Baffinland: a KERP charge ahead of the senior secured lender security

On October 29, 2026, on the applicants' motion, Justice Jana Steele approved a key employee retention plan for the Baffinland debtors and granted the employees it covers a charge on the debtors' property of up to CAD$17,096,250. The charge ranks fourth: behind the administration, CRO fee, financial advisor fee, D&O and DIP charges, and ahead of the security for the debt owing under the senior secured debt documents, which the order calls the Senior Secured Lender Security, per the KERP Approval Order, Oct. 29, 2026, paras. 3, 6, 8. The monitor's supplement to its sixth report gives the terms: payments to an anticipated nine employees who report to the acting chief executive officer and 27 in critical functions. The DIP lender and the senior secured lenders "have advised that they support the Proposed KERP and the related KERP Charge," the monitor reports, per the Supplement to the Sixth Report of the Monitor, Oct. 27, 2026, paras. 15, 33.

The second order of that day, made on the monitor's motion, authorizes the chief restructuring officer to enter into and execute, in the name of and on behalf of the debtors, a Participation Agreement among the debtors, the Qikiqtani Inuit Association and Nunavut Tunngavik Inc., and seals it pending further order. It also provides that the CRO "shall have no liability or obligation to any person in connection with its execution" of the agreement, "except to the extent arising from the fraud, gross negligence or wilful misconduct on the part of the CRO" as determined by a final order no longer open to appeal, per the CRO Authorization and Fee Approval Order, Oct. 29, 2026, paras. 5–7 and the Sixth Report of the Monitor, Oct. 23, 2026, para. 11(b)(i). Neither order gives reasons, and no endorsement from the October 29 hearing is in the record.

A plan the debtors flagged before filing

Baffinland employed approximately 1,200 people in May, about 300 of them Inuit, with approximately 1,088 based at the Mary River mine on Baffin Island and 112 at the head office in Oakville, Ontario, the debtors' chief financial officer swore on May 14, the day before the initial order. The same affidavit said the debtors intended, "Subject to any changes between now and the Comeback Hearing," to seek approval of a KERP and/or a key employee incentive plan for certain employees and management "who are crucial to the continued operation of the Mine and to the Debtors' restructuring efforts." Its reason: "In the absence of a retention plan, it is highly likely these individuals would seek alternative employment, which would significantly impair the Debtors' ability to operate and run a successful Strategic Process," per the CFO's initial affidavit, May 14, 2026, paras. 7, 76, 172.

The plan reappears in the monitor's reports through the summer. On June 29 the monitor named "assisting the Debtors in finalizing and seeking court approval of a Key Employee Retention Plan" among its next steps, per the Second Supplement to the Second Report of the Monitor, June 29, 2026, para. 21. The CRO, whose services BlueTree Advisors Inc. provides under an engagement the court approved on July 29, has a mandate that contemplates advice to the operating committee on "any key employee retention plan being proposed," per the Third Report of the Monitor, July 26, 2026, para. 61(b) and the Sixth Report, para. 7. On August 25 the monitor said it "continues to advance discussions with respect to a key employee retention plan" and intended the parties to return to court "in the near term to seek approval of the SISP and the KERP," per the Fourth Report of the Monitor, Aug. 25, 2026, para. 57.

The sale process reached its order first: the SISP Order, dated October 9 and now in the record, authorizes and directs the CRO, in consultation with the debtors, with the assistance of Morgan Stanley Canada Limited as transaction advisor and under the monitor's supervision, to conduct it. The process names no calendar date for letters of intent or bids: the letter-of-intent deadline goes in a process letter the CRO and Morgan Stanley are to prepare, and the qualified-bid deadline is a date the CRO is to determine in consultation with Morgan Stanley and with the consent of the monitor and the DIP lender, per the SISP Order, Oct. 9, 2026, para. 3, Sched. A, s. 5(i)(a), (e), (iii), pp. 8–9. The applicants served the KERP motion on October 26, to be heard alongside the monitor's, per the Supplement to the Sixth Report, paras. 2–3.

Nine CEO Reports and 27 critical functions

The order approves the plan as described in the CRO's affidavit of October 26 and authorizes the payments "in accordance with the terms and conditions of the KERP and the DIP Agreement," per the KERP Approval Order, p. 2 and para. 3. The terms that follow are the monitor's account of it.

There are two categories, and each recipient's plan is set out in an individual letter agreement governed by Ontario law, whose terms the recipient must keep "strictly confidential." The first is the employees who report to the acting chief executive officer of Baffinland Iron Mines Corporation, whom the plan calls CEO Reports. The second is Critical Function Employees, certain of whom are employed by Baffinland Iron Mines Europe B.V., a direct subsidiary of that corporation and "an entity funded entirely by the Debtors," per the Supplement to the Sixth Report, paras. 13, 16 and n. 1. Nine employees are anticipated to be designated CEO Reports, entitled to 125% of the total of their annual base salary, 2026 STIP entitlement and the 2026 LTIP entitlement that vests in 2026 from awards granted in 2024, 2025 and 2026. Twenty-seven are anticipated to be designated Critical Function Employees, entitled to a share of the same total, with the LTIP where applicable: 50% for three of them and 30% for the remaining 24. The LTIP grants cash awards, not equity. Recipients remain eligible, in addition, for their salary, STIP and, where applicable, LTIP, paid in the normal course under their employment agreements, per the Supplement to the Sixth Report, paras. 14–15 and nn. 3–4.

Payments, if earned, come in tranches. Both categories receive 35% on or about May 15, 2027, twelve months from the filing. The Critical Function Employees receive the other 65% on the successful closing of a Restructuring Transaction. The CEO Reports receive 55% on such a closing and the last 10% on the successful closing of a Restructuring Transaction "that results in the repayment of all of the Debtors' senior secured debt owing to the DIP Lender and the Senior Secured Lenders." The term Restructuring Transaction includes any court-approved transaction the monitor designates as one, and covers a plan of compromise or arrangement, a sale of all or substantially all of the debtors' assets or business or of their equity resulting in a change of control, and a refinancing or recapitalization "that repays in full and in cash all funded secured debt of the Debtors," per the Supplement to the Sixth Report, paras. 17–18 and n. 5.

"At the request of the DIP Lender and the Senior Secured Lenders, the Proposed KERP provides for different treatment of CEO Reports and Critical Function Employees," the monitor writes. "This distinction is intended to align the incentives of the CEO Reports with those of the DIP Lender and the Senior Secured Lenders in achieving a value-maximizing transaction through the SISP." To earn a tranche, a recipient must, until the date or event that triggers it, be actively employed by the debtors or their subsidiaries and perform their duties "honestly, faithfully, and to the best of their abilities," per the Supplement to the Sixth Report, paras. 19–21.