Tata Steel UK, a wholly owned indirect subsidiary of India's Tata Steel Limited, has received lenders' approval to reset the covenants for its £3.7 billion ($6.05 billion) debts that were incurred at the time of the acquisition of Europe's second largest steelmaker Corus in 2007. The approval of the lenders means that all earnings-related covenants for Tata Steel UK will not be tested until March 2010.
According to a statement released by Tata Steel UK, the covenants will remain suspended till 2010 and will subsequently resume with significantly greater flexibility than in the case of the original covenants. Furthermore, there will be no increase in the current level of interest costs for the remaining life of the loan. The revised covenant package does not involve any additional finance from the lenders or rescheduling of its debt-servicing commitments.
As part of the package, Tata Steel will invest £425 million ($695.4 million) in Tata Steel UK in a phased manner, of which around £200 million ($327.3 million) will be used to prepay debt and de-leverage the balance sheet.
Commenting on the approval, Corus CEO Kirby Adams said, "This positive response from our lenders is a mark of their faith in our business, even as we explore options for Teeside Cast Products."
As SteelOrbis previously reported, Tata Steel UK is under pressure due to the termination of a 10-year slab offtake agreement between Corus's Teesside Cast Products and a concortium including four companies, Italy-based Marcegaglia SpA, South Korea-based Dongkuk Steel Mills, Duferco Participations Holding, a unit of the Swiss-based Duferco Group, and Alvory SA, a subsidiary of Argentina's Ternium SA.
Tata Steel's lending syndicate is led by Citigroup Inc, Royal Bank Group PLC and LN Standard Charted Bank.
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