Struggling steel and mining group Arrium has secured an expensive funding deal in the hope of staying afloat despite the sharp commodities downturn.
The South Australia-based company has agreed to a six-year secured-term loan of $US665 million ($A930.46 million) from Blackstone's alternative asset manager GSO Capital Partners.
Arrium will raise another $US262 million ($A366.59 million) through a rights share issue to existing shareholders, which will be fully underwritten by GSO, and hold another $US140 million interim loan facility.
The funds will be used to pay back its existing debt load, and to restructure its steel and mining businesses. The company will retain the Moly-Cop mining consumables business, its only profit-making division.
The announcement comes just days after the company, formerly known as OneSteel, warned it could mothball its Whyalla steel plant and mining operations, putting thousands of jobs at risk, if it was unable to cut costs.
"The fundamental priority now is to create a sustainable capital structure. The recapitalisation plan is the best option currently available to the company," chairman Jerry Maycock said on Monday.
As part of the deal, Arrium will issue equity warrants to GSO equal to 15 per cent of its expanded capital after the rights issue. It will also pay interest on the secured loan at the LIBOR benchmark + 11 per cent, in addition to various fees.
The funding would be subject to strict financial and maintenance covenants.
Arrium's existing debt facilities have an average cost of 4.0 per cent, but would have a much higher refinancing cost, given the sharp decline in its fortunes.
"It is positive in the sense that they finally have a funding source, but its not good news for shareholders or lenders," IG's market strategist Evan Lucas said.
Arrium shares surged 47 per cent on the news, to 2.2 cents. The stock has lost more than 80 per cent of its value in the last three months, slashing the group's market capitalisation to $45 million.
While the extent of dilution for existing shareholders would be clear after the rights issue, the extent of sacrifice that lenders would make will be negotiated when the company seeks their consent for the recapitalisation plan.
Last week, Arrium reported a first half net loss of $235.8 million, and said its debt had ballooned to $2.08 billion by December-end, from $1.75 billion six months earlier.