More than two months after Big River Steel LLC revealed it was fielding potential buyout offers and reviewing “strategic alternatives,” a spokesperson for the venture group behind the multimillion-dollar Northeast Arkansas steel mill told Talk Business & Politics that the company will remain a standalone entity for now.
“Big River Steel is continuing with its plan to build a highly profitable platform of steel assets through greenfield projects and bold acquisitions as an independent company,” said a company spokesperson, who preferred to go unnamed. “We may, however, add to our ownership group if we find a like-minded strategic partner that supplements our targeted automotive and electrical steel targets.”
In similar situations, large public or private companies exploring strategic alternatives usually hire a financial advisor to assist the company in reviewing offers and handling the auction process. For instance, Southwestern Energy Inc. and BHP Billiton both hired Wall Street advisers to take bids for their natural gas assets in the Fayetteville Shale play.
For Big River Steel, that process included setting up a virtual data room or scheduling site visits that allowed serious bidders to conduct due diligence on the finances and operations of the company’s sprawling 1,300-acre site in steel-rich Mississippi County, according to TB&P sources.
BRS first broke aground on its $1.2 billion facility in September 2014. The company received $125 million in general obligation bonds under the state state’s Amendment 82 provision that allows for so-called “super projects.” It also received a $50 million loan, that was paid back 17 years early, and another $50 million for site preparation, according AEDC. BRS received $20 million for subsurface stabilization, and another $5 million for bond insurance. Th company also received a package of tax credits and incentives to build its plant in the state.
When it was first announced, the scrap metal recycling and flat-rolled steel mill was the largest industrial project in Arkansas history. Under its incentive deal with the Arkansas Economic Development Department (AEDC), BRS was obligated to employ 525 making on average between $75,000 and $100,000 per year.
In late June, BRS made the surprise announcement that it planned to double Big River Steel’s hot-rolled steel production capacity to 3.3 million tons annually. That $1.2 billion expansion project would nearly double the company’s employee payroll to well over 1,000 workers. However, company officials have not explained how the strategic review would impact those expansion plans.
According to sources, key auction-goers that have shown interest in making potential offers for the company’s new Osceola mill were Charlotte, N.C.-based rival Nucor Corp., Fort Wayne, Ind.-based Steel Dynamics Inc., and other top bidders that include a consortium of domestic and international steel producers and top Wall Street investment firms.
In April, Big River officials signed an option with economic development officials in Brownsville, Texas, to build a $1.6 billion steel mill in south Texas, which will be modeled after the Arkansas plant. More than a year ago, the BRS partnership behind the Osceola mill closed on a $1.225 billion debt-financing package consisting of a $600 million senior note due by 2025, a six-year $400 million secured term loan and a five-year asset-back lending arrangement.
Those proceeds, company officials have said, were used to finance the company’s outstanding debt as interest rates began to rise, and for general corporate and working capital purposes. One of the stakeholders in the limited liability partnership that owns and operates the Northeast Arkansas mill is the Arkansas Teacher Retirement System (ATRS).
ATRS Executive Director George Hopkins, who plans to retire at the end of this year, said the state’s largest pension fund owns a 20% equity stake in BRS. In response to a TB&P query, Hopkins said the system was “extremely pleased with the stellar performance and outlook for BRS going forward.”
“ATRS has been and remains involved with all matters involving Big River Steel’s strategic planning and review processes. Within ATRS, the executive team regularly updates the Board Chair on any material matters involving Big River Steel, including the status of the strategic review process,” said Hopkins.
“If a decision would ever have been required with regard to the ATRS equity investment in Big River Steel, the ATRS Board would have been prepared to make a fully informed decision,” said the ATRS chief, who has managed the $17 billion teacher retirement fund for the past decade.
Originally, former Big River Steel CEO John Correnti convinced Germany-based financial giant KfW IPEX-Bank to make the ground-floor loan of $800 million to finance production facilities for Big River Steel, before getting assurances from former Gov. Mike Beebe and then-AEDC Director Grant Tennille that the political end of the deal could be completed with the Arkansas Legislature.
In January 2013, Beebe called a special session to make first use of the new superproject-focused Amendment 82 to approve $125 million in bonds to build the Mississippi County steel mill. With the state’s backing and the initial investment to get the project off the ground in May 2015, Correnti went to work to sign on equity investors to fund the operations of the $1.3 billion development.
The biggest stake was taken by Koch Minerals LLC, the Wichita, Kan.-based commodities and trading investment vehicle owned by the billionaire brothers David and Charles Koch that took a 40% interest in the project. Besides the Koch investment, ATRS decided to take a 20% interest in the project at a cost of $60 million with an option to invest up to $125 million.
San Francisco-based TPG Capital, the same privately-held investment group that funded the first $25 billion buyout of the former Alltel Corp. in May 2007 along with Goldman Sachs, also has a 20% stake in the Arkansas steel project. Although Correnti died more than three years ago, his family’s Global Principal Partners investment group that is closely aligned with current Big River Steel CEO David Stickler still retains the remaining 20% stake.
All those key investors have referred all comments concerning any potential deals to Big River Steel officials. The Osceola-based limited liability partnership behind Big River Steel was incorporated in January 2013 with Correnti as organizer and Stickler as the registered agent, according to corporate filings with the Arkansas Secretary of State’s Office.