Receivership

Atlas Iron has warned shareholders that lenders owed $US259.3 million ($346 million) would force the $69 million into receivership if a debt-for-equity deal is not approved next month.
Releasing its long-awaited notice of meeting on Thursday night, Atlas said a deal to hand lenders 70 per cent of the iron ore miner’s enlarged equity in return for trimming the debt to $US135 million was in the best interests of shareholders and unanimously supported by its board of directors.

The David Flanagan-run miner has been frantically working to secure a deal with its lenders because it expects to be in breach of an asset coverage ratio test at June 30. Without a deal with lenders, a breach of the ratio — pitting Atlas’ liabilities against the value of its Pilbara iron ore assets — would allow them to call in the debt and appoint receivers to the company’s main assets.

“It is the directors’ view that were such an event of default to occur, the lenders would take this course of action and Atlas would be unable to repay the debt,” Atlas said. “The proceeds of a sale on either (as a going concern or on a piecemeal basis) would be insufficient to repay the debt (and) in such a scenario shareholders would receive nothing.”

Atlas shareholders will vote on the debt-for-equity swap on April 27.

By then Atlas expects lenders to have approved the restructure at their own meeting on April 15, at which a 75 per cent majority vote is required. It is understood some Atlas lenders are not yet in favour of the deal.

If approved, Atlas’ shareholders, led by mining contractor BGC, will collectively see their stakes cut to 30 per cent, though no single lender will emerge with more than 20 per cent. Atlas’ rescue effort has been helped by a higher-than-expected iron ore price which has offset a sudden strengthening of the Australian dollar. The spot price fell $US1.50 to $US56.37 a tonne on Thursday.