium said it plans to enter negotiations with lenders to get backing for the GSO plan and agree a write-down on its $2 billion debt pile. The company and GSO have agreed an exclusivity period. 

The GSO plan envisions a $262 million equity raise, underwritten by the Blackstone unit, plus a $665 million six-year senior loan. Arrium has also negotiated a $140 million stand-by financing with GSO to provide it with liquidity as it negotiates with other stakeholders. The agreement also hands equity warrants equal to a 15 percent stake in the restructured business to GSO, as well as two board seats.

Arrium will also seek an A$500 million ($360 million; €328 million) secured working capital line. 

The agreement will expire on 5 April if Arrium has not managed to convince its existing lender base to agree to the deal. The firm did not outline how much of a debt haircut it would seek. 

The proposed credit lines from GSO would see the $665 million six-year loan pay 11 percent plus Libor with a 1 percent Libor floor. Fees total 300bps and the facility includes a PIK toggle option for the first two years of the facility, meaning the firm can defer 500bps of the quarterly interest payments. The facility will be secured against Arrium’s assets while allowing for the A$500 million in working capital. 

The $140 million stand-by loan is structured with a 700bps margin over Libor with a 1 percent Libor floor and pays fees of 4 percent. 

The company said it was examining a number of restructuring options in its first half 2016 results presentation last week. The firm, burdened by a high structural cost base, has been hit by huge falls in iron and steel prices.

Underlying EBITDA fell almost 40 percent to $115 million, while net debt rose to just over $2 billion, up from $1.75 billion at the end of December. 

Most of the company’s debt is in the form of syndicated loans with a small volume of US bonds and bilateral credit lines. The company cut capital expenditure by more than 50 percent from a year earlier. 

Alternative asset manager GSO Capital Partners manages around $79 billion in assets.