The administrator for troubled Australian steel and iron ore group Arrium Ltd said it had agreed to work toward a “constructive” outcome with Morgan Stanley after the investment bank took legal steps to call in a three-year-old debt.
Morgan Stanley filed action in the Delaware Chancery Court in the United States on Friday seeking orders that Arrium and its units repay a $75.4 million credit facility the U.S. bank provided in 2013, according to legal publishers Law360.com and Arrium’s administrator, KordaMentha Pty Ltd.
KordaMentha replied with a separate action in the Federal Court of Australia to block Morgan Stanley’s attempt to collect the debt. This action has now been stayed after the agreement between the two parties to work together to resolve the issue.
“The parties are now working constructively towards an outcome that will align all interests of the lender group in supporting the best possible outcome for the Arrium Group, including the employees of the businesses in Australia and overseas,” according to a KordaMentha statement on Monday.
Morgan Stanley’s legal move had threatened to scupper efforts to restructure Arrium. Already, at the prompting of the Australian Workers Union and Arrium’s major lenders, the firm’s original administrator Grant Thornton had to be replaced by KordaMentha, known for winning payout from bankrupt companies.
Arrium descent into voluntary administration, a potential prelude to bankruptcy, underscores the uphill battle facing smaller companies with high debt versus larger and more efficient sector giants.
It also exposes how creditors are souring on indebted resources companies in the current tough climate.
Faced with the prospect of years of low iron ore and steel prices, Arrium endured a backlash from creditors who rejected a $927 million recapitalization plan signed with Blackstone private equity group’s GSO Capital Partners in February.
The plan would have left lenders of A$2.8 billion ($2.15 billion) in unsecured debt with repayments of only 55 Australian cents on the dollar.
Morgan Stanley’s loan is linked to Arrium’s U.S. business, including its profitable ore grinding Moly-Cop unit, the most profitable part of Arrium’s business, according to KordaMentha.