Inside a steel deal: a new, state-of-the-art steel mill is starting to rise in Mississippi. A look at the complex financing behind it.

• Author: Marshall, Jeffrey

A highly sophisticated steel mill in a relatively rural area in Mississippi, helped by a state grant approved by the governor. A major equity stake from a Russian-owned steel company. A large export credit guarantee from Germany. A very sizable debt financing arranged by GE Commercial Finance.

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There's much about the financing of a new steel mill in Columbus, Miss., that merits a closer look. It offers strong evidence that even in a struggling/recovering/reorganizing (pick your adjective) industry like steel, a combination of impressive expertise, a well-articulated plan and powerful partners can help bring a financing to fruition.

Through the $872 million deal, announced in October, a new entity called SeverCorr is building a 1.2-million-square-foot mill on 1,400 acres in Lowndes County, Miss. Groundwork has begun, and the principals hope to complete it in 21 months and be in the business of making rolled steel in sheets wide enough to be used by auto manufacturers. More than a dozen automakers--including DaimlerChrylser, Toyota and BMW--have plants within several hundred miles of the proposed mill.

The new facility is designed to produce 1.5 million tons a year of high-quality, flat-rolled steel, but in a technologically advanced way that will combine several different processes. SeverCorr expects to produce hot-rolled, cold-rolled and coated steel products by the third quarter of 2007.

The plant is a clear shot in the arm to the local area. Approximately 2,000 construction-related jobs will be created during the next 24 months, and nearly 450 people will be on the payroll when the mill is fully operational.

SeverCorr is a partnership between OAO Severstal, Russia's second-largest steel company, which has made news by acquiring steel plants in places like Detroit and Italy, and a team of former steel executives led by John Correnti, the former CEO of mini-mill steel star Nucor. Severstal has taken an 80 percent stake in the equity put up for the transaction, as well as investing in some of the subordinated debt.

"Severstal became completely integral to whole project," said Eddie Lehner, SeverCorr's CFO, in an interview. The new mill will be the Russian firm's "first foray into mini-mill culture," he says, though it has been successful in "integrated" operations--traditional steel plants that use coke ovens, blast furnaces and massive raw material operations. (Minimills, in contrast, have flourished by using recycled...