Ashurst has advised Atlas Iron Limited (Atlas or the Company) on the approval and implementation of a creditors' scheme of arrangement, to restructure debt valued at US$267,427,500.
On 23 December 2015, Atlas announced that it had signed a Restructuring Support Agreement (RSA) with certain of the lenders to its US$275,000,000 Term Loan B facility established under a Syndicated Facility Agreement dated 10 December 2012 (SFA), (Lenders).
Pursuant to the transaction contemplated by the RSA (Financial Restructuring), among other things:
• the principal debt owed by the Company to the Lenders under the SFA has been reduced to US$135,000,000;
• Atlas issued shares and options (to acquire shares) to the Lenders, such that the Lenders now hold approximately 70% of the total issued shares and issued options;
• the terms on which the remaining debt owed by Atlas to the Lenders have been renegotiated under an amended syndicated facility agreement (Amended SFA).
Importantly for Atlas, the Amended SFA does not include an "Asset Coverage Ratio" covenant, which has caused significant stress for Atlas and its business (largely because of Atlas' exposure to fluctuations in the iron ore price and the impact this has on the calculation of the covenant test).
The Financial Restructuring was implemented by way of a creditors' scheme of arrangement (Creditors' Scheme), approved by the Federal Court of Australia (Sydney registry).
Implementation of the Creditors' Scheme signifies a critical step in the survival of Atlas and its business; providing a platform from which the Company can pursue a more sustainable business model and the culmination of almost 18 months of effort (with almost six months on the Financial Restructuring transaction alone).
Last year, Ashurst supported Atlas to pursue an innovative costs collaboration and debt forgiveness arrangement with its key contractors and a capital raising; which provided the Company with a basis for pursuing this Financial Restructuring.
The Ashurst team was co-led by RSSG partner James Marshall and Corporate partner Antonella Pacitti. James commented: "This is the first time that an Australian mining company has managed to restructure itself with the support of its lenders, suppliers and shareholders in such an innovative and consensual way in order to avoid insolvency.
Interestingly, this is also the first time that a section 411(5A) scheme of arrangement (that is, involving the compromise of "Subordinate Claims") has been ordered by the Court. This transaction forms a very important precedent as to how to deal with the threat of shareholder class action risk when reconstructing companies by way of a creditors' scheme of arrangement."
Antonella adds: "We are thrilled to have worked closely with Atlas to successfully implement this crucial Financial Restructuring which has substantially deleveraged Atlas and reduced its interest costs. Atlas is now well positioned to withstand lower commodity prices and remains a significant employer in Western Australia.
Ashurst prides itself on delivering innovative financial restructurings for its clients to enable them to get into shape to meet current market conditions."
The partners were assisted by senior associates Camilla Clemente, Sarah Worrall, Paul Zanelli, Matt Benson; lawyers Jen Brockett, Ged Kane, Richard Tan, Rowan Krasnoff and Clementine Woodhouse, with graduate David Wang.
