Baffinland gets immediate cash relief, extension to creditor protection

Baffinland gets immediate cash relief, extension to creditor protection

At issue was who would provide loan to Mary River owner

Baffinland Iron Mines has received an immediate $153 million loan as the company edges dangerously close to running out of cash.

In a June 10 decision, Justice Jana Steele of the Ontario Superior Court of Justice approved the loan from Export Development Canada (EDC), a federal Crown corporation whose role is to support Canadian companies and trade.

The court-appointed monitor said that as of Friday, Baffinland would have only $1 million in cash.

"The debtors' need for immediate ... financing is clear," Steele said. "They are in desperate need of cash."

The loan is only until June 30, when the court will decide who will lend Baffinland money until December 2027. Steele also granted an extension to the stay of proceedings until August 28, which would see Baffinland through the sealift season.

In a news release Friday, Baffinland said it expects to use this initial money to pay for fuel, sealifts, restructuring, and other necessary costs to continue its operations at the Mary River Mine and Milne Port.

Baffinland also said the upcoming shipping season will continue as planned, and it still has plans to advance the Steensby component of the Mary River project.

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Baffinland has been under creditor protection since May 15, with the company at the time owing $2.6 billion to creditors.

Between 2017 and 2022, Baffinland had entered multi-million dollar contracts in anticipation of approval of its proposed Milne Inlet railway expansion that was ultimately rejected by the federal government, which formed part of the company's financial woes.

Baffinland had originally intended to receive the loan approval last week, but that was delayed due to competition between potential lenders.

At issue was which company would provide the loan to Baffinland — a process called debtor-in-possession financing.

The money would provide the necessary liquidity to maintain daily operations, pay employees, and fund business restructuring. For the lenders, offering that money would put them above other lenders and creditors for payment in the event of liquidation.

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According to court documents, Baffinland wanted to go for EDC, which offered up to $660 million including the initial $153 million.

But there was an objection from other lenders, notably an ad hoc committee of senior secured noteholders and Oaktree Capital Management, LP and Hartree Partners, LP.

Together, they represent over $750 million of Baffinland’s secured debt, which it said is 10 times the amount that EDC holds.

Oaktree Capital Management and Hartree Partners offered $418 million in loans, which also included the initial $153 million, but Baffinland said that is not sufficient to fund operations beyond spring 2027.

Oaktree Capital Management and Hartree Partners state they are Baffinland’s “first-ranking secured creditors," which means they should be granted priority to provide loans.

“These decisions are grounded by the principle that the parties with the most at stake, and whose security is being displaced, deserve preference when they are prepared to fund,” they said in court documents.

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The companies also argued it wasn’t a fair and transparent process and Oaktree Capital Management and Hartree Partners were only given 36 hours to review financing proposals, due to a “self-created urgency” by Baffinland to rush the funding.

Baffinland’s chief financial officer Celeste van Tonder fired back, saying the company gave all prospective lenders the same information about its financing needs.

Van Tonder also said the company’s “liquidity crisis is real” and “imminent,” pointing to the narrow summer open-water window to ship all supplies, fuel, and equipment to its mine on Nunavut's Baffin Island.

She said they have only secured roughly 20 per cent of the goods and materials for the first shipment in July, and at least 19 employees have already quit.

Justice Steele stressed her interim approval for EDC to provide the loan is not an indication of which lender is better suited beyond July.

"At this time, there needs to be a [debtor-in-possession] in place, so the debtors have funding, and their suppliers and employees have some comfort," she said.

Steele is also implementing several protection measures around consultation and access to information to ensure other lenders have a fair chance at the June 30 hearing.

Samuel Wat is a reporter for CBC North based in Yellowknife, mostly covering Nunavut's Kitikmeot region. He has also worked as a web writer and producer for CBC, including in Iqaluit and Ottawa, and for public and state broadcasters in New Zealand before that. You can reach him at samuel.wat@cbc.ca