NASHWAUK — Essar Steel Minnesota reported $1.1 billion in liabilities, more than five times its claimed assets, according to recent bankruptcy filings.
Essar, and its parent company ESML Holdings, jointly filed financial disclosures in U.S. Bankruptcy Court in Delaware on Tuesday, opening the books on a long-contentious Iron Range mining project, and providing a glimpse at the financial strains placed on local contractors owed millions.
Essar’s bankruptcy petition, filed July 8, culminates a year-long showdown between the company and Minnesota officials, with the future of the Nashwauk project and state mineral leases hanging in limbo.
It also places local contractors and out-of-state businesses in uncharted territory as they navigate their own future viability, as Essar reportedly owes vendors about $74 million — $49 million of that to local companies.
“We continue to have the support of our important stakeholders, including our lenders, project contractors, vendors, the City of Nashwauk, Itasca County and our private mineral lessors,” said Mitch Brunfelt, assistant general counsel and director of government and public relations for Essar. “With their support and the restructuring team we have assembled, we remain confident that we will put together a restructuring plan that will allow this company to successfully emerge from bankruptcy and finish this massive project.”
Disclosures show more than $1.1 billion in secured and unsecured claims against the company, compared to $208 million in property and assets, according to filings obtained by the Mesabi Daily News. Essar reported no gross revenue from business, and $23,118 in non-business revenue generated from interest between April 1 and July 7 of this year. Last year’s reported revenue, from April 1, 2014 to March 31, 2015, was $192,826.
More than $24.6 million in equipment was either repossessed, foreclosed on or returned to lenders on May 16, primarily Caterpillar off-highway trucks, mining trucks, wheel loaders and secondary equipment.
More than 300 creditors — ranging from overseas banks to local businesses to employees owed bonus and vacation pay — have claims against the company. Nineteen Range-area businesses are listed as having secured claims, and an additional 57 have non-priority unsecured claims against the company.
The largest claims against Essar and ESML Holdings are from three banks that offered financing loans to the project and hold a lien on “substantially all of debtor’s movable and immovable assets.”
The Central Bank of India has a claim of more than $150 million, ICICI Singapore claims more than $552 million and U.S. Bank more than $383 million.
Mineral leases through the state of Minnesota are ensnared in the bankruptcy proceedings, setting up another faceoff between Gov. Mark Dayton and company officials.
When Essar failed to complete construction of their DRI and steel mill facilities, it risked losing the rights to the leases.
The leases didn’t expire, but rather missing the deadline triggered a one-year period for the state Department of Natural Resources to exercise its right to terminate.
On July 8, the DNR notified Essar the leases would be effectively terminated at 12:01 p.m. that day, but the company filed for bankruptcy at 11:30 a.m., placing the leases under review by the bankruptcy court.
Dayton said last week the state began legal action through the attorney general to extricate the leases, but a DNR spokesperson said in an email Thursday that it may be another month before anything is officially filed.
The Delaware bankruptcy court approved a $35 million bridge loan to SPL Advisors LLC, the company now managing the half-built $1.9 billion Nashwauk facility.
Matthew Stock was also named the new lead on the project in July. He told the Mesabi Daily News earlier in the month that contractors now have a chance for payment.
“The best hope of local contractors and vendors getting paid continues through the plan that we are continuing to pursue in spite of the bankruptcy process,” Stock said. “They now have a path to payment.”
From a broad scope, Essar has 65 creditors with secured claims — totaling $1.087 billion — an unknown amount of priority claims to 31 employees or taxing authorities, and 223 entities seeking nonpriority unsecured claims worth $13.5 million.
Secured claims and priority unsecured claims are likely to see payment, but businesses classified as nonpriority could see debts owed to them erased by the bankruptcy courts.
There 10 open legal cases pending or on appeal in Minnesota, New York and Missouri courts involving Essar and ESML Holdings, the nature of those cases being breach of contract suits, employee wage disputes and other claims.
The IRS Chicago office also has an open audit of the company’s foreign payments from 2009 to 2013.
Only two local businesses listed under secured claims have a known amount against Essar: Minnesota Power has a claim of $811,808 with $10.9 million in collateral supporting the claim. Ziegler Inc. in Buhl has a $192,942 claim with $567,482 in collateral.
The following Range-area companies, as listed in the bankruptcy documents, have “unknown” secured claims: Abatetek Inc. in Hibbing, American Bank of the North in Nashwauk, Amptek Inc. in Aurora, Edwards Oil Inc. in Virginia, Hammerlund Construction in Grand Rapids, Hammerlund’s Champion Steel in Keewatin, Hoover Construction Company in Virginia, Ironman Concrete Plumbing Inc. in Nashwauk, JK Mechanical Contractors in Nashwauk, Lakehead Constructors in Superior Wis., Minnesota Power, North Engineering Co. in Hibbing, Northern Industrial Erectors in Grand Rapids, Parsons Electric in Minneapolis, Seppi Brothers Concrete in Virginia, Superior Mineral Resources in Hibbing, Tristan Fabricators in Grand Rapids and Ziegler Inc. in Minneapolis.
Parsons Electric and Lakehead Constructors operate out of bases located in Virginia.
Of the 31 priority secured claims listed, 27 are for employee bonus and vacation pay. The other four are to the City of Nashwauk, Minnesota Department of Revenue, New York Department of Taxation and Finance and the IRS as taxing authorities.
The $13.5 million in nonpriority unsecured claims casts a wide net around Range businesses.
Those with unknown claims include: A-1 Rental Services in Eveleth, Amptek Inc. in Aurora, Benchmark Engineering in Mountain Iron, Bougalis Inc. in Hibbing, Champion Steel in Keewatin, Hammerlund Construction in Grand Rapids, Hoover Construction in Virginia, Iron Country Electric & Repair in Pengilly, JK Mechanical Contractors in Nashwauk, K-Building Components in Hibbing, K-Building Components in Duluth, Lakehead Constructors in Superior, Wis., Minnesota Department of Revenue in Duluth, Minnesota Industries in Chisholm, North Engineering Company in Hibbing, Noramco Engineering in Hibbing, Northern Industrial Erectors in Grand Rapids, Parsons Electric in Minneapolis, Range Cornice & Roofing in Hibbing, Seppi Brothers Concrete in Virginia and Tristan Fabricators in Grand Rapids.
Detailed nonpriority unsecured claims include: A-1 Services in Eveleth ($229.96), Abatetek in Hibbing ($26,800), Aero Environmental Consulting in Cook ($5,106), American Bank of the North in Hibbing ($7,414), Amptek Electrical Contracting in Aurora ($1,165), Aysta Water Inc. in Virginia ($42.79), B Miller Products Co. in Hibbing ($347.58), Barr Engineering Company in Minneapolis ($20,925), Bougalis Construction in Hibbing ($2,030), City of Nashwauk ($87,500), Dan Steinbrink of Hibbing ($1,200), Dyno Nobel of Biwabik ($120,398), Edwards Oil & Propane in Virginia ($63,199), Edwards Oil & Propane in Virginia ($1,781), Filthy Clean in Grand Rapids ($1,004), Hammerlund Construction in Grand Rapids ($77,770), Hibbing Park Hotel ($1,762), Hibbing Public Utilities ($867.48), Higgins Industrial Supply in Virginia ($8,800), Industrial Lubricant Company in Grand Rapids ($4,364), Iron Country Electric & Repair in Pengilly ($952.59), Iron Range Resources and Rehabilitation Board in Eveleth ($33,975), Jasper Engineering in Hibbing ($2,744), K-Building Components in Hibbing ($19,167), L&M Supply in Hibbing ($253.91), Minnesota Industries of Chisholm ($9,339), Minnesota Department of Natural Resources ($60,382), Nashwauk Public Utilities ($27.67), Northern Engine and Supply in Virginia ($574.46), Road Machinery and Supplies in Virginia ($33,317), Scooters Snow & Lawn in Hibbing ($354.34), Super One Foods in Hibbing ($62.93) and Superior Rock Bit in Virginia ($13,700).
Correction: An earlier version of this article stated a failed payment by Essar triggered the clause for the DNR to pull the leases. It was actually failure to complete construction on the DRI and steel mills.